Wall Street is offering bargains to the commodities industry for going green.
Two of the world’s largest commodity traders, Trafigura Group Pte. Ltd. and Gunvor Group, have lines of credit from banks that give them cheaper rates to finance reduced-carbon production of everything from oil to aluminum.
& Co. has a deal with European energy giant
SpA that offers incentives for the company to meet certain environmental targets by the end of 2022—and a penalty if those targets aren’t met.
Those discounts help produce and deliver the raw materials that power the global economy in a more sustainable way, some bankers and traders said. Green assets are already trendy on Wall Street, which sells a growing number of products aimed at improving the world and producing higher returns through so-called environmental, social and governance investing. The lending also helps banks, increasingly under pressure from shareholders and regulators, meet their own green-investing targets.
“There is an incredible hunger for clean assets,” said
global head of ESG solutions at JPMorgan Chase. “At the end of every year, I saw ESG investing becoming more mainstream, but I wasn’t prepared for 2020 to be such a big year.”
The push for sustainability has prompted shifts throughout the commodities industry. Trafigura built a desk dedicated to trading low-carbon aluminum to keep up with demand for a cleaner version of the metal. Lightweight, recyclable and used in everything from electric cars to solar panels, aluminum still requires a large carbon footprint to produce, mostly because smelting processes have remained little changed for more than a century, industry experts said.
As technology evolves, “low-carbon” aluminum has been flying off the shelves. Companies ranging from German auto makers to Nestlé SA’s coffee unit, which includes Nespresso, and
are snapping up the metal to meet their own new environmental standards. Trafigura was able to obtain cheaper financing on approximately $500 million from Amsterdam-based Rabobank and Paris-based
to buy low-carbon aluminum from producers before reselling it.
announced a new smelting method in 2018 that is entirely carbon free.
is using this aluminum in some of its laptops as part of its pledge to become carbon neutral by 2030.
“Decarbonization is becoming a vital issue for the aluminum market,” said
head of aluminum trading at Trafigura. “We’re in regular discussions with customers in the automotive, construction and packaging sectors who are increasingly focused on delivering sustainable and low-carbon products to their consumers.”
Gunvor teamed up with syndicates of mostly European lenders, including
SpA and Germany’s DZ Bank, to receive discounted rates for credit backing the operations and capital expenditures of its oil refinery in Ingolstadt, Germany, and others. The discounted interest rates are linked to 15 specific ESG goals—ranging from emissions reduction to transparency—evaluated on a yearly basis by external auditor PricewaterhouseCoopers.
Gunvor’s chief financial officer, said most banks have sustainability trading and finance teams now, a big change from the handful a few years ago when the commodity broker began linking its borrowing to ESG commitments.
“There was a clear acceleration of that trend in 2020,” said Ms. Schwab. “Both banks and traders have come under pressure from shareholders, regulators, employees and society as consensus grows that climate change is a critical issue. If you don’t do anything about it, you are an irresponsible company.”
Banks like JPMorgan Chase have been structuring derivatives and issuing bonds linked to everything from reforestation efforts to clean energy. The bank offered Enel a discount to swap the proceeds of a bond fitted with ESG standards from pounds into euros.
head of European corporate foreign exchange and rates sales at JPMorgan, said Enel receives the discount as long as it achieves certain goals and hits stipulated targets by the end of 2022. If not, Enel is penalized and pays a premium.
Some analysts said that while ESG investing is trendy, with billions flowing into the largest exchange-traded funds, it remains hard to tell how much it affects corporate behavior. Most companies and banks are adhering to self-made rules or standards drawn up in bilateral contracts. The discounts afforded to clients vary depending on a host of factors. So can verification procedures.
“It is hard for banks to prove companies are doing these things,” said
head of the financial-reporting group at energy-market consulting firm Opportune.
Still, the growing influx of investor cash and political and social pressure, particularly in Europe, are likely to accelerate green finance world-wide. Bankers said the trend is gaining traction in the U.S., prompting more green desks to pop up.
“If you put on an ESG or net carbon 2050 label, people will throw money at it,” said Mr. Sherman.
Write to Julia-Ambra Verlaine at [email protected]
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