As debt investors seem to be looking into how much an energy company is polluting, the bond market may be seeing higher funding costs for those companies polluting more – showing the rising importance of Environmental, Social, and Corporate Governance (ESG)-compliant investments at the time when regulators, skeptics, and Bitcoin (BTC) competitors are targeting energy-intensive BTC mining.
It seems that the ESG concerns are being included in the funding costs for oil and gas companies. According to a recent S&P Global Ratings report, awareness of ESG risk facing oil and gas companies has grown in the past few years, particularly in the past weeks, and companies are facing pressure to account for and minimize their carbon footprints.
Citing S&P data, Bloomberg reported that bond investors are starting to differentiate between energy firms that are polluting more and those polluting less.
They’re also differentiating between European energy firms, which have committed to larger climate change goals than American firms. “[We’ve] recently observed contracting bond tenors and widening spreads for North American oil and gas debt issuers, relative to those of European peers and the broader corporate fixed income universe, suggesting that investors’ growing focus on ESG and credit risk may be affecting demand for new issuance from oil and gas companies,” an S&P credit analyst was quoted as saying.
Therefore, this suggests that greener oil and gas companies are able to sell new debt at a lower cost than the more polluting firms.
Also, S&P found that more than half of ESG-linked funds outperformed the S&P 500 during the first half of 2021. Furthermore, out of the analyzed 27 ESG exchange-traded funds and mutual funds with more than USD 250m in assets under management, 16 performed better than the benchmark equities index from Dec. 31, 2020 to May 17, 2021 — rising between 11% and 29%, while the S&P 500 grew almost 11%.
Additionally, they noted a number of ESG-related developments worldwide and across industries: the sustainability-linked bonds are taking off, passive investors are carbon-optimizing their portfolios, various companies are engaging with voluntary carbon credits, governments are considering divesting from fossil-fuel stocks, and structured finance sectors are looking to minimize their exposure to ESG risks.
Per S&P Global’s post on June 16, Geneva-based trading house Mercuria CEO Marco Dunand said that they are “working with some Bitcoin producers in order to supply them with renewable power,” predicting the emergence of “green” cryptocurrencies.
“There’s a lot of… ideas coming across and I have very little doubt that we’re going to see a green-type Bitcoin, but I don’t know how soon,” he added.
The “urgency level” around the energy transition had increased with growing scientific knowledge, availability of data and political support, according to Dunand.
Meanwhile, in a Bitcoin Mining Council “inaugural” online meeting this week, Riot Blockchain CEO Jason Les argued that in a way, the oil industry and Bitcoin mining are complementary to one another: oil extraction process produces a large amount of methane, which is highly damaging for the environment and which would go entirely unused were it not for miners rising to utilize it as a cheap energy source.
That also means that the miners are solving the problem for oil fields which deal with environmental concerns, regulations, and criticism, he said.
Also, US-based software developer MicroStrategy CEO, Michael Saylor, said that the Council is there, not to “fix” Bitcoin, but defend it from people who “misunderstand” it, which could cause politicians to move against Bitcoin or cause negative ESG media narrative – which may also ripple into a political narrative – that would undermine Bitcoin adoption.
“If we want to secure Bitcoin for a hundred years, you want publicly-traded Bitcoin miners,” as companies can invest millions into the industry, according to Saylor.
“Bitcoin has external threats,” Saylor said, adding that “the threat is not bitcoiners talking to each other and cooperating with each other. The threat is people that don’t understand Bitcoin” who will attack it from the outside – these “enemies” are loud and organized.