Big Oil cashes in

Tim Quinson
Good Business

Banks earned record first-quarter fees from arranging green bond deals, while oil, gas and coal companies issued the lowest amount of debt in a decade.

But all is not as it seems.

The slump in fossil-fuel issuance isn’t necessarily a sign bankers have woken up to the seriousness of climate change. Instead, it reflects the fact that energy companies haven’t had to tap the bond markets for cash given the surge in commodity prices.

With oil above $100 a barrel and likely to stay there for the foreseeable future, “the time of borrowing to pay dividends and buy back shares is over,” said Fernando Valle, a senior oil and gas analyst at Bloomberg Intelligence.

Fossil-fuel companies raised $37.6 billion selling bonds in the first three months of the year, down from $79.4 billion in the same year-earlier period when crude prices were closer to $61 a barrel, data compiled by Bloomberg show.

Crude markets have been so robust that “oil companies have little need to issue bonds as they have so much cash and free cash flow,” said Paul Vickars, a senior credit analyst at Bloomberg Intelligence. “In fact, they have been redeeming bonds in cash rather than replacing them with new ones, and even buying some bonds back early.”

Together, BP Plc, Chevron Corp. and Shell Plc repurchased about $10 billion of bonds ahead of schedule in the past 12 months, he said.

Valero Energy Corp. and Phillips 66 are doing the same, and Exxon Mobil Corp. is committed to reducing its debt, Valle said.

Still, it remains true that green bonds, and green bond fees, are on the upswing. Historically, banks have made much more money providing underwriting services and extending loans to the fossil-fuel industry than they have arranging green-related bonds and loans. That started to change last year

The question remains, however, about just how committed banks are to net-zero emissions pledges. The world’s leading climate finance experts and economists warned this week that too much money continues to pour into fossil fuels and too little is channeled to clean energy, putting the planet on track to blow past its limit to avoid catastrophic global warming.

Led by JPMorgan Chase & Co., BNP Paribas SA and Bank of America Corp., bankers earned about $695 million in the first quarter issuing green bonds, up from closer to $140 million as recently as five years ago, Bloomberg data show. By contrast, they pocketed about $319 million selling fossil-fuel bonds, down from the roughly $638 million earned in the first three months of last year.

Companies, governments and other organizations have raised more than $116 billion selling green bonds so far in 2022 after issuing about $515 billion during all of last year. The first-quarter increase occurred during a period when the Bloomberg Barclays U.S. Green Bond Index—which tracks corporate green bonds—lost 6.95%.

“The growing need for renewable energy sources and other environmental projects makes the green bond market ripe for continued growth, having already doubled between 2020 and 2021,” said Mallory Rutigliano, an analyst at BloombergNEF, who tracks green and sustainable finance.

At the same time, banks are under pressure to decarbonize their portfolios and set internal policies to exit coal and other pollutive activities, and they may decide to take on more green instruments to satisfy their climate-financing pledges, she said.

Climate activists say it’s past time for banks to focus their resources on the transition to clean energy and to stop financing fossil fuels.

“Any further expansion of fossil fuels risks locking humanity into generations of climate catastrophe,” said Alison Kirsch, research and policy manager for the nonprofit Rainforest Action Network.

Sustainable finance in brief

A coal mound at the Big River Electric D.B. Wilson Station power plant in Centertown, Kentucky, in 2019.  Photographer: Luke Sharrett/Bloomberg

• U.S. coal prices rise above $100 a ton for the first time since 2008.
• Paris Agreement architect is now terrified by lack of climate action.
• Here are five takeaways from the United Nations’ latest 3,000-page analysis of the planet’s warming climate.
• New York utility agency plans to sell $600 million in green bonds in bid to modernize the grid.
• Hedge fund CFM sees big repricing for banks thanks to climate risks.

Bloomberg Green publishes Good Business every week, providing unique insights on ESG and climate-conscious investing.

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