Another leap forward in sustainable finance
For years now, the concept of sustainability through innovation has been at the heart of our strategy as we move towards a complete energy and decarbonization transition. Innovating, however, is not just a question of technology: it requires an all-encompassing approach that also includes finance. On this front, Enel was the first in the world to launch last year an innovative security in sustainable finance, the SDG-linked bond, thanks to which we opened a new global market for sustainability-linked bonds. No longer just green bonds linked to implementation of individual sustainability projects, but a bond linked to the entire strategy centered on the goals of the UN’s 2030 Agenda (the SDGs, in fact), with targets that are measurable year on year. Among these targets is Enel’s commitment to reduce direct CO2 emissions by 70% compared with 2017 levels by the year 2030, a goal that has also been certified by the SBTi (Science Based Targets initiative). Given an initial discount on the interest rate, if Enel fails to meet the target, the bondholder will receive an increase of 25 basis points on the interest rate. If the goal is achieved, however, not only will it benefit people and the climate, but the company will thus be more efficient and have a lower risk profile.
“We are looking to sustainability, not only to green energy – the idea is somewhat broader. Given that the world is constantly evolving towards a circular and sustainable economy, it makes sense that financial instruments adapt as a result”
Francesco Starace, CEO and General Manager, Enel
Other securities linked to the strategy
For our Group, the development of new securities to complete our sustainable finance offering in reality represents the natural outcome of our commitment to the journey of sustainability we embarked on in 2015 and which is now certified by our position on the world’s leading sustainability indexes. These include the Dow Jones Sustainability Index, the FTSE4Good Index Series, the STOXX Global ESG Leaders, “Prime” status on OEKOM’s sustainability rating, and the indexes of ECPI and Thomson Reuters/S-Network ESG Best Practices.
“To drive the world towards sustainable development there needs to be a solid economic reason to do so. We have invented something that did not exist previously but that is in line with our intentions. The bonds are the response to the need to link the instruments to a strategy”
Alberto De Paoli, CFO, Enel
We have, therefore, introduced two instruments that integrate and amplify our commitment to a complete financial strategy linked to sustainability: Sustainability-Linked Loans and a specific SDG 7 Target Guaranteed Euro-Commercial Paper Program, that enables us to take advantage of short-term debt instruments linked to the sustainable development goal of clean and accessible energy for all.
And it doesn’t end there. October also saw the publication of our Sustainability Linked Financing Framework that explains how all of our financial operations (bonds, loans and commercial paper) are linked to the Group’s strategy of sustainability and the relevant performance indicators, following principles laid down by the ICMA (International Capital Market Association), the self-regulatory body for capital markets participants. Thanks also to the contribution of our Group – we were involved in the workflow – the ICMA has set out some principles for the issuance of Sustainability-Linked bonds: clear performance indicators; verification by an independent body; and detailed progress reports. The Framework also highlights the Group’s commitments to four of the SDGs in particular. These are SDG 7 (Affordable and Clean Energy), SDG 9 (Industry, Innovation and Infrastructure), SDG 11 (Sustainable Cities and Communities) and SDG 13 (Climate Action) and are the subject of more than 90% of the investment assigned by the 2020-2022 Strategic Plan. Within the Framework we have identified as Key Performance Indicators (KPI) the reduction of CO2 emissions (SDG 13) and an increase in the percentage of installed renewable capacity in the Group’s total installed capacity (SDG 7), further confirming the change of pace as we speed up on our journey towards full decarbonization by 2050.
In line with the commitments of this new Framework, in October we launched the first Sustainability-Linked Bond on the UK sterling market. This was a 500 million-pound operation linked to SDG 7 that generated a record response from investors, obtaining a lower interest rate than on conventional instruments, thanks to the economic and financial value associated with sustainability.
Other companies eye sustainable bonds
In the wake of the innovations in sustainable finance introduced by our Group, other companies have followed suit, issuing bonds linked to the UN’s sustainability goals. Luxury brand Chanel, multinational Novartis and Brazilian paper production giant Suzano have this year issued bonds linked to the Sustainable Development Goals.
Also working on the principles of this new sustainable finance market is the CFO TaskForce, the group of finance chiefs of companies belonging to the UN’s Global Compact, of which our CFO Alberto De Paoli is co-chair. Among the key points to have emerged are: the importance of setting targets that promote and measure companies’ contributions in a credible way; guiding corporate strategies towards sustainability; diversification of useful financial instruments; and ensuring the transparency and accuracy of the information.
The initiative has also made an impact on monetary policy. The European Central Bank has decided that, from January 1, 2021, bonds with coupons linked to sustainability performance (like our Sustainability-Linked bonds) are eligible as collateral – an asset that can be used as a guarantee for a creditor to obtain funds – and can be used in credit operations in the Eurosystem. They also form part of the purchasing program beginning in 2021 linked to the pandemic emergency. Whether the crisis concerns the climate or health, sustainability is the only way out.