Sustainability-Linked Bonds (SLBs) have gained significant traction in the last year, following their launch in 2019. Contrary to green or transition bonds, whose proceeds are intended to finance specific projects, SLBs’ proceeds are not dedicated and indiscriminately support the whole company’s business strategy. The only condition to issue such bonds is that the issuer commits to achieve specific sustainability objectives set by… itself. Rigorous this process is not.
This should be enough to understand the risk for SLBs to serve as mere marketing gimmicks aimed at justifying financial support to polluting sectors. If such bonds are not linked to robust and ambitious Paris-aligned KPIs and targets but are issued by companies that are still developing activities that do not fit the remaining carbon budget in a 1.5°C trajectory, SLBs will fall into the problematic category of tools that delay climate action. In the past, many SLBs have already joined this category, such as those of the tar sands champion Enbridge or Amazon-destroying JBS – supported by many financial institutions. (1)
Fossil gas expansion financed with “sustainable” debt
So what about TotalEnergies’ climate-KPI bonds? The paint on TotalEnergies’ recently adopted “climate strategy” is still fresh and one can expect the oil and gas major to base the KPIs of its future bonds on its three climate-related targets. Yet, while our briefing deep dives into these targets, one would not even need to do so to realize that TotalEnergies’ SLB could be pure greenwashing.
TotalEnergies plans to continue to assign 80% of its CAPEX to oil and gas 10 years from now. And while both the UN Production gap report and the IEA’s NZ scenario indicate the need to reduce fossil fuel production and stop developing new oil and gas fields, TotalEnergies forecasts around 40% growth of its gas production between 2020 and 2030, the bulk of it coming from LNG methane gas. TotalEnergies’ SLB is likely to support a corporate strategy at odds with climate science and contradicting the recent call from the IPCC and the UNEP on the urgent need to reduce methane emissions over the next 10 years if the world is to meet its climate goals.
TotalEnergies’ current climate targets allow the development of new oil and gas fields and projects, in flagrant breach of the demands of climate science. While TotalEnergies aims for a poor 20% reduction in the carbon intensity of oil products by 2030, it would need to reach a 90% reduction target by 2050 to align with a 1.5°C scenario, and the oil and gas major still needs to quantify its scope 3 absolute emissions reduction target. Finally, its reliance on offsets and carbon capture and storage technologies also needs to be clarified.
Banks and investors under the spotlight
There is no doubt that the oil and gas major will meet its current climate targets. While BlackRock said that TotalEnergies’ targets “appear to be consistent with the goals of the Paris Agreement”, Amundi and AXA signed an IIGCC statement that mentions its many shortcomings, including its failure to align with the IEA’s Net Zero scenario. They also stressed that they voted in favor of the major’s insufficient ‘climate plan’ because of their conviction that it was a first step towards the adoption of more ambitious targets. While it’s likely that these targets will be reviewed well before the SLB reaches maturity, there is no guarantee that the SLB KPI will be reviewed in the short term to align with new commitments.
Issuing SLBs based on the targets set in this strategy would be a fool’s game. With no real financial incentive, the very principle of the SLBs would be betrayed and TotalEnergies’ SLBs would appear to be a way for investors to justify maintaining financial support to one of the top 20 global carbon emitters.