(Bloomberg) — U.S. fossil fuel suppliers are set to tie their bank lines of credit to sustainability goals, including reducing their carbon footprint.
DCP Midstream LP, which operates natural gas pipelines, disclosed on Tuesday that interest and fees paid on its $1.4 billion revolving credit facility with banks including Mizuho Financial Group and JPMorgan Chase & Co. are now linked to company’s progress toward achieving its emissions reduction target. targets. Borrowing terms are also determined by DCP’s security performance relative to its competitors, the company said in a statement.
U.S. loans with conditions linked to environmental, social and governance objectives have become increasingly popular amid growing investor appetite for sustainable themes, with transactions exceeding $137 billion last year, according to Bloomberg data. But the US oil and gas industry is still only a tiny part of it. Prior to DCP, only liquefied natural gas exporter Cheniere Energy Inc. and oil driller Occidental Petroleum Corp. had announced loan agreements with ESG clauses.
Energy companies, from Exxon Mobil Corp. at Occidental, are under fierce pressure from investors to address their contributions to global warming. Yet the major Wall Street banks have generally continued to provide financing to their fossil fuel customers.
While linking the cost of finance to the achievement of sustainability goals can be a good incentive to meet climate commitments, it is “fair to ask whether the incentive ultimately leads to better behavior, or whether it it’s just a token gesture to signal the steps that investors and regulators are starting to demand anyway,” says Rob Du Boff, an analyst at Bloomberg Intelligence.
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