Repsol Returns to Green Bond Market After First Sale Controversy

Four years after its debut environmental note was excluded from green bond indexes, Spanish oil major Repsol SA is back with a plan to sell sustainable debt.

The company on Monday began investor calls to present a new framework to issue bonds for projects such as renewables, biofuels and electric-vehicle charging, as well as notes with payment rates tied to environmental targets. The latest effort may need to win the approval of the Climate Bonds Initiative, which excluded the 2017 bond from its database, ruling it out of indexes from the likes of JPMorgan Chase & Co.

“It’s a good start, it’s better than frameworks we have seen from others,” said Sean Kidney, founder of the CBI, which sets green bond standards. “But the critical issue is the speed and scale of the transition,” he said, adding it wasn’t clear if Repsol’s targets still allowed for investment in new fossil-fuel exploration.

The comments show the latest plan is still likely to be controversial with some sustainability-focused investors given the firm’s main products increase greenhouse gas emissions. Polluting industries were expected to issue so-called transition bonds this year to fund a move toward cleaner business models, yet these have failed to take off, leaving oil companies dipping into an exploding green debt market.

Since Repsol issued the fossil-fuel industry’s first green bond in 2017, the sustainable debt market has surged to be worth over $3 trillion, yet the oil sector remains a tiny part of it. This year there’s been a few green sales, including from Polish and Finnish refiners PKN Orlen SA and Neste Oyj, while Italy’s Eni SpA sold the industry’s first euro bonds tied to cutting carbon emissions.

Repsol’s new finance framework follows the company’s five-year plan to spend 18.3 billion euros ($21.7 billion) toward achieving net-zero emissions by 2050. The International Energy Agency, in its recent roadmap to net-zero emissions, said the focus for oil producers should be on existing assets, with no new development of oil or gas fields.

Still, Repsol’s current plans look more likely to meet market needs, according to Linda Sobanski, a financial analyst in Paris at HSBC Asset Management, which holds green debt. Investors will scrutinize the firm’s project spending and reporting commitments.

“Last time the use of proceeds was not very clear, mainly for operational expenditure instead of capex use -- so the bond could not be really classified as a green bond,” she said. “They should be ready now.”

In response to a request for comment on the bond sale, Repsol pointed to its “Roadmap towards decarbonization”, which includes plans to reduce its emissions and carbon intensity through investments in energy efficiency, wind and solar, and carbon capture projects.

©2021 Bloomberg L.P.

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