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Here’s news that could be the start of something big. Bloomberg reported that:

“BNP Paribas SA, the European Union’s biggest bank, has effectively ceased underwriting bonds for oil and gas producers, representing one of the most dramatic crackdowns on fossil fuels among the world’s major financial firms. BNP is no longer participating in conventional bond sales for the sector, according to clarifications provided by the bank in connection with its annual general meeting on Tuesday. The lender, which hasn’t formulated an official policy on the matter, told Bloomberg separately that the practice currently applies to all upstream activities.”

This has some interesting implications. The first is obvious – oil and gas companies seem to be losing an avenue of funding. Some observers will celebrate this as a big win for climate progress, demonstrating that market and regulatory pressures are starting to work. However, funding sources are not actually drying up – they are merely shifting:

“[U.S.] regional banks have recently started expanding their exposure to the fossil-fuel industry. In some cases, US banks are actively stepping in to take over contracts abandoned by European banks…

BNP’s shift away from fossil finance is unlikely to dent the oil and gas sector’s access to funding. That’s as private credit investors — as well as US banks — fill in gaps left by European lenders. At the same time, some banks are exploring capital relief instruments [see this blog] that would allow them to transfer the regulatory risk of holding high-carbon assets. What’s more, oil and gas companies are flush with cash, driving down the sector’s demand for loans by 6% last year. That’s because fossil-fuel companies are generating so much money from their underlying business…”

Bonds/debt financing is arguably more appropriate than equities for reflecting sustainability/climate risk because of the typical long-term nature of corporate debt instruments. Interestingly, the Anthropocene Fixed Income Institute warned earlier this month that

“The average maturity of large oil & gas producers’ debt has nearly doubled in recent years, extending investors’ exposure to these businesses at a time when their long-term viability is most in question.”

Certainly there are short term instruments (i.e., less than 5 years), but how much longer will lenders/underwriters be comfortable with the long-term prospects of oil and gas – even those with high risk tolerance like the private market? I suggest bond issuance trends in oil and gas are a good indicator for ESG professionals to monitor for a big picture on the transition/low carbon economy.

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Photo credit: John Hanson Pye –

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile