The AFII View

BP's bondholder divestment risk with oil & gas output increase

Written by Justine Leigh-Bell

BP’s reported pivot away from renewables to increased oil & gas production in response to shareholder activist pressure leaves open a major unanswered question for the heavily indebted company: how will its bondholders react?

Looking at BP’s recent benchmark issuances (BPLN 3.36 09/12/31, 5.067 12/36, BPLN 5.773 05/48), significant bondholders including Allianz, Caixa Bank AM, Robeco, Invesco, M&G PLC, Marsh & McLennan, and Legal and General, have decarbonisation targets. 

If BP is to follow a short-term return strategy under hedge fund pressure that abandons its emissions reduction targets, this is a material change to investment mandates where these bondholders may need to divest.

While there may be short-term profit gains for BP recalibrating its focus to oil & gas, the long-term risks to BP’s credit will be determined by the pace at which the company transitions. Bond investors with climate mandates that are invested in BP’s $66bn outstanding bonds will pay close attention as a turn back to fossil fuels would not only lead to higher emission outcomes in their portfolios but also increase their exposure to stranded assets as oil & gas demand declines.

Bondholders are in a strong position to influence BP’s longer-term ability to access capital and should be front-of-mind for the company at its investor day today. 

We are reaching out to bring bondholders together to request that BP’s Chair addresses the risk that this potential pivot away from the energy transition entails.

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