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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.
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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
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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
![](images/images_04_08_2022/pic4.jpg)
A coal mound at the Big River Electric D.B. Wilson
Station power plant in Centertown, Kentucky, in 2019.
Photographer: Luke Sharrett/Bloomberg
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New York utility agency plans to sell $600 million in green bonds in
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climate risks.
Bloomberg Green publishes Good Business every week, providing unique
insights on ESG and climate-conscious investing.
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