Teekay Shuttle Tankers is under investigation by Norway's environmental crimes unit just months after the ship operator struggled to raise a controversial green bond to help finance the purchase of energy-efficient oil tankers.
The National Authority for Investigation and Prosecution of Economic and Environmental Crime (Okokrim) in Norway last week raided the Stavanger offices of Teekay Offshore on suspicion of illegally disposing of a shuttle tanker in south Asian scrapyards.
The incident highlights the conflicts facing green investors who are asked to back a strategy to reduce pollution from a company working in the oil and gas industry.
Teekay got a cool response from investors for a five-year floater in October with the deal dogged by questions over whether the green label was suitable for a bond that would help finance oil tankers. It eventually raised US$125m, less than the US$150m-$200m the company was initially aiming for.
The bookbuilding process was also sluggish with the bond pricing at 650bp over three-month Libor, equivalent to a yield of about 8.50% in fixed-rate terms.
Most green bonds only bind the company to hold onto a certain pool of environmental projects or assets throughout the lifetime of a bond, and those assets are often only a small subset of the borrower's balance sheet.
"You could in theory have 90% polluting activities or assets and still issue a green bond for the 10% activities that are carbon neutral," said an ESG banker.
It also means that ESG-related controversies do not tend to directly impact the functioning of a green bond, once issued.
"The use of proceeds arguments shows how a lot of the green bond debate totally misses the point," said a green bond analyst.
"Use of proceeds does not mean an investor is absolved from what the company does overall."
INDIRECT ISSUE
The investigation into Teekay's activities is unlikely to be a direct issue for its green bond investors but it will make ESG-focused investors think twice about buying future green bonds from the company, said a US-based green bond investor and the ESG banker.
"It doesn't make the company look very good from a 'sustainability' standpoint," said the investor.
Investors increasingly want green bonds to be consistent with a company's overall sustainability strategy, said the ESG banker.
And many sustainability investors have broader controversy or ESG screening measures when they consider buying green bonds.
Still, it highlights a lot of the frustrations some have with the green bond sector, where there is no universal standard or broader accountability.
THE CASE AGAINST
The majority of the world's ageing ships are broken up on beaches in Bangladesh, Pakistan and India - often in unsafe conditions, say campaigners.
Teekay Shipping Norway is suspected of illegally sending a shuttle tanker to Alang, India, to be scrapped in violation of Norwegian and EU regulations concerning waste exports.
European courts, using tougher regulations, have increasingly been fining shipping companies for hazardous waste disposal.
Norwegian police have not yet reached a conclusion over whether Teekay's vessel can be considered as waste before sailing from Norway.
"We want to be open and transparent about our ship recycling practices, as we always have been," said a Teekay Offshore spokesperson in an emailed statement to IFR. "At the same time, we need to acknowledge the ongoing investigation and respect the related processes."
Teekay's green bond will part-finance four new energy-efficient shuttle tankers - specialist vessels that transport oil from offshore fields instead of pipelines.
A report on the bond by second-party opinion provider Cicero said each shuttle tanker features annual carbon dioxide savings of 47% compared with other tankers operating in the North Sea.
Bermuda-headquartered Teekay's bond was rated light green by Cicero, indicating 'good' governance procedures.
"At the time of the second opinion process for Teekay's green bond framework, we inquired about their recycling policies," said Christa Clapp, research director of climate finance at Cicero. "As we noted in our opinion, the issuer informed us that vessels will sail under the Norwegian flag, hence the ships will be recycled according to the EU Ship Recycling Standard."
Cicero is closely monitoring the situation.
"We will follow along as further information is released related to the investigation."