Brookfield deal underscores continued demand for sustainable finance

Brookfield's sustainability-linked loan aims to reduce CO2 emissions and shows the expansion of sustainable finance in the energy |amp; utility sector.


In the first quarter of 2020, Brookfield Renewable Partners – a carbon-neutral investor and operator of one of the world’s largest publicly traded renewable power platforms – announced a revolving credit facility (RCF) structured as a sustainability-linked loan (SLL) with CO2 emission reduction targets determining the financing rate (BNP Paribas was the sustainability-structuring agent, the first for the bank in Canada).

The RCF is the latest evidence of the exponential growth of SLLs among energy and utility companies. Overall, sustainable loans volume jumped by nearly 2.5 times year-over-year in 2019, with nearly $163 billion in global green and ESG loan volume coming to market [1]. SLLs incorporate a pricing mechanism linked to a borrower’s ESG performance. What has started out as a way for ‘green’ or environmentally conscious companies to align their operations with ESG standards has now expanded to utilities and traditional oil and gas firms looking to accelerate their sustainability transitions.

In the case of Brookfield Renewable Partners, whose portfolio consists of hydroelectric, wind, solar and storage facilities in the Americas, Europe and Asia, this financing highlights that SLLs can benefit carbon-neutral companies as well. The RCF’s pricing incentive modifies the firm’s cost of debt depending on whether it meets pre-determined CO2 emissions reduction levels by expanding its renewable and clean electricity generating capacity. This alignment ultimately reflects the vision of placing sustainability at the core of its business strategy. Brookfield Renewable Partners’ renewable power portfolio helped to reduce CO2 emissions by 25 million tons in 2018.

“The sustainability lending space has grown rapidly worldwide,” says Sonja Volpe, CEO of BNP Paribas in Canada. “BNP Paribas is proud to be a leader in renewable energy financing, and sustainable finance more broadly.”

COVID-19 and its Effects on the Energy Transition

The Coronavirus pandemic has caused a massive global economic shock – but has it opened up the opportunity for borrowers and investors to accelerate the adoption of sustainable finance? And does the pandemic highlight the possibilities of sustainable finance, whose tools companies may use to support their efforts to reshape their long-term business models?

In the last few years, global banks and other financial institutions have been looking to drive forward the construction of a sustainable financing framework that supports the United Nations Sustainable Development Goals (SDGs).

For BNP Paribas, it is a chance to make the tools of sustainable finance even more accessible to borrowers and investors. The bank was behind more than €15 billion in renewable energy financing in 2018, its total financing for the energy transition and the UN SDGs reaching €168 billion that year. The bank has also consistently been among the top three bookrunners of green bonds in the past few years.

Recent highlights from the energy and utility sector include: 

[1] According to Refinitiv LPC