Operation Private Markets: A Bridge CO2 Far

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Aramco's lease-lease-back transactions of oil and gas pipeline networks were worth USD27bn in 2021.

These public-to-private transactions require bridge financing, and we argue that the bridge loans providers 'own' the carbon footprint until the loans are refinanced with implications for year-end 2021 investor exposures.

In particular, we believe bond and equity investors in HSBC, Citi and JPMorgan should consider what impact the banks’ bridge transactions have on investors’ own carbon footprint. We estimate aggregate Aramco lease-lease-back transaction bridges to have footprints of around USD27bn and to be several hundred million tonnes of CO2 equivalent Scope 3 emissions.

Two key transactions in terms of fossil-related funding in 2021 have been the lease-lease back transaction on behalf of Saudi Aramco and the company’s domestic oil and fossil-gas networks. Both transactions are, according to sources, being funded by bridge loans until other funding (suggested to go via public bond markets) are put in place.

As significant carriers of the risks that the deals fall through, bridge loan providers should earn the carbon footprint of the underlying assets if one applies a snapshot method of carbon accounting.

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