Once upon a time there was a clear choice between reason and sentiment, between listening to your heart and using your head. Today the choice is not so stark. Indeed, having to choose between profit and social and environmental issues is now an outdated concept. “What are companies for?” was the question on the cover of the August 22nd edition of The Economist. The related article went on to highlight how the business approach of large companies is changing. It is now becoming increasingly clear that an important part of their mission in life involves commitments to solve the considerable socio-economic problems connected to sustainable development.
One of the first to acknowledge this was Al Gore, former vice president of the United States and 2007 Nobel Peace Prize winner, who pointed out that “investing in a model of integrated sustainability produces greater returns.” Today the actions of many companies are confirming his observation. The formula that can be derived from it is “sustainability = value”. The companies paying the greatest attention to the current changes and innovation are actually transforming the business paradigm, and Enel is at the forefront of this change.
Sustainability generates economic growth
The shift towards sustainability is a driver for our Group’s value creation and this is reflected in cash flows that are more predictable as well as constant growth and lower risks.
Between 2015 and 2018 the percentage share of renewables in the Group’s consolidated installed capacity grew from 41% to 46%. During the same period net profit grew by 40% and there was an improvement of 75% in the return for shareholders, as well as an increase in market capitalisation (94%). In addition to this, the risk profile of investments was mitigated and the overall cost of debt reduced. Our Group’s Strategic Plan aims, by 2021, to further increase the share of renewables of the total consolidated installed capacity to 55%, achieving growth in net profit of 37%. In short, by facing up to the challenges of sustainable development and safeguarding the environment, we are creating value for the Group.
Enel’s green bonds
Enel is also playing a pioneering role on the financial front. In recent years the Group has issued three green bonds on the European market. These were issued in order to finance sustainable development projects: 1.25 billion at the beginning of 2017, 1.25 billion at the beginning of 2018 and 1 billion at the beginning of 2019. In total 3.5 billion euros.
But even more important than the overall total is another figure. For the first two bonds the issue price was comparable with standard bonds, while the third was a whole 10 basis points lower. It was perhaps the first time that a company took a green finance project to the market at a lower cost than conventional alternatives. And the demand has not decreased, a signal that our Group’s commitment to sustainability is bringing its own rewards.
Enel’s bond issue met with a positive response from the financial community, as acknowledged by Kyung-Ah Park, Head of Environmental Markets at Goldman Sachs, who said: “We welcome the leadership that Enel is taking in integrating sustainability into its core business and leveraging capital market solutions to finance its sustainability strategy.”
What will the new SDG Linked Bond Programme involve
Green bonds represent a valuable tool but Enel is looking even further ahead. On 5 September we launched the SDG Linked Bond Programme, which concerns not just individual green projects but the overall sustainability strategy.
The programme involves the issuing of single-tranche “sustainable” bonds for institutional investors for a total of 1.4 billion euros (equivalent to 1.5 billion US dollars). The bond issue, the first of its kind and one guaranteed by Enel, met with a very positive response from Socially Responsible Investors (SRI), enabling our Group to continue to diversify its investor base.
The SDG Linked Bond Programme reflects our Group’s commitment to sustainability – Enel is already the world’s leading private operator in terms of installed capacity from renewables – and its contribution to achieving the goal of “considerably increasing the share of renewable energies in the global energy mix by 2030,” as outlined in SDG 7.2. Overall our Group is focused on the creation of value through business choices that support the achievement of 4 SDGs in particular, and today these areas represent more than 90% of the Group’s investments and will generate more than 90% of the EBITDA in the three years from 2019 to 2021:
- SDG 7 “Affordable and Clean Energy” with more than 11.6 GW of extra capacity;
- SDG 9 “Industry, Innovation and Infrastructure” with more than 46.9 million smart meters installed and 5.4 billion euros of investment in innovation and digitalisation;
- SDG 11 “Sustainable Cities and Communities” with investments in retail and new energy services based on electrification, in order to achieve targets such as 9.9GW of demand response and 455,000 electric vehicle charging points;
- SDG 13 “Climate Action” with the commitment to reduce CO2 emissions to a level lower than 0.350 kg/kWheq in 2020, and full decarbonisation by 2050.
The real challenge is to involve the financial community, inviting investors to integrate Environmental, Social, Governance (ESG) factors in their investment choices and convincing the financial ratings agencies to incorporate sustainability factors into their methodologies and assessments. This is in order to reflect these values in companies’ credit scores, to the benefit of investors in bond instruments.
A recognised strategy of sustainability
The bond issue coincides with an event of great global importance, the Climate Action Summit on 23 September in New York, in which our CEO Francesco Starace will be taking part. His involvement confirms the international recognition of our sustainability strategy, which is further underlined by Enel’s inclusion as a LEAD company in the United Nations Global Compact, the world’s leading sustainability initiative for private companies. International collaboration is essential because no country or organisation can solve humanity’s greatest challenges alone, especially those concerning the environment.