150 kilometers from the mouth of the Amazon River, on the northern coast of Brazil, Petrobras intends to open a new hole almost three kilometers deep to extract oil. The operation, pending few bureaucratic details, is the company's "new oil frontier": it will spend at least $3 billion to discover new fields in the area, known asthe equatorial margin, according to its financial plan.
Petrobras is one of the 20 companies that has emitted the most greenhouse gases into the atmosphere in the last 50 years. When it needs capital for operations like the Amazon River, it turns to financial markets, where it puts up for sale parts of its debt in the form of instruments called bonds. Here, banks and advisors ensure that the company finds the money it needs: in recent years, Petrobras has had the help of entities such as JP Morgan, Deutsche Bank, orsubsidiaries of the Spanish BBVA and Santanderto get 38,000 million euros.
The sale of bonds is the way by which financial institutions, advisors and law firms have put on the market more than one trillion euros (almost the equivalent of Spain's GDP) to finance new projects of gas, coal and oil companies since the Paris Agreement came into force in 2016, The global pact to limit global warming to below 2 degrees by reducing greenhouse gas emissions.
This is revealed by the data analyzed exclusively by EL PAÍS, Le Monde, The Guardian and eight other international media in the framework of the investigation The Great Green Investment Investigation: Fossil Finance, coordinated by Investico and Follow The Money. More than 400 banks and financial institutions have participated in 1,666 bond issuance operations dedicated to expanding the gas, oil and coal exploitation activities of 122 companies, including the world's most polluting, and their subsidiaries. It's a conservative estimate, because it only includes companies that are openly expanding their operations with fossil fuels (more details in the methodology at the end of the article).
"The role played by banks makes them complicit in the bond issues of oil and gas companies," summarizes Andreas Rasche, an expert in Sustainable Finance at Copenhagen Business School. "They help them raise money and they know what it will be used for, so they are involved in those activities."
The entities that have raised the most money on behalf of polluting companies since 2016, with more than 100,000 million each, include several European banks: Deutsche Bank, HSBC, Crédit Agricole, Barclays and BNP Paribas are the ones that have participated in the most operations. There are two large Spanish banks and their subsidiaries: BBVA (195,000 million) and Banco Santander (173,000 million). They also play a key role in attracting investment from international law firms such as Cleary Gottlieb Steen & Hamilton or Latham Watkins.
The 'dirty' bonuses
Financial sector agents consulted agree that the market is far from closed to fossil fuel companies. According to the latest studies in this regard, bond issues today represent about 52% of all financing obtained by these companies, when 10 years ago they were around a quarter of their income. And at the current rate, in 2024 they will issue more financial instruments of this type than this year.
In this scheme we summarize the operation of the bond issue:
"We can say that bonds are a less transparent market than direct loans," explains Laura Cavallier, Sustainable Finance expert at Reclaim Finance. "There are very few investors who have long-term plans or very definite red lines on how long to finance fossil fuels," he adds.
Bonds currently represent about 52% of all financing obtained by these companies. Ten years ago it was only a quarter of their income.
There are greenbonds that avoid financing activities harmful to the environment, but they represent only 2% of all those issued globally by the most polluting companies: it is estimated that 98% are current bonds, an imbalance that, according to many experts, shows that this route is not used to finance an energy transition.
But who do they help find money? The company that has made the most bond issues since 2016 is the Mexican Pemex, followed by the Brazilian Petrobras. The list includes 16 of the companies that have sent the most greenhouse gases into the atmosphere since 1965: these alone have captured 365,000 million in the markets since 2016, a figure comparable to the Gross Domestic Product generated by Spain in a quarter.
Among the facilitators, as banks and advisors that help companies find their financing are known, two Spanish entities stand out, BBVA and Banco Santander. The former has participated, directly or through its subsidiaries, in 210 bond issuance operations, helping to raise €195 billion since 000. He has worked mainly in operations of Occidental Petroleum Corp, a multinational based in the United States dedicated to the exploitation of oil. But also in processes to finance emissions of the Mexican state oil company (Pemex) or the Brazilian one, the aforementioned Petrobras: one of the financing channels of this company in which the Spanish bank participates expires in 2016 (it was issued in 2049). Contacted by this newspaper, the bank has not commented on the data. In 2019, according to its figures, it issued more than 2022.4 billion in bonds related to renewable energy and sustainable mobility projects.
Banco Santander and its subsidiaries are involved in 153 operations to raise 173,000 million euros since the entry into force of the Paris Agreement and its most common client has been Petrobras. But not only: through its subsidiary in the United States, the bank has contributed this year in a bond issue operation of 2,000 million euros of the Mexican Pemex that will not mature until 2033. In Europe, it has helped British Petroleum (€400 million) and Italy's ENI (€2 billion) issue three separate bonds, two of which mature after 000. From the entity remember that its president, Ana Botín, has publicly highlighted the need for a transition to renewables "affordable and reliable" and stress that by 2030 they intend to mobilize 2030,220 million euros in renewable energies.
Attraction to fossil fuels
Bonds issued in the last eight years can remain on the market for decades: more than 200 of those analyzed for this report will mature – that is, remain available in the markets – beyond 2030, the date on which the EU has imposed the objective of reducing greenhouse gas emissions by 40%. 94 reach more than 2050, when the Twenty-seven intend to reach the goal of net zero emissions (emit only what they are able to absorb).
Why, despite the EU's targets for reducing emissions, are projects still being financed in the long term that will clearly increase them? As Irene Peña of AFI summarizes, "we cannot conclude that the market has been closed for these issuers or that there is clear empirical evidence of a price premium that penalizes these sectors."
Investors should know from the documentation associated with the bond and with which it goes to market if the money will be used to expand operations in gas, oil and coal. But there is almost never a detailed follow-up of how the company ends up using that liquidity: the Science Based Initiative, promoted by the United Nations to improve the emission reduction objectives of private companies, recommends going further and seeing what the money they collect, via bonds, in the markets is used for: "It is essential to look at all the financial flows of companies that are expanding their production or their capacity to intervene in the most polluting sectors."
Several sources in the sector point out that coal or oil companies are financed today because they are confident that they will change over time. That is, long-term bonds would indicate that investors trust that these companies will continue to exist and will do so as they have defined and projected in their strategic and energy transition plans.
As Peña, from AFI, resumes, "there is a pressure, especially in banks and also on the part of investors, to provoke a change in these business models, and that change can undoubtedly be promoted through financing. It would be about financing change."
The plans with which a company justifies that it is moving towards that change are not yet implemented by all polluting companies. Some of the most important at a global level, such as Shell, British Petroleum or Total Energies do not have one: the one presented by the latter, in fact, has been criticized and defined as "an investor trap". It is something that can have economic consequences, explains Kevin Leung, head of sustainable finance at the Institute for Energy Economics & Financial Analysis (IEEFA): "Weaknesses in companies' transition plans can generate greater risk in many ways: commercial risk, reputational risk, market risk, regulatory risk and litigation risk." However, these dangers are still often underestimated: "Some investors adopt short-term thinking, thinking only about short-term earnings and do not even plan to hold bonds to maturity," concludes this expert.
Methodology: Who helps the world's most polluting companies expand?
To answer this question, Investico and Follow the Money have created a database of all bonds issued by fossil fuel companies since the signing of the Paris Agreement in December 2015.
Using data from Bloomberg, the world's most comprehensive financial database, we searched for all active bonds issued by coal, oil, gas, exploration and production companies. We found 4,550. Since the Paris Agreement was signed in December 2015, we take into account all bonds issued from January 2016 to June 8, 2023.
Some of these bonds were issued by fossil fuel companies that are no longer expanding their fossil operations, in line with climate science. To exclude this, we have used data from Urgewald, a German non-profit organization that has been analyzing the fossil fuel industry for years and summarizes all the information contained in the companies' documentation in two data sets. One for the coal industry, the Global Coal Exit List (GCEL) and the other for the oil and gas industry, the Global Oil and Gas Exit List (GOGEL). Both include information on whether companies are continuing to expand, for example by developing new coal mines, coal plants or coal infrastructure. In the case of the oil and gas sector, companies are considered "expanding" when they add more than 20 million barrels of oil and gas to their production portfolio, or develop more than 100 kilometers of pipelines.
By cross-checking our bond database with Urgewald's 'Exit List', we were able to identify all bonds issued by expanding fossil fuel companies. In the event that the bond was issued by a subsidiary, we examined whether the company as a whole was expanding its operations.
As a last step, we excluded green bonds issued by fossil fuel companies: we didn't want to include any bonds that raised money specifically for green activities, such as building wind farms. To exclude these bonds, we turned to the expertise of the Climate Bonds Initiative (CBI), an international financial research firm based in London. CBI identifies all bonds that label themselves as "green" and analyzes whether it is justified. If a green bond from a "grey" company has passed the CBI vote, it has been excluded from our database. Information on the CBI's methodology can be found here.
We ended up with a final selection of 1,666 bonds, totaling €1011 billion, or just over a trillion euros. For all of these bonds we collect information from Bloomberg about parties involved in the issuance process, such as banks and law firms. This included their respective roles, such as "subscriber", "bookrunner", "paying agent" and "legal counsel". That allowed us to analyze which banks and lawyers have helped secure financing for expanding fossil fuel companies.
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