ESG: NRG’S TRANSFORMATION
Alexander Funding Trust pre-capitalised trust securities (1.841% senior secured notes), or P-caps, redeemable in November 2023. Proceeds from the P-caps offering, which will be kept locked up in the trust, are designed to support letters of credit, which NRG needed to back collateral obligations associated with Direct Energy’s trades.
Deutsche Bank’s corporate and institutional client coverage teams orchestrated the provision of multiple services to the overall debt package. These include trust and agency services, such as bond trustee, registrar, paying agent, transfer agent, collateral agent, administrative agent, account bank, and Delaware Trust services provided by Deutsche Bank Trust Company Americas to all of the issuances, and a letter of credit provided by the bank’s trade finance franchise in relation to the P-caps.
Gaetan Frotte, Senior Vice President, Interim Chief Financial Officer and Treasurer at NRG Energy, describes these services as integral to NRG’s funding strategy, ensuring its accountability to investors in meeting its climate goals. “The SLB, in particular, reflects our commitment to reducing GHG emissions. By tying our business and financing to our climate goals – supported by Deutsche Bank’s trust and agency services, which is facilitating the overall issuance, and the bank’s trade finance franchise, which is providing guarantees to support this transformational acquisition – we are well on track towards a net-zero future.”
Gerald Podobnik, CFO and Chief Sustainability Officer of Deutsche Bank Corporate Bank, says that the bank is seeking to play an active role in achieving the targets set out in the 2016 Paris Agreement: “In doing so, we will assist our clients in implementing their sustainability strategies and monitor their achievements over the longer term as well.”
Rating sustainable financing NRG obtained a second-party opinion of its SLB framework by Moody’s affiliate Vigeo Eiris (V.E). The benchmarking firm, which provides environmental, social and governance (ESG) assessments, data, research, benchmarks and analytics, graded the sustainability-linked pricing metric used by the company on its novel bond “advanced”, which is its highest rating.
Benjamin Cliquet, Head of Sustainable Finance Business Development at V.E, notes that NRG was not the first to issue
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Princeton Green Roof
Figure 1: NRG’s climate transition strategy and goals (MMT of CO2
equivalent emissions)
70 60 50 40 30 20 10 0
NRG climate transition NRG targets
Net zero
2014
2019
2025
2050 Source: NRG
an SLB (it was preceded by Italian energy company Enel, Brazilian pulp and paper company Suzano, Swiss pharmaceutical firm Novartis, and French fashion house Chanel), and it had previously used the sustainability-linked mechanism in the loan market. “For the past three years you had many energy companies working directly with banks, which included this mechanism in loans,” he says. “Then, in 2020, the bond market began to follow, and while NRG was among the first issuers of a linked bond, the company has been working on similar approaches in the loan market.” Cliquet expects the SLB market to grow as other US utilities study it with the intention of issuing in 2021.
NRG also obtained an updated ESG risk rating from Sustainalytics. The company reviewed various ESG factors relevant both generally across industries and specific to NRG’s business and provided an ESG Risk Rating score of 31.8 on a scale of 0–100 (with 100 being the most severe risk rating), representing a significant 7.9-point improvement from its 2019 risk rating of 39.7. The rating places NRG in the 36th percentile (172nd lowest risk out of 483 companies) of its industry group (Utilities) and in the 16th percentile (10th lowest risk out of 59 companies) within its sub-industry group of Independent Power Producers and Traders.
The ratings provider also noted that NRG “exhibits strong corporate governance performance, which reduces its overall risk. The Carbon – Own Operations category is NRG’s second most material ESG issue after Emissions, Effluents and Waste, and
this Framework outlines the steps NRG is taking to address this issue. Furthermore, NRG is noted for not having experienced significant controversies”.
Powering ahead
On 5 January 2021, Mauricio Gutierrez, CEO of NRG, highlighted the acquisition of Direct Energy as a “new era” in the company’s transformation into a sustainable energy retailer. “Together we will embrace the modern low-carbon economy by leveraging best-in-class tools and technologies to better serve our customers,” he said in a video interview about the deal.10
The company also provided a glimpse of what businesses, homes and communities in America can expect it to deliver in support of their sustainable goals. Going forward, it will be easier for them to access over 1.8GW of renewable power contracted, on demand. Households can also look forward to charging home vehicles. As the saying goes, real transformation requires effort. And as NRG is showing, it needs the right energy too.
Sources 1
See
https://bit.ly/3881BOn at
nrg.com
2 See
https://bit.ly/2RwdFn4 at
houstontx.gov 3 See
https://bit.ly/2Nz1CUr at
power-eng.com 4 See
https://bit.ly/3h8T3Mh at
investors.nrg.com 5 See
https://bit.ly/3aYTxBk at
nrg.com
6 See
https://bwnews.pr/3qYOy9c at
businesswire.com 7 See endnote 6
8 See
https://bit.ly/2O3xwYS at
investors.nrg.com 9 See
https://bit.ly/3sveUzT at
investors.nrg.com 10 See
https://bit.ly/3dLIdKx at
youtube.com
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