The sustainability journey

The sustainability journey

Awareness of sustainability as a financial value is a further leap forward on a journey begun by business many years ago. Today Enel’s SDG Linked Bond is proving that it is a profitable choice

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Fifty years ago the melting of the glaciers had not been photographed, there was no talk of the hole in the ozone layer and tons of plastic had yet to be dumped in the oceans. And still a book published in 1972 foresaw the future. Compiled by MIT (the Massachusetts Institute of Technology) and commissioned by the Club of Rome, “The Limits to Growth” report rang the alarm bells regarding the risks to the planet of uncontrolled growth in pollution, industrial production and population. The report attracted plenty of attention, also because it was coming from an authoritative source, but several decades were to pass before the world truly understood that we needed to change direction, and it took almost half a century for sustainability to be deemed a value from a financial perspective. 

 

From philanthropy to a sustainable business model

The sustainability journey was a long, slow battle for companies and one completed in stages. Initially, the idea was mostly to give back a portion of profits to the collective. A kind of updated take on philanthropy.

The concept of Corporate Social Responsibility (CSR), i.e. the awareness of the ethic consequences of economic activity, dates back to the early 1980s, but it was only in the 1990s that sustainability became part of the business strategies of certain large companies. A fundamental milestone in this was the publication of the Brundtland report by the UN’s World Commission on Environment and Development (WCED) in 1987. For the first time, the environmental question was defined in terms of “sustainable development.

In the meantime, the concept of sustainability was beginning to be translated into guidelines, standards and certifications. Often companies voluntarily applied their own codes of conduct and began publishing sustainability reports in response to calls from investors, public opinion and a growing demand for green products. For many companies sustainability thus became also a communications strategy, a way of improving their reputation and image. 

The first attempt to create a shared standard dates back to 1992 when BSI Group (the British Standards Institute) launched an environmental management standard to help businesses reduce their impact. The BS 7750 standard was, in fact, the forbearer of ISO 14001, which was adopted four years later. In 1999 came ISEA’s (the  British Institute of Social and Ethical Accountability) AA1000 (AccountAbility 1000), which provided third party verification of companies’ sustainability reports.

A major contribution was also made by certain leading green thinkers such as British entrepreneur John Elkington, who devised the Triple Bottom Line (TBL) in 1994, an accounting framework incorporating social, environmental and financial performances. The TBL also underpins the Global Reporting Initiative (GRI), an organisation launched in 1997 to create a set of shared global standards pertaining to environmental, social and sustainability accountability for companies and organisations around the world. 

 

The UN’s Sustainable Development Goals (SDGs)

One of the factors that is encouraging the incorporation of sustainability into business models is the fact that governments, mostly in Europe, are adopting policies to foster investment in certain sectors, from organic food production to renewable energies and waste recycling. In 1995, that process resulted in the foundation of the World Business Council for Sustainable Development (WBCSD), headed by CEOs from more than 200 international companies with the aim of accelerating the transition towards a sustainable economy. 

The dawn of the new century also hailed the rise of the concept of corporate sustainability, thanks to the launch of the UN’s Global Compact to encourage businesses all over the world to adopt sustainability policies and make the results of those actions public. In 2004, the Global Compact published 10 founding principles relating to human rights, working standards, environmental protection and the fight against corruption. Our Group signed the pact the same year.

There was another key moment in 2007, when the European Investment Bank (EIB) issued the first green bond which linked investment to individual sustainable projects, ranging from climate change to energy efficiency. 

Meanwhile the environment and the climate crisis have become a priority. In 2015 the UN’s 17 Sustainable Development Goals (SDGs) were launched as part of 2030 Agenda, and they have become a framework for sustainability shared by all UN member states and growing number of businesses.

 

Even finance is becoming sustainable

In 2018, Chairman of BlackRock global investment management corporation, Larry Fink, wrote a letter to thousands of the CEOs of subsidiary companies, stating: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate. This is why we are increasingly integrating environmental, social and governance matters into our investment process".

Sustainability as the ability to create long-term value has become a requisite for financial investments and is creating value for companies because it is worthwhile to the business and, as a result, can solve the problem of climate change. It closes the circle, in other words.

The latest stage in this evolutionary process was Enel’s issuing of the world’s first General Purpose SDG Linked Bonds in September on the US market (1.5 billion US dollars) a move it followed up by launching them on the European market in October (2.5 billion euros). The bonds do not cover individual green projects but an entirely sustainable strategy based on the UN’s SDGs.

The success of the double launch has confirmed that this is the right way forward. Enel CFO Alberto De Paoli explains: “There is a clear link between sustainability and value creation as, by investing in products that are sustainable from a social and environmental perspective, businesses can maximise products and minimise risk while simultaneously helping to achieve the SDGs. We are confident that more and more companies will adopt this model, orienting their activities towards a global strategy that puts sustainability at the heart of investment and financial decision-making.”

The challenge our Group has set itself is to involve the financial community, by inviting investors to make ESG (Environmental, Social, Governance) factors a part of their investment choices, and rating agencies to incorporate sustainability factors into their evaluation methods. Another step in a journey that began 50 years ago.

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