Saudi state-owned oil giant Aramco has been added to the target list of Climate Action 100+ (CA100+), coinciding with its second international bond sale.
The world’s largest producer of oil & gas is one of nine firms to be added to the heavyweight investor group’s engagement programme, which seeks to steer the highest emitting companies globally toward trajectories aligned with Net Zero. Other additions include Mexico’s Petróleos Mexicanos (PEMEX) – also state-backed – which is the second largest oil & gas firm in Latin America.
The timing of the announcement is significant, coming as Aramco borrowed a reported $8bn from international investors via the bond markets today. The firm, which has suffered a drastic dip in income on the back of the 2020 oil slump, has reiterated its $75bn dividend target, most of which will be paid to its main shareholder, the Saudi government.
The bonds were sold in 3, 5, 10, 30 and 50-year tranches.
Lead banks on the deal are understood to be Citigroup, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley and NCB. There have been concerns raised by responsible investors over the credibility of financial institutions making loud statements of support for the Paris climate agreement while simultaneously enabling the world’s largest oil company to build up access to institutional capital.
“I note that Climate Action 100+ members HSBC and JP Morgan are lead banks on this,” said David Hickey, Portfolio Manager at Lothian Pension Fund in the UK on LinkedIn. “Yes, it's different parts of the business to those participating in CA100+, but what's the point in engaging in one part of the business and then actively participating in funding this in another part?”
Last year, CA100+ told RI it had “no plans” to add Saudi Aramco to its focus list, but the change in thinking and the timing of the announcement suggests that some members are expecting to become significant bondholders in the firm as a result of the new transaction.
One of the most vocal participants in CA100+, Head of Engagement and Ethics for the Church of England Pension Fund, Adam Matthews, took to social media yesterday to say: “Given the 10, 30 & 50 year bonds that Saudi Aramco are offering today it would be useful to know what evidence they have provided of their climate resilience”.
Mark Campanale, co-founder of think-tank and CA100+ partner Carbon Tracker, told RI that “there is room for engagement with Aramco, but it needs to be about stress testing the viability of the full range of projects they're planning, to see whether they are compliant with Paris; and admitting that there is a clear carbon budget which may require them to retire assets in the future”.
But climate concerns do not seem to have diminished investor appetite for the Aramco deal, with Bloomberg reporting that the order book hit $50bn. Similiarly, its $12bn maiden offering last April was described at the time as being “so robust it allowed the energy giant to borrow at a lower yield than its sovereign parent”, becoming “one of the most oversubscribed debt offerings in history”.
Later that same year, the company listed 1.5% of its stock on Saudi Arabia’s Tadawul exchange in a record-breaking initial public offering that raised $25.6bn.
Federated Hermes and Bluebay Asset Management will lead on Pemex.
Other additions to CA100+’s focus list are German utilities Uniper, Columbian cement and energy producer Grupo Argos, Australian chemicals manufacturer Incitec Pivot, Papua New Guinea-based Oil Search, Australian extractive explosives supplier Orica and India’s UltraTech Cement.
Mining firm Southern Copper has been swapped for its parent company, Grupo México, on the list; while Australian retailer Westfamers was delisted following “de-mergers and asset sales” that rendered it a “substantially different company”.
UPDATE: The original version of this article stated that PIMCO was understood to be leading CA100+ engagement with Saudi Aramco. Since publication, a spokesperson for CA100+ has said that PIMCO won't lead on the company. CA100+ declined to disclose the investors that would.