High energy prices challenge Wall Street’s green shift

Wall Street arranged more bonds and loans for clean energy projects than oil and gas companies in the first quarter. The change could be short-lived amid the push to boost fossil fuel supplies after Russia invaded Ukraine.

Banks underwrote more than $100 billion in bonds and loans for clean energy uses in the first quarter and arranged $95 billion in borrowing for oil and gas companies. The pace of underwriting has slowed in both categories compared to a year ago, when total oil and gas debt and green debt issued in each zone was around $570 billion.

The move towards greener debt underwriting has been spectacular in recent years. The ratio of oil and gas to green debt underwritten fell to 0.9 in the first quarter from 1 last year. In 2018, four times as much money was raised by banks for fossil fuels as for clean energy uses.

Debt underwriting involves finding buyers and underwriting prices if necessary. It is one of the primary ways banks help businesses and governments raise funds. The data does not include direct lending, equity subscription or other borrowing related to sustainability measures.

While the industry as a whole made more green underwriting in the quarter, some banks backtracked. Citigroup Inc. settled more green debt than fossil fuel debt for the first time last year. In the first quarter, it took on more oil and gas debt. Other banks that underwrote more oil and gas than green debt and also saw the ratio rise in the first quarter included Wells Fargo & Co., Mizuho Financial Group Inc. and Societe Generale SA.

The banks say they cannot move away from fossil fuels too quickly given the limits of clean energy capacity and that their lending activity reflects broader industry trends. Oil and natural gas prices have surged, boosted by the war in Ukraine, improving prospects for many producers and prompting calls for increased production. Meanwhile, supply chain disruptions have driven up costs and delayed many clean energy projects.

Yet some analysts say many banks are overstating their commitment to limiting climate change because they are still routinely financing fossil fuels.

“It’s really hard to know when this turns into greenwashing,” or misleading on climate progress, said Margaret Peloso, a partner at law firm Vinson & Elkins LLP which advises banks on environmental issues.

Many financiers also say they need to work with companies to reduce emissions rather than divesting from high-emitting industries.

JPMorgan Chase & Co., the largest U.S. bank and largest energy financier last year, cut the ratio of oil and gas underwriting to green debt to 1.2 last year compared to 10 in 2018. The ratio remained at this level in the first quarter, again indicating more activity in fossil fuels than the whole industry. Last year, JPMorgan pledged that oil and gas companies in its portfolio will significantly reduce operational carbon intensity — emissions per unit of output — by 2030.

Analysts say carbon intensity targets are less aggressive than emissions reduction figures because carbon intensity may decrease as overall emissions increase.

Citigroup said in January it was aiming for a steep absolute decline in funded energy sector issuance by 2030, a move analysts said beat similar pledges from its peers. Its ratio of oil and gas underwriting to green debt rose to 1.4 in the first quarter from nearly 1 a year ago. Citigroup Chief Executive Jane Fraser spoke at last year’s Glasgow Global Summit about the need to scale climate solutions and said the bank may have to cut off customers to meet its climate goals .

Wells Fargo arranges significantly more fossil debt than green debt, with a ratio of 6.7 in the first quarter and 6.3 last year. That figure is down from 68 in 2018. The San Francisco-based lender recently joined other banks in saying it would reduce its net emissions to zero by 2050.

Among the energy companies that raised billions in debt from major banks in the first quarter were commodity traders Vitol SA and Trafigura Pte. ltd. and oil and gas producer ConocoPhillips.

Many environmentalists also worry that the pace of clean energy funding is slowing, delaying the spending needed to meet global climate goals and reduce the world’s dependence on oil and gas. Biotech company Amgen Inc. and Honda Motor Co. were among those raising green bonds to reduce emissions last quarter, but the total amount raised was well below last year’s pace.

Some analysts say between five and ten times last year’s total green bonds and loans are needed each year by the middle of the decade to accelerate the energy transition.

“The rest of this year will give us a good indication of whether or not it’s feasible,” said Krista Tukiainen, market intelligence manager at the Climate Bonds Initiative, a nonprofit promoting green investments.

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About Madeline J. Carter

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