The balance of the debt market leans towards ‘green’. The capital raised by companies and governments in the sustainable debt markets is already greater than that invested in debt issues linked to fossil fuels. According to data compiled by Bloomberg, in the first six months, the first reached 350,000 million dollars, in contrast to 235,000 million dollars for the fossil fuel sector in the same period.
From the perspective of the effectiveness of fighting climate change, however, “it’s too early to say if this is good news,” says April Merleaux, research manager at the Rainforest Action Network’s no-fine environmental organization, in a statement collected by Bloomberg. “Much of this year’s green emissions are coming from financial institutions, governments, some utilities and relatively few renewable energy companies, and it’s unclear how exactly these funds are being used and what this means for the energy transition.” said Merleaux. “Transparency continues to be a major issue in this market,” she said.
In the case of RWE AG, the German utility has raised €1 billion this year through the sale of green bonds. The company claims the funds are earmarked for solar and wind projects. However, RWE is Europe’s largest emitter of greenhouse gases and a major developer of coal, according to Merleaux. “The energy transition clearly needs more funding, but I’m not convinced that funding for renewables should go to companies that are opening new coal mines at the same time,” he argues.
However, debt markets are very different than they were, for example, in 2020 when the Covid outbreak occurred. This could explain why green bonds are outperforming more polluting ones. Fossil fuel financing in that year was more than three times what was raised by companies and governments in green bonds and loans. Now, most fossil fuel companies have abundant liquidity, supported by higher energy prices due in large part to the conflict between Russia and Ukraine.
“Cash flow generated by oil refineries has been so strong that companies may not need to access fixed income markets to support their operations or meet debt maturities,” said Jaimin Patel, a senior analyst at Credit Bloomberg Intelligence. In fact, companies like Valero Energy Corp., Marathon Petroleum Corp., Phillips 66, and HF Sinclair Corp. have adequate cash balances to cover their bond maturities through at least 2025, with aggregate maturities of just $4.3 billion and a Consensual free cash flow of more than 60,000 million dollars, according to the ICA index.
In today’s reality, many companies operating in the refining industry can use their surplus funds to increase dividends and buy back shares to bolster shareholder returns, Patel says. Given the shortage of refining capacity, especially in the United States, this trend is likely to continue for the foreseeable future.
Banking relies on green bonds
Meanwhile, the banking industry is benefiting from increased sales of green bonds, with BNP Paribas SA, Bank of America Corp. and Credit Agricole SA earning more than $60 million in transaction fees in the first half. of the year, according to Bloomberg data. Also, coincidentally, they held the top positions as major underwriters of bonds and loans.
In fossil fuel financing, Wells Fargo & Co., RBC Capital Markets and JPMorgan Chase & Co. were the main coordinators of bonds and loans for oil, gas and coal companies. Wells Fargo earned revenue through the month of July of nearly $105 million for this work.
