Enbridge, the pipeline operator, is the first midstream firm in North America to do sustainability-linked financing.
Presenting to members of NeuGroup for Oil & Gas Treasury (sponsored by Societe Generale), Sheldon Bueckert, director of treasury at Enbridge, shared his experience helping lead the company’s sustainability-linked bond (SLB) and loan financings, a first for a midstream firm in North America. The session focused on a SLB that Enbridge issued in late June.
Key SLB details. On June 23, 2021, Enbridge hosted 131 investors on a series of marketing calls focused on the company’s sustainability initiatives. Feedback was overwhelmingly positive.
- On June 24, Enbridge announced a USD benchmark offering of a $1 billion 12-year SLB tranche and a $500 million 30-year non-SLB tranche.
- The SLB included coupon step-ups of 50 basis points and five basis points, both linked to KPIs within the Enbridge SLB Framework.
- The five basis point step-up will be triggered if Enbridge does not meet its goal of 28% representation of ethnic or racial minorities in the workforce by year-end 2025.
- The 50 basis point step-up will be triggered if Enbridge does not reduce Scope 1 & 2 emissions intensity by 35% by year-end 2030.
- Enbridge captured a “greenium” of five basis points for the 12-year SLB tranche
- Greenium represents coupon/interest savings versus a non-SLB Enbridge offering of the same size and tenor.
- Track record of sustainability reporting. The SLB and the framework supporting it was scheduled with the release of the company’s 20th consecutive sustainability report. Several members noted that they would be more inclined to follow Enbridge’s lead when they had a similar history of sustainability reporting.
- E, S and G. Enbridge wanted to highlight its commitment across E, S and G in its SLB framework, so it included a KPI from each of the three major components of its published ESG goals:
- Environmental: 35% reduction in emissions intensity by 2030.
- Social: 28% racial and ethnic representation in its workforce by 2025.
- Governance: 40% women representation on the board by 2025.
- Learning curve for KPI goals. “Don’t underestimate the learning curve for determining ESG goals,” Mr. Bueckert warned. It takes more time than you anticipate. But investors will appreciate the research effort and the explanations behind the KPIs, especially since there is no standard guidance.
- Much of the time spent with investors will be educating them on the ambitiousness of the goals and how the company plans to achieve them.
- In some cases, progress against ESG goals may not be linear, so it’s important for both internal and external stakeholders to understand what progress looks like over the forecast period.
- Also highlighted: the increasing importance of Scope 3 emissions reduction and how companies measure and address their ability to impact these emissions as regulations and standards get set.
- Second Party Opinion critical for firsts. The Second Party Opinion (SPO) confirming the ambitiousness of the company’s ESG goals is an important factor in an investor’s evaluation of a SLB framework.
- Enbridge worked with ISS ESG on a SPO for its SLB framework, both because they liked ISS’s approach and their commitment to meet the company’s timelines.
- In some instances, ISS ESG had no midstream peers or international standards to compare Enbridge’s ESG goals against, so they, too, had to be a trailblazer in assessing Enbridge’s SLB framework.
- Investor dialogue important. In addition to Enbridge’s history of sustainability reporting, it has a good track record of dialogue with investors related to ESG. It is important to align your ambitions with those of investors.
- According to Mr. Bueckert, investors have always had access to the company ESG team, so the two days of calls to educate investors on the SLB framework had a solid foundation. Also, investor sophistication on ESG can vary, so it also helps to know where everyone stands before going in.
- Treasury as facilitator. Treasury acts as a good facilitator of dialogue between the ESG/sustainability team and investors, especially on the debt side. By facilitating investor conversations, treasury gains a better understanding of how it can support the sustainability team with initiatives and vice versa.
- Finally, treasury is not the expert on the performance of the company against the targets, so it needs to facilitate access to those within the company who are.
- SLB frameworks are living documents. Establishing treasury’s role in the framework conversation is also important as these will be living documents.
- As the company meets its goals, these will be replaced with different or higher metrics. Plus, as standards and benchmarks emerge, investor expectations can change.
- Finally, there is a hope that the S and G goals will be less of an issue in 2025 as diversity initiatives succeed.