Covid-19 has significantly changed the global supply landscape. Supply chain disruption, reduced production capacity and consumer demand have driven significant inflation and commodity price increases. At the same time, there is an uptick in funding requirements to meet regulatory and corporate ESG commitments, which is especially relevant for companies in the energy and industrial sectors, writes John Luu, senior vice-president, origination at Benteler Trading International (BTI).


In December 2021, BTI helped German energy company Uniper generate a significant amount of cash to be released into its business while simultaneously meeting an important environmental, social and governance (ESG) regulatory timeline. The programme that BTI developed was implemented in around two months and its success was such that Uniper is engaging BTI again this year to structure a second phase of the programme. We believe a similar opportunity is available for many other companies in the current environment.

Emissions trading is one cost effective measure that the UK and other governments have to reduce greenhouse gas emissions. A government will announce a regulatory ‘cap’ or limit on the maximum level of emissions allowable and issue a corresponding number of certificates or permits. This means that there is a limited number of certificates for each defined calendar and regulatory period.

Emitting companies must apply for (and surrender at a prescribed timeframe) permits for each unit of emission. The process, therefore, encourages companies to reduce greenhouse emissions to require fewer permits, or to purchase additional permits they require in a secondary market. As the deadline for submission of permits approaches, the cost of the limited cap of certificates will tend to rise.

A UK Allowance (UKA) is an emissions allowance tradable within the UK Emissions Trading System. With increased competition for carbon offsets in the UKA and voluntary market, McKinsey & Co and the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) predicts that demand for carbon credits is estimated to increase by a factor of 15 or more by 2030 and then by a factor of up to 100 by 2050. It is expected that the carbon credits market is likely to be worth upward of US$50bn by 2030. Companies should benefit economically from purchasing CO2 certificates earlier, as the demand for the limited issue of these certificates means they invariably increase in price with time, while securing the required allocation too early locks up committed capital.

On the flip side, the pandemic has brought a greater focus to supply chain resilience and operational efficiency around cash generation. As a response to supply shortages, many clients have increased essential stockpiles. Significant amounts of capital are now locked up in raw materials, spare parts and other non-value-adding assets. This creates an environment where companies are under pressure to maintain credit ratings while experiencing a significant increase in cash demand, both from operational supply and regulatory/ESG commitments.

To assist our clients with this immediate issue, BTI has developed a number of solutions which have been very successfully deployed. By acting as an arms-length trading partner, BTI is able to secure the necessary cover stock or carbon offsets for our clients, on an off-balance sheet basis, so that significant capital can be freed up and injected into the business.


Introducing Benteler Trading International AG (BTI)

Having originated from Benteler Distribution, BTI is a trading firm headquartered in Zug, Switzerland and with operations in London, New York and Dusseldorf. It was initially formed to own the Benteler Group’s inventory. BTI has operated and funded supply chains for over 15 years, first as part of the Benteler Group and, since 2016, as a standalone business, offering its products to global industrial customers.

The company provides true off-balance sheet solutions for inventories (with endorsement from the big four firms), which free up cash flow and improve our customers’ working capital.
BTI acts as a supplier or a customer, purchasing, transporting, holding and selling goods. The physical flow of goods remains unchanged, and no extra logistics costs are added, in fact, most customers benefit from bulk purchase and just-in-time savings.


Case study: Securing off-balance sheet carbon emission assets

In the case of Uniper, the energy company wanted to purchase CO2e Offset Certificates, without an immediate drain on valuable operational cash. BTI was able to work with Uniper to purchase the required allocation of these certificates in the form of futures contracts.

This structure enabled Uniper to lock in and secure the CO2 certificates at an opportune market price while at the same time delaying asset recognition until the certificates were required. One of the challenges that BTI had to overcome, which was unique to the underlying product, was variability brought on by supply and demand in the price of the certificates. There is a variable number of certificates available in the market at any one time and so the corresponding price of certificates will fluctuate, meaning that corresponding collateral requirements will also fluctuate.

Key considerations the BTI structure had to solve for were:
• Commodity price increases had resulted in higher margin requirements to purchase certificates, thus driving up the capital required to offset emissions
• Timing of the CO2 certificate expiry dates adversely impacted key balance sheet reporting metrics
• Securing certificates earlier yielded a pricing benefit but was a drag on cash


Case study: Making the most of renewable transport fuel obligations

BTI is also helping another energy sector client develop a strategy to optimise its Renewable Transport Fuel Obligations (RTFOs). Under UK regulations, any distributor of transport fuel in the UK must show that a percentage of the fuel they supply comes from renewable and sustainable sources. This applies to renewable fuels used in aircraft as well as renewable fuels of non-biological origin used in maritime applications.

Similarly, any company that supplies sustainable renewable fuel for use in the UK can claim corresponding certificates, RTFCs, which can be traded or sold to companies that need them to meet their obligations under the RTFO.

The creation of this strategy will:
• Release approximately US$150mn in working capital from the allocation of RTFCs that this client has in stock
• Ensure that the client meets its regulatory commitments on RTFOs by securing these for future use when required
• Act as a lever to manage cashflow on existing assets which are not encumbered or value-adding in the operational process.


We have seen a confluence of challenges arising from far-reaching events such as Covid-19, geopolitical instability and war in Ukraine, along with heightened inflation and contractionary central bank policies. All these events have resulted in a premium on liquidity and challenges to existing supply chain models. Many corporates have navigated these challenges by increasing stock levels to ensure supply chain resilience at the expense of balance sheet and profitability. Ensuring regulatory ESG commitments are met while optimising balance sheet effectiveness is also of critical importance. Implementing innovative solutions such as Uniper’s CO2 certificate trade provides new tools to navigate this evolving landscape.