Shell, Enbridge, and Drax have all secured sizeable financial backing in the form of sustainability-linked loans (SLLs) from major banks, which promise lower interest rates in exchange for commitments to improve their environmental impact. However, unlike typical green loans, SLLs do not enforce stringent accountability measures. Companies are not obliged to allocate these funds towards their environmental goals, and key details such as interest rates and success metrics remain undisclosed.
In the past few years, a staggering $286 billion in SLLs has been distributed to companies across sectors that have been criticized for their ecological footprints, including fossil fuels and mining. Investigative findings have revealed that nearly 20% of these loans have been issued to corporations contributing significantly to environmental degradation, supporting practices that may do more for corporate reputations than for actual sustainability.
As climate change accelerates, with record-high emissions and temperatures, there is growing pressure on top polluters to reform their operations. Yet, evidence indicates these loans sometimes finance the expansion of operations that increase pollution. Richard Brooks, a climate finance director at Stand.Earth, commented that these financial instruments do not prompt real changes and are predominantly designed to disguise business activities that would otherwise be seen as detrimental to the environment.
For instance, Enbridge, shortly after obtaining an SLL, enhanced a pipeline used for transporting tar sands oil, a move projected to elevate carbon emissions significantly. Meanwhile, Drax’s series of SLLs, touted as a transition to cleaner energy via wood pellets, has been criticized by experts as potentially having a greater negative impact on the climate. Companies receiving these loans often publicize ambitious sustainability plans but fail to clarify which goals are binding—a common trend observed during the investigation.
Several firms employ “emissions intensity” as a metric for gauging environmental impact, which measures efficiency relative to production instead of overall emissions, leading to misleading narratives. For example, a company might report reduced methane emissions per animal while increasing herd size, thus producing larger total emissions.
From the bank’s perspective, issuing SLLs provides the dual benefit of substantial multi-year contracts with large corporations and contributing to their own sustainable lending objectives. Advocates of SLLs argue these loans are fundamentally beneficial since they are open to a wide array of companies striving to enhance their environmental performance outside of specific projects, theoretically catalyzing broader positive effects.
Over the years, Drax Group—advertised as a leader in renewable energy with over $10 billion in reported revenues—has pursued multiple SLLs. The terms of these loans, however, often lack clarity. The company faced scrutiny for environmental violations at its Mississippi wood pellet facility, ultimately leading to substantial fines.
Between 2018-2023, over 40 entities within the wood biomass sector obtained SLLs totaling more than $76 billion. This industry often presents itself as a greener alternative to fossil fuels, asserting that harvested forests will regrow to offset emissions. Despite this claim, most climate scientists reject the idea, arguing that the rapid regrowth necessary to counterbalance emissions from burning wood is fundamentally unrealistic.
Drax’s borrowings have coincided with plans for expansion in the U.S., despite long-term warnings from experts regarding the adverse climate effects of biomass energy. Critics emphasize that emissions intensity metrics are inadequate measures of climate progress.
In recent communications, Drax defended its sustainability strategy, citing reductions in emission intensity, but did not acknowledge the significant emissions stemming from biomass combustion. In late 2024, Drax secured its most substantial SLL ever, further advancing its operations in the U.S.
Enbridge and Shell have similarly faced scrutiny over claims of sustainability. Following the approval of a high-capacity pipeline, Enbridge announced an SLL centered around “environmental goals,” amid ongoing community protests against the project’s ecological implications. The company’s claims of reduced emissions intensity are contested as they account solely for operational emissions, neglecting the larger emissions from fuel combustion.
Shell, which received a significant SLL in 2019, has reversed critical climate commitments in the ensuing years, triggering skepticism regarding the effectiveness of SLLs in driving genuine environmental progress.
Meanwhile, Royal Golden Eagle, an Indonesian conglomerate, has faced allegations regarding its environmental promises linked to its SLLs, suggesting that deforestation has continued despite commitments. The increasing trend of granting SLLs with insufficient accountability has raised alarms regarding the potential for greenwashing among large corporations, where the benefits of these arrangements often outweigh their environmental impact.
As the market for sustainability-linked loans continues to evolve, numerous stakeholders have voiced concerns over the potential for misuse, with regulatory bodies issuing warnings about ineffective targets and the likelihood of conflicts of interest. Recent studies indicate that companies with SLLs often display declining environmental performance post-loan approval.
The widespread acceptance of SLLs underscores a tension between financial incentives aimed at improving environmental practices and the actual outcomes for the planet, as many companies pursue loans without making requisite changes to mitigate their ecological impact.
