BY ANTONY CURRIE AND CHRISTOPHER THOMPSON
The looming $46 billion merger of France’s Peugeot and Fiat Chrysler Automobiles may go down as one of the first major corporate tie-ups driven by climate risk. Yet the novelty will quickly wear off as chief executives wake up to the financial impact of global warming. That gives climate-conscious advisers an edge.
Investment bankers spent little time on green issues in 2019 – or before. Lazard boss Ken Jacobs has said environmental, social and governance concerns may play a role in deals, but reckons they are “not a factor yet.” He’s mostly right. Of the 39 transactions worth over $10 billion announced up to Dec. 10, only Fiat-Peugeot counts. The Italian-American carmaker could avoid a potential $2 billion in European emissions fines in part by teaming up with its French rival, Jefferies reckons, and ease industry problems like overcapacity and low margins.
Others may follow suit. Carbon-intensive sectors like steel, cement and airlines are grappling with the prospect of higher prices or even a tax on carbon, incentivizing a shift to cleaner energy. Royal Dutch Shell in 2019 bid for Dutch renewables utility Eneco, which instead agreed a 4.1 billion euro sale to a consortium led by banking-to-energy conglomerate Mitsubishi Corp. Chevron, ConocoPhillips and even climate laggard Exxon Mobil may similarly need to buy their way to a greener future.
Avoiding bad deals is equally important, even if climate due diligence virtually never happens, as one veteran banker told Breakingviews. Drought in the Colorado River basin could drain up to a fifth of defense group Raytheon’s revenue, yet received no mention in its $120 billion merger with United Technologies. BB&T’s $28 billion acquisition of rival U.S. lender SunTrust ignored potential flooding in Florida and the southeast United States. As such risks materialize, climate-conscious advisers can more convincingly pitch their services to CEOs.
Green bankers are admittedly a rare breed. Former UBS investment-banking boss Jeff McDermott set up Greentech Capital Advisors to work on clean energy a decade ago, and in December agreed to sell to Nomura. Erstwhile Lazard dealmaker Tony O’Sullivan and Baker McKenzie climate lawyer Martijn Wilder recently founded Pollination. As climate concerns rise up the corporate agenda in 2020, more Fiat-style mega-deals are possible. That’ll give Lazard’s Jacobs and other fast-moving rivals more ways to rake in fees.
First published Dec. 19, 2019
IMAGE: REUTERS/Maria Alejandra Cardona