As a company with primary operations in the oil and gas sector, Repsol is a challenging prospect for sustainable finance and is scored brown in Natixis CIB’s green weighting factor. But the company has a clear and credible plan for low-carbon transition in place.

Repsol published its transition financing framework in July 2021, which laid the foundations for it to issue use-of-proceeds (UOP) and sustainability-linked debt instruments to fund its plans.

The framework was the first in the oil and gas sector to incorporate applicable recommendations from the International Capital Market Association Climate Transition Finance Handbook.

The key to Repsol’s transition strategy is that it has two arms to its business – oil and gas, and renewable energy – and that it is taking cash generated by the oil and gas operation and reinvesting it in renewables.

The green financing framework allows Repsol to fund assets that are eligible as green under the EU taxonomy through UOP debt, while at the same time applying sustainability-linked KPIs for all its other projects that are funded through general corporate purposes facilities.

Olivier Menard, Natixis CIB’s head of APAC green and sustainable hub, tells KangaNews Sustainable Finance: “We have worked with Repsol to select the best KPIs for its business, which cover its carbon intensity. Its trajectory has to be science-based, so we used scenarios from the International Energy Agency to ensure the decarbonisation pathway is scientifically aligned. There are also interim targets structured into the financing.”

Repsol successfully issued its first sustainability-linked bond in 2021: an eight- and 12-year dual-tranche transaction with combined volume of €1.25 billion (US$1.4 billion). The transaction gathered total demand of around €2.75 billion. Natixis CIB was sustainability structuring adviser and global coordinator on Repsol’s framework and bond transaction.

DCI’s case has some similarities, specifically the fact that some of its data centres are already sufficiently energy efficient to qualify for UOP funding while others need further investment in energy efficiency.

In November 2021, Brookfield signed a A$160 million (US$119.7 million) green UOP and sustainability-linked loan to refinance the DCI portfolio in Australia and New Zealand.

The financing refers to DCI’s sustainable finance framework, which was drafted to allow the company to put sustainability-linked features as well green UOP debt tranches in place.

“We were able to structure financing with a green tranche covering the qualifying assets while also, at corporate level, using targets to incentivise DCI to improve its average energy efficiency,” Menard explains. “The company needs to maintain its green assets at the same time as it is upgrading the other ones.”