March 10, 2023

3 times the O&G industry successfully implemented sustainability-linked financing 💳

Many oil and gas operators are looking to differentiate themselves by taking on financing tied to auditable sustainability goals. We outline three times when energy companies used sustainability-linked financing to drive positive change.

Big Idea: Many oil and gas operators are looking to differentiate themselves by taking on financing tied to auditable sustainability goals - commonly known as sustainability-linked financing.

Below are three times when companies used sustainability-linked financing to drive positive change:

1. TotalEnergies (France) 🇫🇷

  • Year: 2019
  • Amount: €3 billion
  • Financing Type: Revolving credit facility
  • Terms: The company agreed to reduce its greenhouse gas emissions intensity by 15% by 2025, as well as increase its renewable energy capacity to 25 GW by 2025. If it meets these targets, Total will receive reduced interest rates on the loan.
  • Results: TotalEnergies has reduced its operated Scope 1 and 2 emissions by 20% between 2015 and 2021 (excluding the impact of Covid-19).

2. Repsol (Spain) 🇪🇸

  • Year: 2017
  • Amount: €500 million
  • Financing Type: Long-term Certified Green Bond
  • Terms: First in the industry, this 5-year green bond was linked to the company's goal of reducing its carbon footprint by 1.1 million tons of CO2 from 2014 to 2020 through upgrades to its refining and chemical
  • Results: Even though it was excluded from green bond indices, Repsol fulfilled its commitment to install decarbonization technology by 2020. In 2021, Repsol went back out into the market for another sustainability-linked issuance.

3. Equinor (Norway) 🇳🇴

  • Year: 2018
  • Amount: NOK 5 billion
  • Financing Type: Line of Credit
  • Terms: Sustainability performance targets related to a 40% greenhouse gas emissions reduction and renewable energy investments by 2030. The terms of the loan were tied directly to Equinor's progress towards these goals.
  • Results: Equinor’s 2021 net GHG emissions were 28% lower than 2015, and the company is on track to achieve a 50% reduction in GHG emissions by 2030.

Big Picture: These case studies demonstrate how sustainability-linked financing can be used effectively in the oil and gas industry to drive positive change. By tying financial incentives directly to ESG performance, companies are incentivized to prioritize sustainability in their operations and investments.

Yes, But: It is worth noting that there are challenges associated with implementing sustainability-linked financing in the oil and gas industry

  • Consistent measurement standards for ESG performance across different companies and sectors is lacking
  • Especially in the case of longer-term goals, setting rigid targets linked to contracts/financing may not allow a company to be agile in the cases of new technologies or shifting priorities. Goals need to be high-level to allow for flexibility (i.e. reduce methane, not implement a specific solution).
  • Another similar challenge is not falling into any traps of nuances of either ESG or financial jargon & making sure to only accept terms that make sense (i.e. don't tie to a hard decrease goal if you know you're going to be acquiring assets and increasing your emissions).

To overcome this, operators should create a centralized source of truth, or system of intelligence, that is robust enough to calculate any ESG metrics needed and also meet financial reporting standards.

‍In Conclusion: These case studies offer valuable insights into how sustainability-linked financing can be used effectively in the oil and gas industry. By aligning financial incentives with environmental goals, companies are motivated to prioritize sustainability and make meaningful progress towards reducing their impact on the planet.

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