The bonds would tie borrowing costs to key performance indicators including reducing carbon emission, increasing the representation of women on its board of directors as well as racial and ethnic groups across its workforce. Such metrics were used for a C$1 billion ($814 million) sustainability-linked credit facility signed by the company in February. The deals come as Enbridge faces growing opposition from environmental groups to its network of oil export pipelines.
“Assuming we get the right feedback from investors, how I think it will play out is that we will have support to have a dollar offering because it’s probably the most mature market,” Max Chan, Enbridge’s vice president of treasury, said in a video interview Wednesday, referring to issuance in the U.S. currency. “Following that, there will be a high demand from Canadian investors for us to do the same thing to the Canadian debt markets, which would be a logical assumption on how this plays out for Enbridge.”
Enbridge follows Telus Corp. this week in releasing a sustainability-linked bond framework. The Canadian telecom company’s inaugural issue may have a maturity of 10.5 years, according to a prospectus for the potential deal. Among energy companies, Italy’s Eni SpA last week became the first oil company to sell euro bonds tied to cutting carbon emissions. In the U.S. dollar market, shipping company SFL Corp. Ltd. sold $150 million of such notes in April. In the wider sustainable debt markets, Canada’s federal government has also hired advisers for an inaugural green bond, which uses proceeds to support environmentally friendly projects.
Enbridge is striving to improve its image, investing in wind and solar energy and entering into the business of producing and distributing hydrogen. More than 200 people were arrested last week in Minnesota during a protest over Enbridge’s planned replacement and expansion of its Line 3 pipeline, which will carry Canadian oil sands crude from Alberta to Wisconsin. Michigan’s governor is trying to shutdown another Enbridge pipeline called Line 5, which crosses the Straits of Mackinac and is seen as a threat to the Great Lakes.
Sustainability-linked bonds are a nascent asset class that generally penalizes issuers with higher borrowing costs should they fail to meet certain environmental, social and governance metrics. If the issuer meets or exceeds the targets, the coupon remains unchanged.
“We see sustainability-linked bonds as becoming a permanent part of the capital markets,” Chan said. “We would probably expect to utilize that as a regular feature in our funding plan.”