Over half of carbon-intensive debt set to mature before the end of 2030

Carbon-intensive issuers have increasingly depended on shorter-term debt, says the London Stock Exchange Group

More than half of carbon-intensive debt will mature before the end of the decade, creating headaches for issuers and investors, according to a London Stock Exchange Group report.

With $5.5tn in global carbon-intensive debt outstanding as of June 2023, $3.2tn of this total will mature before the end of 2030, LSEG says. This figure includes $931bn in debt held by the electric utilities sector and $669bn in oil and gas. 

With an average issuance size of $235mn, carbon intensive-debt is usually larger than other types of non-financial corporate debt. It also has longer “tenor”, which refers to the length of time until it matures, and secures higher credit ratings.

“With obligations for new medium-term debt now commonly stretching into the 2030s and long-term debt obligations extending to the 2040s and beyond, carbon-intensive debt refinancing presents issuers and investors with increasingly urgent and complex challenges,” the report says.

“Issuers may struggle to refinance maturing carbon-intensive debt with a similar volume and tenor, or have to accept that investors may look for higher risk premia to compensate for taking on growing transition risk,” it warns. 

The LSEG notes that the uncertain economic backdrop and rising interest rates have pushed carbon-intensive sectors towards shorter-term debt, bringing down the weighted average tenor of carbon-intensive debt issued every year from 7.4 years in 2010 to just under 4.2 years in 2022. Short-term financing typically carries floating interest rates, while longer-term debt tends to have fixed rates.

The report also points out a limited role for green debt in carbon-intensive sectors, which in 2022 only accounted for 8.2 per cent of their issuance and 7.7 per cent of the sectors’ total outstanding debt.

You can find the full report here.