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ABN AMRO’s response to climate change Presentation at the annual conference on the environment organized by FinMedia Plaatjes van de gletsjer Bucharest, September 28th Peter Weiss, Country Executive, ABN AMRO Romania Teia Marina Catana, Group Sustainable Development, Amsterdam STRICTLY PRIVATE & CONFIDENTIAL Executive summary ABN AMRO, an introduction - international profile, - operations in Romania, - the way we conduct our business The context of climate change - the issue, - the risks and opportunities, - the global solutions, The carbon markets - the flexible mechanisms, - how they operate, - EU ETS - activity so far, industrial sectors - Romania’s position ABN AMRO’s response - direct and indirect footprint, - financial services for your climate related activities Contact information 2 1 ABN AMRO, an introduction 3 ABN AMRO – the international profile Well-positioned Bank(2) Ranking Total assets - Worldwide - European Tier One Capital - Worldwide - European 16 10 We believe in building strong teams and strong relationships. The rich diversity of cultures, expertise and experience we possess is harnessed to work on your behalf Our goal is to create value for our clients through a constant focus on their financial services needs. There is more than one solution to every challenge. We aim to find the one that suits you best We implement our strategy through a number of (Strategic) Business Units Consumer & Commercial Clients, Wholesale Clients, Private Clients, Asset Management, Transaction Banking Group, Group Shared Services and Group Functions The Consumer & Commercial Clients, which serves almost 20 million consumer clients and clients in the small and medium-sized enterprises sector worldwide. ABN AMRO is among the leading players in these segments in its three home markets (the US Midwest, Brazil and the Netherlands) while targeting other highgrowth regions through its Business Unit New Growth Markets (like Romania) 20 11 Solid Credit Rating Moody’s Standard & Poor Fitch IBCA Long-term Aa3 AAAA- Global Resources(1) Employees worldwide 97,000+ Branches and offices 3,000+ Countries/territories 59 Strong Balance Sheet(1) Total assets Group capital Risk weighted assets EUR (bn) 701.8 33.2 231.6 ABN AMRO is one of the world’s leading financial institutions with one of the strongest balance sheets in the industry (1) 31 December 2004 Federal Reserve Board report on US offices of foreign banks, April 2005 (3) The Banker, July 2005 (2) 4 ABN AMRO – the operations in Romania The goal of ABN AMRO in Romania is to create value for our clients Key in our relationship approach is a constant focus on the financial service needs of our chosen client segments It is through the professionalism and motivation of our staff that we realise this value, resulting in maximum benefits for our customers Ten years since the establishment of ABN AMRO’s Romanian operations, it already has an impressive history of developing strong business relationships with multinational corporations, medium-sized international companies doing cross-border business with Romania, and local companies especially those with export and growth potential. It is the bank’s aim to continue such relationships as it grows with the Romanian business market. 45o employees in 15 branches covering the entire territory of the country Ten-years of providing comprehensive banking services Sixth-largest bank in Romania by total assets Wholly owned by ABN AMRO Bank NV Part of the Wholesale Clients SBU, ABN AMRO in Romania focuses on: Consumer Industries, Automotive Industries, Diversified Industries, Integrated Energy, Telecommunications, Media, Technology and Healthcare & Financial Institutions and Public Sector. Starting with September 2004, ABN AMRO offers also consumer services and products to its Romanian customers. ABN AMRO presence A comprehensive branch network 5 ABN AMRO – the way we conduct our business Business Principles: ABN AMRO employees Our shareholders Our clients Our business partners 1. We are the heart of our organisation 2. We pursue excellence Corporate Values 3. We aim to maximise long-term shareholder value 4. We manage risk prudently and professionally 5. We strive to provide excellent service 6. We build our business on confidentiality Society 7. We assess business partners on their standards Compliance 8. We are a responsible institution and a good corporate citizen 9. We respect human rights and the environment 10. We are accountable for our actions and open about them 6 ABN AMRO – ambition for sustainable development “We are committed to continuously improving the integration of sustainable development into our working environment and business processes. Our aim is to play a proactive role in contributing to sustainable development, within our spheres of influence. We are committed to accountability and transparency in our sustainable development performance.” Active dialogue with NGOs Sustainable products and services Integrating environmental, social and ethical considerations Supporting local communities Client engagement A great place to work Minimising impact from business operations We are the leader in the European banking sector according to the Dow Jones Sustainability Index – Stoxx (2004, 2005) 7 2 The context of climate change 8 The context of climate change – the issue A critical challenge to the world The average surface temperature has increased by about 0.6°C and the CO2e in the atmosphere increased from 280ppm to 380ppm (faster than any times in the last 1000 years Human activity (burning fossil fuels and deforestation) is a major contributor to climate change, according to most studies. Climate change is now regarded as the world’s most pressing environmental problem (with social and economic consequences as well). Sustainable management of an everchanging planet? (looking into the future) Source: IPCC report 2001 Sustainable Management Ever-Changing Planet 9 The context of climate change – the risks… In 2003, drought in Australia cost farmers and businesses A$3.8 billion and reduced winter crop yield by 40% The 2003 European heat wave lead to 27,000 premature deaths, reduced grain yields by 30-40% and caused economic losses far exceeding $ 10 billion Warmer than average weather pushed up benchmark contracts for crude oil, gasoline pump prices, and futures for grain, soy beans and wheat. In 2004 soybeans rose above $10 a bushel for the first time in 15 years as insufficient rain in South America threatened to damage crops. “The magnitude of effects that climate change may have on the global economy dwarfs any other environmental risk” (World Resource Institute and CERES – coalition of institutional investors from US) 10 The context of climate change – … and the opportunities. Reducing GHG is not just costly or “anti-growth” but can bring savings and new jobs Low-carbon corporate leaders have achieved a reduction of 60% or more and companies like BP, IBM and DuPont report savings of $650 million, $791 million and $2 billion respectively; In the UK, emissions dropped by 15%, while the economy grew by 30% between 1990 and 2002; Cities like Portland, Toronto and Heidelberg have also realized millions of dollars in energy savings, freeing-up public funds for other purposes. (Findings from “The Climate Group”) “The EU could save at least 20% of its present energy consumption in a costeffective manner, equivalent to EUR 60 billion per year.. Such an initiative could potentially create a million new jobs in Europe” (European Commission, Green Paper on energy efficiency, 2005) 11 The context of climate change – the global solutions Count down to Kyoto and EU ETS IPCC “Intergovernmental Panel on Climate Change” formed 1988 1994 UNFCCC enters into force - Aspirational objectives, no specific targets or timeframes 1997 COP3: Kyoto Protocol - Emission limits on 34 Countries: Avg -5.2% on 1990 by 2008-12 - Meet limits by emission reductions and/or buying compliance credits 2001 COP7: Marrakech Accords kickstarts the Credits Mechanism 2005 1st January 2005: starts EU ETS 2005 16th February 2005: Kyoto Protocol entered into force 12 3 The carbon markets 13 The carbon markets – the Kyoto flexible mechanisms The flexible mechanisms of the Kyoto Protocol International Emissions Trading (Allowances) – AAU (assigned amount units) - allocated to Annex B countries based on 1990 emissions levels - “Hot air” are excess AAUs of countries whose current emissions are lower than base year / GIS initiatives Clean Development Mechanism (Carbon Credits) – CER (certified emission reductions) - Designed to assist developing countries in achieving sustainable development by permitting industrialized countries to finance projects for reducing greenhouse gas emission in developing countries and receive credit for doing so Joint Implementation (Carbon Credits) – ERU (emission reduction units) - If takes places between industrialized countries (including countries with economies in transition) - Does not have a sustainable development component - ERUs can be used by companies under the EU ETS for compliance in the period 2008 – 2012 ABN AMRO can play a role as advisory to governments to maximize their AAUs value, financing GIS projects, providing access to clients interested in the credits 14 The carbon markets – EU ETS activity so far 6000000 Approx. 5 million EUAs exchange hands weekly 25,00 4000000 20,00 3000000 15,00 2000000 10,00 1000000 5,00 0 0,00 1120 04 5220 4- 04 320 1- 04 420 04 6520 3- 04 620 1- 04 720 04 5820 2- 04 920 04 710 -2 4- 00 11 4 -2 2- 00 12 4 -2 00 4 6120 3- 05 220 3- 05 3 24 -20 -3 05 -2 22 00 -4 5 -2 20 00 -5 5 -2 17 00 -6 5 8- 2 00 7- 5 20 05 Currently most activity is in the brokered OTC market. Market share of exchanges is between 25-30 %. But exchanges are gaining market share. 30,00 5000000 Volume Thousand In Phase 1, over 6 billion allowances (EUAs) have been allocated, equivalent to a value of some €120 billion. Trading is now around €20/EUA 35,00 Date Almost 50 public and private carbon funds and carbon tender programmes launched, with more than $1.5 billion in dedicated capital (Carbon Disclosure Project, 2005) 15 EUR/Allowance EU ETS The carbon markets – Romania’s position Romania ratified the UNFCCC by law 24/1994 and the Kyoto Protocol by law 3/2001 Total net GHG emissions decreased by about 50% in 2002 compared to the reference year 1989 – the emission scenarios show that a gap of at least 50 million tons CO2e annually is expected to remain National Strategy on Climate Change of Romania 2005-2007 Objective 5 •To participate in flexible mechanisms under the KP (JI and IET) to the maximum benefit of the Romanian environment and economy in compliance with UNFCCC and EU regulation, and in a stable and transparent domestic policy, institutional and regulatory framework 16 4 ABN AMRO’s response 17 ABN AMRO’s response – direct and indirect footprint Transparency/disclosure Sustainability reports – 2003, 2004, including data on our CO2 emissions Signatory of Carbon Disclosure Project – 2003, 2004, 2005. Minimising emissions – through technical and behavioral changes, applying alternative technologies and using green energy Green banking – through financing projects that prevent environmental harm and promote the use of sustainable technologies ABN AMRO's CO2 footprint 100% 2004 B usines A ir Travel 80% 60% 40% From energy-end use 20% 0% Total CO2 tonnes: 366,293 ABN AMRO was selected part of the Climate Leadership Index within the banking sector based on an assessment by Innovest of the strategic awareness, management accountability, emissions management and reporting, emissions trading, programs in place, establishment of targets. 18 ABN AMRO’s response – financial services for your climate related activities ACCESS TO MARKET (after joining EU ETS-2007): Over the counter (OTC) ABN AMRO offers access to the OTC market with the bank as counterparty – Client buys/sells EUAs to ABN AMRO – Avoids counterparty risk for client Master agreements (contracts) between ABN AMRO and client must be negotiated – ABN AMRO will trade under ISDA, IETA, and EFET In addition, client must have credit line with ABN AMRO – OBSI lines calculate maximum exposure bank is willing to accept with counterparty ABN AMRO can also post Exchange-For-Physical contract on the exchange – Exchange will take over credit risk 19 ABN AMRO’s response – financial services for your climate related activities FORWARD TRADING A forward transaction is a contractual commitment to transact in the future on terms agreed today. The vast majority of transactions have been forward transactions in the OTC market – Role of exchanges are becoming more important – Future will see much more spot trading If the market as a whole is confident that the price will rise, the seller’s forward price will likely reflect this – Little potential for “upside” Both buyer and seller are exposed to counterparty risk. Banks can play a role in establishing creditworthiness ABN AMRO facilitates forward trading in OTC market and on exchanges 20 ABN AMRO’s response – financial services for your climate related activities ACCESS TO MARKET: Exchanges ABN AMRO Futures is very active on the European Climate Exchange and is planning to join several more exchanges Companies cannot trade on the exchange directly but must have an account with a clearing member – ABN AMRO Futures is one of the largest clearing members on the ECX Companies must deposit collateral as ‘initial margin’. If the market moves against your position, company must make addition payments: – ABN AMRO can finance these ‘margin calls’ The first trade on carbon futures on the European Climate Exchange’s (ECX) trading platform was between BP an E.ON and was cleared by ABN AMRO Futures in April 2005. 21 ABN AMRO’s response – financial services for your climate related activities COMPANY RISK MANAGEMENT Trade EUAs on exchange and OTC Access to carbon credits Near term: Focus on compliance Monetise EUAs Plan for Phase II Develop trading strategy Calculate abatement costs Medium term: Focus on Risk Management Where to build new plants Replacing current stock Similar advisory possible for the government too Developing renewable electricity Long term: Strategic considerations 22 Conclusions What ABN AMRO Bank can do for the Government and the business environment ADVISORY Risk, strategy, legal, hedging, industry knowledge PRODUCTS Futures, forwards, spot MARKET INTERMEDIATION Access to exchanges, trading, cross border intermediation PROJECT FINANCE With Equator Principles MANAGEMENT/ Monetization, custody, registration(clearing) 23 5 Contact information 24 Contact information Gerhard Mulder Vice President Group Sustainable Development Eva Karra Vice President ABN AMRO Futures Ltd Richard Cornielje Director Commodity Derivatives Marketer Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands 199 Bishopsgate, London EC2M 3XW Gustav Mahlerlaan 10, 1082 PP Amsterdam, The Netherlands Telephone +31 20 629 9272 Mobile: +31 6 1371 9003 E-mail: [email protected] Peter M. Weiss Chairman of the Board and Country Executive ABN AMRO Bank Romania 10, Montreal Square, WTCB Bucharest - 1, Romania Tel: +(40 21) 20 20 400 Fax: +(40 21) 31 91 169 E-mail: [email protected] Telephone Mobile: E-mail: +44 20 7678 6588 +44 7070 603603 [email protected] Telephone +31 20 464 5547 Mobile: +31 6 5163 1942 E-mail: [email protected] Roxana Moldovan Head of Financial Institutions and Public Sector / VP Member of the Board ABN AMRO Bank Romania 10, Montreal Square, WTCB Bucharest - 1, Romania Tel: +(40 21) 20 20 400 Fax: +(40 21) 31 91 169 E-mail: [email protected] 25