American fossil-fuel suppliers are moving to tie their bank credit lines to sustainability goals, including slashing their carbon footprint.
DCP Midstream LP, which operates natural gas pipelines, unveiled Tuesday that interest and fees paid on its $1.4 billion revolving credit facility with banks such as Mizuho Financial Group and JPMorgan Chase & Co. are now linked to the company’s progress toward reaching its emission-reduction targets. The borrowing conditions are also determined by DCP’s safety performance relative to rivals, the company said in a statement.
US loans with terms tied to environmental, social and governance targets have become increasingly popular amid growing investor appetite for sustainable themes, with transactions topping $137 billion last year, according to Bloomberg data. But America’s oil and gas industry still accounts for a tiny fraction of it. Before DCP, only liquefied natural gas exporter Cheniere Energy Inc. and oil driller Occidental Petroleum Corp. had announced loan agreements featuring ESG clauses.
Energy companies from Exxon Mobil Corp. to Occidental are under fierce investor pressure to address their contributions to global warming. Still, big Wall Street banks have overall continued to provide their fossil-fuel clients with funding.
While linking the cost of financing to meeting sustainability goals may be a good incentive for achieving climate commitments, it’s “fair to question if the incentive is ultimately driving better behavior, or if it is just a symbolic move to signal steps that both investors and regulators are starting to demand anyway,” says Bloomberg Intelligence analyst Rob Du Boff.
Source: BloombergTags: DCP Midstream LP, Fossil Fuel, JPMorgan Chase