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Global commodity trader Trafigura is set to secure a new sustainability-linked revolving credit facility (RCF) as it works to cut its carbon footprint and boost renewables, though the firm says it has no plans to shift away from oil in the coming years.

Having published its first ever emissions reduction target in a responsibility report last month – which will see the commodity trader work to cut its own direct and indirect emissions by 30% in the next three years – Trafigura is preparing to sign a sustainability-linked RCF in March.

In an interview with GTR, Trafigura’s Laurent Christophe, group treasurer at the Swiss-based trader, says the company will ink a new sustainability-linked multi-currency RCF in late March with two separate tranches.

The deal will refinance an existing one-year European multi-currency RCF and extend a three-year RCF, and is expected to have a total value of US$5.5bn.

Christophe declined to name the banks that are taking part, but says the RCF will include 50 banks that are broadly similar to those involved in previous years.

He explains that the RCF isn’t asset-based but is linked to three overarching key performance indicators (KPIs) of its operations, which include cutting greenhouse gas emissions, growing its renewable energy portfolio, and bringing its sourcing of metals in line with those outlined by ISO 20400 – an international standard for sustainable procurement.

Trafigura will either gain discounted rates if it meets its KPIs, or face penalties if it fails to keep pace. A third-party firm – ERM CVS – will be tasked with assessing whether the trader is hitting its goals.

“Each year there will be a backward-looking assessment, where we will provide a KPI report as well as a compliance certificate. That will be delivered to the ERCF facility agent. And based on our performance, we will either benefit from some reduction in margin, or we have to pay a penalty to the banks,” he explains.

There is a growing trend towards sustainability-linked loans in the energy commodities space, following the first such deal struck by Gunvor in late 2018 – which also saw the trader gain a discounted rate for meeting certain requirements on areas including CO2 emissions, as well as waste and water management.

Speaking about the reasons for this, Olivier Bazin, partner at law firm HFW, notes that there is now a consensus among global banks and international trading houses that sustainable finance “not only brings cheaper funding; it is the right thing to do”.

Bazin tells GTR that lenders and corporates alike have come under increasing pressure from regulators, shareholders and civil society to stop financing carbon-heavy industries, namely coal, and shift towards sustainable business practices.

Yet, for the meantime, he says that sustainability-linked loans are yet to become a “new normal” in the industry.

 

Slashing CO2

The KPI for reducing greenhouse gas emissions in Trafigura’s RCF will measure the firm’s performance in reducing scope one and two emissions, and reaching the 30% target set out in its responsibility report.

Scope one emissions are direct emissions from its own operations, such as combustion in boilers, furnaces, vehicles or vessels. Meanwhile scope two emissions are associated with the electricity Trafigura purchases for driving its activities.

To make such drastic reductions in these greenhouse gas emissions – in effect, 10% per annum – the firm will work to improve its energy efficiency across its operations, Christophe says.

According to the January responsibility report, other potential actions include making capex investments in more energy-efficient technology, using offsetting where residual emissions cannot be avoided, and securing renewable electricity – to power the company’s energy intensive smelters, for instance.

A potentially trickier prospect is the reduction of scope three emissions, though, which are borne out of the activities of assets or organisations Trafigura doesn’t own. These sources made up around 77% of the group’s total emissions last year.

With the sustainability-linked RCF also judging Trafigura’s ability to reduce such emissions, Christophe says that “the challenge here is significant”.

He notes that because Trafigura has “very few” vessels of its own, and relies on third-party charter ships to transport goods globally, the company has to work with vessel owners and others to reduce scope three emissions.

Christophe points to Trafigura’s advocation of greener fuels in the shipping industry, for instance, and notes that the company made the “unpopular” suggestion of a carbon levy on shipping fuels last year.

At the same time, a Trafigura spokesperson adds that the company is looking to deploy tactics to try and use the most fuel-efficient ships on offer, including measuring the emissions generated by the ships it charters.

For the meantime, however, Trafigura is yet to set a specific reduction target for this type of emissions, and scope three emissions even rose by more than 20% in 2020. Its January responsibility report pointed to an increase in shipping emissions and an improvement in the scope and accuracy of its reporting as reasons for this jump.

 

Oil not going anywhere

Another key KPI for the upcoming sustainability-linked RCF will be the extent to which Trafigura grows its renewable energy capacity.

In late 2019, the Geneva-based commodity trader established a new power and renewables desk, and hired a global team of specialists in the US, Geneva and Asia to build up the unit.

More recently, in October 2020, Trafigura finalised an agreement with Australian investment management company IFM Investors and set up Nala Renewables as a joint venture company with the aim of investing in several solar, wind and power projects globally.

Over the course of the next five years Trafigura has earmarked US$2bn in investments for renewable energy projects.

The plan is to make the power and renewables division “comparable in size” to the other key pillars in the firm – oil and petroleum products, as well as metals and minerals – over time, Christophe says.

But despite the move to boost renewables Trafigura is making no plans to cut oil from its energy mix.

Speaking about Trafigura’s oil activities more broadly, Christophe says it will remain “business as usual”.

Though he notes that there is an increasing demand for low carbon intensity production and transportation of oil and petroleum products, as well as across metals and mineral global supply chains.

“We are committed to the energy transition to lower or zero carbon-emitting fuels, but the need for oil will still be there for the foreseeable future… Oil isn’t going to disappear from our energy mix, but what we are doing is to grow our power and renewables business,” he adds.

In the final weeks of 2020, Trafigura even expanded its oil operations by acquiring 10% of the major Vostok Arctic oil project being run by Russia’s state-backed oil company Rosneft.

As part of the agreement, Trafigura will gain access to supplies of crude oil from Rosneft, including barrels produced by Vostok Oil, with local media reports stating that the project will eventually produce 100 million tonnes of oil per year.

A Trafigura spokesperson says that the minority investment in Vostok Oil won’t affect its greenhouse gas emissions reduction targets, however, and that emissions from the project will be included in its scope three emissions figures.