Environmental, Social, and Governance (ESG) criteria have become top of the agenda for bank loans to commodity traders, as lenders increasingly demand to see climate goals when they consider extending credits to oil trading houses, the heads of finance at some of the world’s largest traders said on Wednesday.
Muriel Schwab, group chief financial officer at trader Gunvor, told the FT Commodities Global Summit that banks are creating ESG and sustainability teams and those are shaping up to be a new form of compliance of the future.
“We see banks that clearly have decided they will no longer support commodity traders or corporates that do not have a clear path and a clear ambition around the energy transition,” Schwab said at the summit, as carried by Bloomberg.
Gunvor has “shifted trading towards transitional commodities,” Schwab added, as Financial Times Energy Editor David Sheppard reports.
Tying loans to sustainability targets is the latest trend among energy companies and traders as investors demand climate goals and commitment for emissions reductions.
Trafigura, for example, one of the largest independent oil traders in the world, closed earlier this year the refinancing and extension of its US$5.5 billion European multi-currency syndicated revolving credit facility, which was its first sustainability-linked loan structure. This new sustainability-linked loan structure includes three KPIs to be tested annually and verified by a third-party expert. These indicators include cutting operational greenhouse gas emissions (Scope 1 and 2), responsible sourcing of metals, and growing Trafigura’s renewable power portfolio.
“It demonstrates our focus on ESG and commitment to continue our strong progress in improving ESG performance across our global business,” said Christophe Salmon, Group Chief Financial Officer for Trafigura.
Energy firms in North America have also recently structured sustainability-linked loans. Two Canadian oil firms became the first North American oil companies to link their credit facilities to sustainability targets.
