Strategic Autonomy: The Opportunities of Ecological Transition

The latest conference in our "Sustainability Horizons” series took place on 28th March 2024 in Lille, Hauts-de-France. The city was selected to host the domestic leg of the series given the key role played by the Hauts-de-France region in the green reindustrialization of France and Europe, as well as its strong local network of pioneering stakeholders – particularly in the mobility sector.

Philippe Varin, First Vice-President of the International Chamber of Commerce and President of the World Materials Forum, opened the conference with an exchange with Alain Gallois, Global Head of Coverage at Natixis CIB. Following the discussion, the first panel, with a focus on "Transition by manufacturers: a local dynamic", kicked off. Acting as moderator, Laurie Chesné, Head of Origination EMEA at the Green & Sustainable Hub, was joined by Jean-Philippe Hermine, Managing Director of the Institut Mobilités en Transition at IDDRI; Lyonel Rouve, CEO Recycling Specialised Flows at Suez; and Sylvain Paineau, co-founder and Director of the Dunkirk site of VERKOR.

Echoing the opinions raised in the first roundtable, a second panel, moderated by Cédric Merle Hamon, Head of Expertise & Innovation at the Green & Sustainable Hub, looked at "The role of public and financial players" in creating the right conditions for green reindustrialization. Speakers included Grégoire Chauvière Le Drian, Director of the EIB's French office; Nicolas Piau, co-founder and CEO of TiLT Capital; David Brusselle, Managing Director of the Hauts-de-France Chamber of Commerce and Industry; and Anne-Sophie Marin, ESG and Climate Plan Director at Bpifrance Capital Développement.

Philippe Varin, author of the “Varin Report on securing supplies of mineral raw materials” (published on 10 January 2022), opened the conference by discussing the meaning of strategic autonomy, "without which there can be no strong industry" or reindustrialization. In his view, while it is not necessary to control the entire value chain, it is vital to manage bottlenecks, links and strategic technologies.

Varin then outlined the geopolitical context in which France and Europe need to realize their Net Zero ambitions by 2050: China currently controls a large number of critical metals and their processing chains; The United States is introducing increasingly protectionist regulations, such as the IRA, and has not yet implemented carbon pricing. Meanwhile, the BRICS continue to display distrust of the West.

In practical terms, faced with limited budgetary resources, Philippe Varin advocates for targeted action based on a systematic analysis of the industry's key pillars. Notably, if it is to remain competitive, France must consolidate its strengths in a number of key specialist areas.

First and foremost is low-carbon electricity, which is central to the holistic approach of reindustrialization and strategic autonomy. Second, is the decarbonization of metals where, for which Varin highlighted, France holds particular potential thanks to the strength of its green hydrogen and steel sectors. Third is the green mobility transition which, for Varin, should be considered as more of a global revolution given technological and societal hurdles, as well as cost competitiveness issues pertaining to energy and wages.

Notably, when it comes to electric vehicles and batteries, he highlighted the importance of synchronizing efforts across the entire ecosystem, as is currently the case in the Hauts de France region.

Conversely, he referenced agri-food and health as strategic industries where France has lost competitiveness, and where it remains necessary to secure supplies.

As the discussion progressed, Varin turned to critical metals, another scarce resource. He made three key points. First – and something that came up several times in discussions – is that the energy transition is "incredibly material-intensive". The material required to create  one kWh of wind power, for instance, is six times greater than that needed for a kWh of gas. This is also the case for electric vehicles when compared to their traditional ‘thermal’ counterparts.

His second point concerned policy directives aimed at supporting the transition – for instance, the decision to ban the sale of new thermal vehicles by 2035 – which, in order to ensure feasibility, should first undergo in-depth impact studies.

Third, Varin highlighted the tight balance between supply and demand for most of these critical metals. To ensure security of supply, he reiterated two major recommendations from his report. First, the importance of establishing a dedicated body to monitor the resources, with the launch of the Observatory of Mineral Resources for Industrial Sectors (OFREMI) under the authority of the Interministerial Delegate for Strategic Minerals and Metals, Benjamin Gallezot, which was achieved following the submission of his report,. The organisation coordinates the efforts of various stakeholders and facilitating the monitoring of progress. Second, the acquisition of stakes in mines to provide additional guarantees on contracts – a recommendation that has led to the launch of the Critical Metals Fund, managed by Infravia under Natixis CIB’s advisory.

Varin concluded by addressing the social issues associated with reindustrialization, highlighting the fact that France does not currently meet the necessary threshold of three technicians to one engineer. In order to overcome the current skills shortage, he explained, the lack of vocational training – particularly for technicians – must be addressed at national level.

Indeed, while strong progress was made with regards to apprenticeships following Macron’s 2017 employment reforms, Varin stressed the major role of vocational colleges in attracting young people to industrial careers at an early stage, as well as the importance of pre-baccalaureate courses aimed at training technicians and reintegrating young people who have dropped out of the system.

While manufacturers have strong ambitions for the long-term success of the reindustrialization and (re)creation of competitive, resilient, low-carbon industrial value chains, they face several challenges. In the first panel, “The  transition by manufacturers: a local dynamic”, speakers discussed their strategies in the context of the Franco-European joint agenda; their needs; the difficulties they face; and opportunities for cooperation, while considering local economic, social and educational integration. They also considered the features of an attractive framework in France and in the Hauts de France, and how this compares with models observed elsewhere in Europe and around the world.

Jean-Philippe Hermine pointed out that “the circular approach to electrification promises geostrategic autonomy in the long run”.  Contrary to what is the the case for fossil fuels, through the circular approach, the energy carrier is not destroyed during the production process. That being said, Hermine noted that we must speed up the relocation of battery recycling facilities in order to compete with China if we are to achieve this. Indeed, the Chinese facilities that currently provide a large portion of the end-of-life services for our electric vehicles are “already fully amortized, heavily subsidized and over capacity".

The panel then turned to the needs of manufacturers in ensuring their competitiveness. Sylvain Paineau confirmed that timing was a determining factor for basing Verkor in the Dunkirk area: “Our ambition was not to spend 15 years innovating – we wanted to meet the agenda as quickly as possible.” In addition to having land readily available for construction, access to carbon-free energy from heat recycling was a key consideration. “Half of the energy consumed by Verkor’s factory is industrial waste heat.” 

The panel stressed the need for regulatory framework and policy guidelines that ensure the development of the entire value chain. “In the circular economy, there should be no dominant party that captures all of the added value”, Jean-Philippe Hermine stated. “In the circular economy, the ability to share value is what provides strength to the ecosystem”, Lyonel Rouve added.

Jean-Philippe Hermine also emphasized the importance of regulatory consistency and longevity when it comes to developing new technology. In his view, incentive-based regulation creates positive environmental action – notably through labelling and tax incentives – as opposed to punitive regulations or those limited to defined trajectories.

This consistency could offset Europe’s energy costs – which are higher than those in the United States and China – as well as the relatively high cost of labor, which is a result of the fact that industrial jobs in France are primarily filled by highly skilled workers, such as engineers.

Panelists also echoed the conclusions of Philippe Varin, pointing to the major need for training. "We're having trouble recruiting; we're going to need world-class talent in battery technology,” Lyonel Rouve stated. This also requires cultural change, emphasized Sylvain Paineau. “We need to restore the attractiveness of the industry by training teachers – not just young people – who can promote manufacturing as a career path and reverse the idea that ‘if you don't do well at school, you'll end up in manufacturing’”.

The second panel, "The role of public and financial entities: How are the various partners of manufacturers striving to create favorable conditions for green reindustrialization?”, looked at the role of public and private bodies in addressing the requirements highlighted in the previous discussion.

In his opening remarks, David Brusselle emphasized that “the region is experiencing an incredible moment in time – we are seeing significant industrial renewal, and there will be many new jobs as a result”. However, he also drew attention to the severity of the climate crisis and the impact it is having on the region, with floods and water stress having already affected many of its businesses.

Nicolas Piau echoed this sentiment, stating that energy transition is “extremely complex to manage from an industrial, social, environmental and economic standpoint. And I put social issues first… We're going to have to supply more energy to more people using technologies that are infinitely less powerful than those we have been using up until now – batteries are 1,000,000 times less powerful than nuclear power”. Hence, the importance of circularity. “We need to think differently about the way we design our energy value chains from an industrial perspective.”

Grégoire Chauvière Le Drian and Anne-Sophie Marin discussed the role of the EIB and Bpifrance in tackling these challenges, highlighting their mission to become the “climate bank” and the “bank for climate and industry”, which they have focused on for the past five years.

While the energy transition is a priority, the EIB has broadened its selection criteria to projects that “do not have a negative impact on the climate”, which notably allows it to support innovation. As a public bank, the EIB finances itself by issuing on the market at a competitive cost, which it then passes on to its customers as it does not intend to make a profit. “It is a public model that allows for the financing of public policies at no cost to the taxpayer”. As the EIB has no territorial presence, it relies on local intermediaries. “We are committed to mobilizing EUR 1,000 bn in investment over the next decade. Public funding alone will not allow us to achieve carbon neutrality by 2050, meaning we need to mobilize both public and private stakeholders”. Grégoire Chauvière Le Drian also referenced discussions on extending the scope of the EIB to include direct equity investments.

Anne-Sophie Marin then explained  Bpifrance's mission to invest an additional EUR 35 bn by 2028, into  the acceleration of the ecological and energy transition of companies, andthe transformation of French industry "in equity, through all of our loan and guarantee offers and accompanying arrangements".

Beyond financing, she also stressed the importance of other support mechanisms, such as a department dedicated to advising and supporting entrepreneurs; diagnostics on innovation and transition issues; and networking opportunities with executives who can work together on common topics and share best practices.

Such support is crucial when it comes to sustainable development standards and regulatory reporting – the integration of which is often perceived as onerous and time-consuming by managers. The panelists looked at how public and financial partners can help companies turn these into performance and management tools.

Anne-Sophie Marin pointed out that the extension of the scope of the new CSRD directive on extra-financial reporting will affect many SMEs that were not previously impacted. “With the right support, a double materiality approach can prove extremely useful when it comes to rethinking a company's strategy through a sustainability lens… This is what sets Europe apart from the United States, which remains focused on financial materiality while Europe also looks at impact materiality. We are convinced that double materiality presents a strategic opportunity”.

Nicolas Piau agreed: “The CSRD and SFDR present the enormous advantage of reintroducing externalities into financial and business models.”

Given France's economic landscape is made up of very small businesses that do not have the resources to integrate these regulatory frameworks, faced with these new standards, support from public and financial partners is even more crucial. “90% of French companies have fewer than 10 employees”, David Brusselle noted.

The EIB and Bpifrance confirm that they systematically include an ESG analysis in their credit committees. "It is the combination of these externalities – the project's impact on the environment, on employment and its local integration – as much as the financial return that will determine the commitment of a public bank like the EIB", explained Grégoire Chauvière Le Drian.

Anne-Sophie Marin emphasized the importance of supporting “projects that are not necessarily green from the offset”. This is something that Bpifrance is able to do, unlike  many asset managers which “due to regulatory constraints related to SFDR type – for example those which are Article 9 – who focus instead on solution providers.”

David Brusselle discussed two CCI Hauts-de-France initiatives to facilitate green reindustrialization. The  creation of the REV3 capital fund – 100% green – which takes minority stakes in companies in the region or those wishing to set up there, and “which often enables them to complete their financing and establish themselves”. Meanwhile, the Livret 3ème révolution industrielle en Nord-Pas-de-Calais, which was launched in 2014, finances sustainable projects in the region, with debt. It was considered “very innovative at the time”.

The panel then turned to the crucial issue of human capital. A skilled workforce – particularly one that includes qualified technicians – is crucial for carbon-free reindustrialization projects.

Nicolas Piau stated that talent is the first thing TiLT considers when deciding whether to invest in a company or keep it in its portfolio. He observes that while recruiting engineers presents the main obstacle to a company's growth, his investment company analyzes the entire talent chain, from engineers, operators, and technicians to salespeople. He highlighted France’s weakness in this area; “we need to take a different stance when approaching clients. We should start by addressing their needs rather than what we have to offer”.

David Brusselle commented that the incredible demand for skilled workers is the most significant challenge for the  reindustrialization project in the Hauts-de-France region –“particularly in disciplines that are attracting fewer and fewer young people, such as maintenance” . In order to overcome these, the CCI has set itself major training targets and has begun constructing schools in towns such as Gravelines in the greater Dunkirk area.

Anne-Sophie Marin lamented the fact that industrial roles are not particularly attractive to young engineers, who tend to instead go into finance and consultancy. “To open their minds to careers in industry, Bpifrance offers a VTE (Volontariat Territorial en Entreprise) grant, a scheme designed to encourage students to work for French SMEs or mid-caps.” The program allows them to spend up to two years at an SME or industrial mid-cap working on transition-related projects, for instance, structuring the company's energy and ecological transition (green VTE).

To conclude, the panel discussed climate adaptation issues – which remain poorly understood –  in particular, the lack of  insurance protection in the midst of an increasing number of climate-related claims. 

Faced with the objective of carbon neutrality by 2050, but also industrial and commercial competition from the United States and China, European political and economic leaders have affirmed the necessity for the EU to ensure strategic autonomy. This autonomy, initially conceived as the continent’s answer to defending its military interests, has, in recent years, acquired a raw-materials, energy, commercial and industrial dimension. The 2019-2024 Strategic Agenda of the Council of Europe aims to strengthen strategic supply chains and fight unfair practices in third countries.

Thus, since 2023, the European Green Deal has incorporated the Net Zero Industry Act (NZIA), with the objective of increasing the EU’s green technology production capacity. The Act, on which the Council and the Parliament reached an agreement in February 2024, establishes favorable conditions for investment in green industry and support for employment in the sector.

Further, the Critical Raw Materials Act (CRMA), adopted in March 2024, lists 34 critical raw materials (including lithium, magnesium, cobalt and nickel), for which extraction in Europe is to be promoted and facilitated notably via simplified and accelerated authorization procedures.

A recent French plan, supported by the appropriate legislative firepower, also reflects this desire to promote reindustrialization in favor of decarbonizing  the economy. The France 2030 future investment plan, announced in 2021 by the President of the Republic, is endowed with EUR 54 bn to enable, among other objectives, the production of 2 million electric vehicles in France each year by 2030, the development of a green hydrogen sector and renewable energies, and the reduction of industrial greenhouse gases (GHGs) by 30% from 2015 until 2030. The Law of October 2023 relative to Green Industry contributes to this strategy by facilitating the setting up and financing of industrial sites while also supporting the appeal of industrial training.

As part of this initiative, the Hauts-de-France region has been pursuing its “third industrial revolution” since 2012, focusing on energy transition, the circular economy and digital technologies. These national and regional efforts are perfectly illustrated by various gigafactory projects, which aim to make the Hauts-de-France region the “European Battery Valley”.

Amidst intense international competition seeking to attract industrial projects, the Hauts-de-France region has succeeded in setting up four gigafactories so far. Three sites relate to lithium-ion batteries: One in Dunkirk, steered by Verkor, with production capacity of 50 GWh by 2030; one in Billy-Berclau-Douvrin with Automotive Cells Company (ACC), with a production capacity of 40 GWh by 2030; and one under Envision AESC in Douai, with production capacity of 30 GWh by 2030. The ACC site, notably supported by Stellantis, TotalEnergies and Mercedes, was inaugurated in May 2023, while the commissioning of the other two sites, in collaboration with Renault, are planned for 2024 and 2025, respectively. In terms of solid state batteries, Prologium decided to set up operations in Dunkirk in May 2023, with production expected to start before 2026 and targeted to reach 48 Gwh by 2030, with the intention of supplying Mercedes.

These mega projects benefit from various sources of financing. As part of European, French and regional strategies, public players are supporting these gigafactories. The EIB has invested EUR 450 mn in Envision AESC and is providing EUR 49 mn to support innovation at Verkor. Bpifrance Assurance Export has guaranteed more than EUR 942 mn for ACC and more than EUR 80 mn for Verkor, while the Banque des Territoires of the Caisse des Dépôts et Consignations has invested EUR 73 mn in quasi-equity in Envision AESC. In addition, the REV 3 Capital regional fund has invested EUR 121 mn in ACC and EUR 60 mn in Verkor. Among the private players, Natixis CIB and more broadly Groupe BPCE, provides loans and financial advice. Macquarie Asset Management and Meridiam have taken capital stakes in Verkor, the Automobile Energy Supply Corporation and Envision AESC. Furthermore, ACC is held by Stellantis, TotalEnergies and Mercedes.

The Hauts-de-France region is a strategic choice given the importance of automotive production in the region. The region is currently leading automotive production in France, with 700,000 vehicles manufactured each year, i.e. 30% of national production. More than 56,000 employees work in the sector in the region, which hosts seven sites for Toyota, Renault and Stellantis. In addition, Hauts-de-France benefits from the presence of close to two-thirds of European automotive production within a  500-kilometer radius. With such a production base, synergies can be unlocked, and the targets for “Battery Valley”, in terms of automotive construction, are significant: by 2030, ACC aims to equip 2.5 million vehicles per year (through three sites in France, Italy and Germany), Verkor 3,000, Envision AESC 200,000, and ProLogium between 500 and 750,000.

The Battery Valley project is therefore a vector for the consolidation and development of a manufacturing ecosystem. As well as manufacturers of batteries for the auto industry, there are also equipment makers (for example Forvia), equipment suppliers (for example Siemens), battery component plants (for example Orano and XTC New Energy), recycling service (for example Suez and Eramet, set to open an industrial recycling complex for lithium-ion batteries in 2025) and even reinforced electricity lines (for example RTE which plans to create a new site in Grande-Synthe). Some companies are taking advantage of the rise of electrical vehicles to develop internal economies of scale: In 2022, Renault set up its ElectriCity industrial division, which brings together industrial sites in Douai, Maubeuge and Ruitz, to share industrial process and an electrical vehicle research ecosystem.

Job creation enabled by these industrial developments is significant. The Hauts-de-France Chamber of Commerce and Industry (CCI) estimates that the industry in the region will require an additional  20,000- 25,000 new hires in the years to come. The gigafactories also could generate 1,800 positions at ACC, 2,000 at Verkor, 3,000 at Envision AESC and 3,000 at Prologium. Likewise, Renault’s ElectriCity division plans to recruit 700 staff between 2022 and 2024.

Lastly, by satisfying increasing demand for electrical vehicles, Battery Valley will enable the reduction of greenhouse gases (GHGs), imported or otherwise. At close to 30%, transport is the main sector responsible for GHG emissions in France, and second in Europe (nearly  21%). The rise of rechargeable electric and hybrid vehicles will enable decarbonization through vehicle usage: while they represented 1% of new vehicle registrations in Europe in 2016, new electric and hybrid vehicles accounted for 22% in 2022. These vehicles are, however, linked to a largely globalized value chain, which generates emissions relative to certain industrial assembly processes and raw materials (lithium, graphite), for which China is the leading global producer. The latter is gaining market share in Europe, with Chinese electric vehicles currently cornering 8% of the electric vehicle market in Europe, a number that could increase to 15% by 2025.

Relocalization of value chains to Europe is therefore a priority in the face of the triple necessity to reduce GHG emissions, secure supply to ensure European autonomy, and lower production costs with a view to facilitating penetration of the European automotive market by European players.