ESG in Action: Exploring asset finance for business energy projects with Investec

Xander Weitsz (00:01)

In reality, identifying one practical improvement, measuring its impact and building from there is often a more effective approach than trying to do everything all at once.

Alexandra Holsgrove Jones (00:13)

Hello and welcome to ESG in Action. I'm Alex Holsgrove Jones, Knowledge Partner and ESG Lead at TLT and Today I'm joined by Xander Weitsz, Business Development Manager for Investec Asset Finances Renewable Team.  

Investec is an international bank and wealth manager that describes itself as 'out of the ordinary' and has a publicly stated aim to facilitate £18 billion of sustainable and transition finance by 2030. Thanks for joining us, Xander. It's so great to have you on the show.

Xander Weitsz (00:42)

Thanks for the opportunity, Alex. Happy to be here.

Alexandra Holsgrove Jones (00:45)

So sustainability is embedded into Investec's purpose, how you allocate capital, manage risk and support clients. But before we get into the really serious questions, who is Zebbie the zebra and what have they got to do with it?

Xander Weitsz (01:00)

It's a great question to start with, thanks, Alex. So our iconic zebra is recognised across the many geographies in which we operate. From my perspective, it's distinctive, it's confident, and rather unmissable - feel free to let me know if you agree! It's not a campaign or an external narrative, but rather a long-held brand philosophy. It symbolises our entrepreneurial thinking, disciplined risk management and client centricity above all.  

Much like the zebra, we thrive through change and we like to challenge the status quo through adaptation. From my perspective, we're unique and we're distinctive and I think that's just lovely.

Alexandra Holsgrove Jones (01:39)

Great. So from your perspective, xander, what does meaningful progress look like when it comes to financing the transition to a more sustainable economy?  

Xander Weitsz (01:48)

Wow, yeah. Sustainability can be such a broad topic, and my speciality is very much focused on small and medium sized businesses within the UK. For these businesses, meaningful progress could be as simple as evaluating whether renewable or energy efficient assets could be relevant to them. I think for funders, progress also means getting a better understanding of these assets and the risks linked to them.

This includes how long the asset is expected to last, what warranties are in place, whether the installer has the right experience, what maintenance is needed, the possibility or the possible value of the asset at the end of the finance term, which we also call procedural value for reference, and the assumption behind any forecasts about the cost savings or performance. I think the cleaner these points are, the easier it is for funders to assess each proposal on its own merit.

But to revert back to the roots of your question, becoming more comfortable with the adoption of renewable assets and actively considering if there is merit in using them is a key driver, at least in my opinion.

Alexandra Holsgrove Jones (02:51)

So thinking specifically about clean energy projects, where does finance fit into the bigger picture? At what stage do lenders and investors become involved? And is there any opportunity for finance to play a role earlier in the process?

Xander Weitsz (03:06)

It's a great question, and I think it's an important one to ask. For starters, one key consideration for businesses is to think about how they would pay for the upfront cost of the assets that they're looking to obtain. I think in short, finance could be used to spread the initial upfront cost over a longer period of time. Where asset finance is being considered, in other words, sort of spreading the cost over time instead of paying the price upfront, as I just said, the business should look at the full picture, including the cost of borrowing, how the asset is expected to perform, and of course the customer's energy use as this will absolutely have an impact.  

In reference to your latter question though, I can't speak on behalf of the wider industry as approaches will definitely vary. In my role specifically, being involved in early discussions can be useful because it allows us to better understand not only the proposed assets, but all the other components about the transaction, including the supplier and whether payments made at agreed milestones are needed as the project progresses. We refer to these as state payments, just by the way. I think we also need to consider that there is a cost to adopting renewable assets. We also need to consider there may be further ongoing costs as well, including maintenance, potential cleaning if needed, to ensure they operate efficiently - in my case I'm referring to solar panels in many respects.

In some cases we have seen indicative payback periods, which just for reference is how long it will take for the system to pay for itself, modelled around four to five years with the useful life of the system: how long the asset will continue to operate, exceeding the initial finance term. it's heavily dependent on a few factors, including the initial cost of the system, associated with the funding and of course the underlying system performance. I think a big caveat there is outcomes may vary from customer to customer, right? That's really what we're trying to say.

Alexandra Holsgrove Jones (05:02)

Yeah, sure. So it's going to vary depending on, you know, your business, your energy use, where you are in your journey, how much expendable income you've got to pay the upfront cost, your ongoing costs. So it is going to be a business-by-business approach that is needed.  

So the UK government has set an ambition to reach net zero by 2050. What role do you think finance can play in supporting that? Just looking at your own experience Xander

Xander Weitsz (05:31)

Yeah, it's a great shout.  I'll definitely leverage against my own experience if you don't mind. In asset finance, one role funders can play when reviewing proposals is where renewable assets are involved is to consider the overall picture. Now, let's kind of talk about what the overall picture is and what I mean by that. It means not only considering the client's current financial position, but considering what changes the installation of the asset may bring.

So for example, lenders may consider the potential cost savings and/or income generation of the asset when assessing whether or not to provide funding. When we look at these assets, such as solar panels, for example, we consider the individual client, the asset, the expected energy use, the projected financial impact, the funding costs, and the assumptions around system performance. So, you know, that whole picture.  

This may be relevant for businesses that are affected by rising energy costs in particular, which we're currently seeing in this environment. I would like to emphasise though that any decision should be based on the business's own circumstances, rather than just a blatant assumption that the renewable asset will be more cost effective in every case. Once again, case by case basis, right? That's the theme.

I think another key point I would like to mention here is that we should never underestimate the impact that we may have at ground level. Considering lower carbon travel options, such as rail where appropriate, is one prime example.  

Alexandra Holsgrove Jones (06:58)

Yeah, so everybody can do their bit, can't they?  

Xander Weitsz (07:01)

Absolutely, yeah.

Alexandra Holsgrove Jones (07:02)

So you've touched on how finance can help there, Xander. Where do you think finance has the greatest potential to speed up the transition? Is there one change or action that you'd most like to see from the market now?

Xander Weitsz (07:16)

Very, very good question. I think from my perspective, I'll kind of talk about the asset finance space, right? And in that space particular, greater familiarity with the relevant assets, technologies and risks would definitely help the market progress, in my opinion. I've personally seen more funders increase their appetite for renewable assets in recent years and it's been a lovely journey to be on.

I think the adoption could continue to increase if there is a clearer resale market economy. In other words, sort of like a secondary market for some of these renewable assets, which can help funders assess residual values. Now, just once again to mention residual values, it's the value that the asset would have at the end of the finance term, right? so when we consider those factors for customers, I think there's some potential there.

Alexandra Holsgrove Jones (08:08)

Yeah, great. So a secondary market, the emergence of a secondary market would really push things forward in your view. Just going back a little bit, Xander, to the fact that we've mentioned a few times that obviously you have to look on it as a business-to-business basis. It's all going to be very dependent on your business, your needs, your energy usage, etc. There's sometimes a perception that adopting renewable or lower carbon technologies means accepting higher costs, greater risk or operational compromises.  

How do you address that concern when financing assets such as solar installations? And how have you seen customers attitudes evolve?

Xander Weitsz (08:46)

Yeah, good, good question again. Thanks, Alex. I think the starting point is understanding that there isn't a one size fits all answer, as we've discussed. When we look at assets like solar panels or solar PV, we consider the individual client, the asset, the expected energy use, the funding costs, and the assumptions around system performance, as we've discussed.

What I've seen is that clients are increasingly looking at these assets from a commercial perspective as well as considering their environmental objectives. From a financing perspective, our role is to assess funding requests where clients are considering renewable or energy efficient assets. Once again, coming back to greater familiarity with these technologies is helping clients and helping funders to better understand the associated opportunities and risks.

So from my perspective, attitudes are evolving as the market gains more experience within these assets. And I think that's a positive.

Alexandra Holsgrove Jones (09:44)

No, that is great. And just touching on some more positives, possibly than that. So we've talked about some of the challenges, haven't we? But what gives you most cause for optimism about the role that finance can play in the transition to net zero?

Xander Weitsz (09:59)

Hmm. I think what gives me optimism is that the underlying assumptions of these assets are starting to become a bit more robust. So renewable assets may be relevant for some small businesses from both an operational and environmental perspective. Prime example, energy cost considerations may be part of the overall assessment. However what I will say is the assessment should take into account funding costs, installation costs, operational needs, performance assumptions and the customer's own circumstances. I think once again that really is at the heart of this.

Alexandra Holsgrove Jones (10:36)

Absolutely. Moving now to something practical that everybody could do. We like to give our listeners one practical action they can take away and do in the next month or so to really drive change. If there's one thing that organisations or individuals could do over the next few months to make progress on their sustainability journey, what would it be and why?

Xander Weitsz (11:01)

Yeah, strong, strong question. One thing that I've learned from speaking with businesses across a range of sectors is that many delay in taking the first step because they assume sustainability projects need to be large or complex. In reality, identifying one practical improvement, measuring its impact and building from there is often a more effective approach than trying to do everything all at once.

My suggestion would be to start with understanding your energy use. Before looking at technology or funding options, spend some time identifying where your business is consuming the most of its energy and where the biggest inefficiencies are. Many organisations are surprised by what they find. And once you have that information, you're in a much stronger position to assess what changes could have the greatest environmental and commercial impact.

Alexandra Holsgrove Jones (11:56)

That's a great one Xander because it provides that data as the basis for your decisions going forward and it's quite a small thing that everybody should be able to get access to and then they can plan out the small steps that will lead to the bigger steps and it will have a snowball effect.

Xander Weitsz (12:16)

Absolutely, absolutely, fully agree with you. Yeah.

Alexandra Holsgrove Jones (12:19)

Xander, thank you so much for joining me today. What I've really taken from our discussion is that sustainability doesn't have to begin with a huge leap. It starts with understanding where you are today, identifying opportunities for improvement and taking practical informed action. And obviously finance can be a key enabler of change, helping organisations explore and adopt solutions that make sense both commercially but also environmentally. It's been fascinating to hear your perspective on how the market is evolving and the role that finance can play in supporting the transition. So thank you so much for coming to join me.

Xander Weitsz (12:54)

Thanks Alex. Great time spent and really appreciate really appreciate your time today. All right.

Alexandra Holsgrove Jones (13:01)

Thank you. And thank you to our listeners for tuning in. If you enjoyed this episode, don't forget to subscribe and share. until next time, keep driving positive change and putting ESG into action.

‍