Repsol issues first green bond for the oil & gas sector. Simply greenwash, or a positive step in the right direction?


Green bonds raise money to finance or re-finance projects with environmentally sustainable benefits. With an ever-growing list of environmental opportunities and threats facing capital markets, coupled with stricter policy imperatives, there is a growing demand for increased transparency over the environmental impact of investments. The green bond market has grown substantially over the last few years (quadrupling in size between 2013 and 2015), with bonds predominately being used by large corporations and state-owned rail companies as well as some from multilateral development banks.

Step up …Repsol? Yes, that’s right. The Spanish petroleum refining firm, one of the largest global companies in the energy sector, is poised to sell a green bond transaction and will become the first company from the oil and gas industry to do so. Repsol intends to use the €500 million raised to fund energy efficiency upgrades and low emissions technology projects in its oil and chemical refineries. In total, it has identified 312 projects which it believes will reduce their annual carbon dioxide emissions by 1.2 million tons, representing almost 6% of their 2015 total direct CO2 emissions.

For some, this seems slightly perverse given the fact that such operational savings would merely energise Repsol’s profitability within the environmentally harmful fossil fuels industry. Simply put, some would argue that despite the investment going into energy efficiency, their business model is still harmful and therefore they should not be issuing green bonds. How can a bond be considered green when its roots are embedded in the foundations of climate change?

On the other hand, some advocates believe that unfortunately we do not have the luxury of relying on all green investments to be performed by smaller, more ‘impact-focused’ companies. With the urgency of staying below two degrees Celsius above pre-industrial levels we should be encouraging large multinationals with huge investment capabilities to be putting less into exploration techniques and more of their money into green projects. Supporters would further such an argument by comparing Repsol’s endeavour with that of banks and other large energy companies who both issue green bonds yet have large fossil fuel loan portfolios. What’s more, actions from such a renowned company like Repsol could spur on other like-minded organisations to raise their green financing and increase demand from investors who prior to this were not considering Green bonds at all.

This case highlights a need for intense scrutiny on green bonds issued from this and other sectors with significant environmental externalities. There is a need for a clearly defined impact reporting and measurement process to be in place to ensure that proceeds are solely allocated for green projects.

Whichever side you end up on, it is hard to dispute the validity of this bond given that it is the project’s green characteristics that should be considered rather than issuing party. The irony that an oil and gas company should be issuing only the third investment-grade corporate Green bond in Europe this year though may well be too slippery for many to contend with. However, given the fact that the oil and gas industry is unlikely to come grinding to a halt anytime soon, perhaps Repsol should be applauded for their seemingly positive step in the right direction.

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