This article is part of our special report Sustainable finance: Going green’s crucial ingredient.
The urgent need to act fast and now
- It is becoming increasingly evident that actions to limit global warming to 1.5°C are no longer a choice. As stated by the IPCC Special Report, we are running out of time and, in order to avoid the devastating impacts of climate change, GHG emissions need to be reduced by 45% by 2030 and our economy must be fully decarbonized by 2050.
- Companies and governments must be ready to lead the change by setting challenging targets, also aimed at influencing customer behaviour. Companies are expected to serve as an example of worldwide best practices and they need to be aware that it is in their own interest to adopt sustainable corporate strategies in order to be able to manage the risks and opportunities linked to the carbon transition. Sustainability means, indeed, Value Creation.
- To accelerate the transition, three strands of action will need to be progressed: (1) making clean and affordable electricity the mainstream energy technology of choice; (2) boosting sustainable and digital infrastructure development whilst ensuring maximum resilience; (3) making electricity the energy vector of the future, thus transforming mobility and lifestyles, digitalizing real estate and cities.
Enel’s Mission and Actions on the United Nation’s Sustainable Development Goals (“SDGs”)
- The UN has identified the Sustainable Development Goals (SDGs) as a universal call for action for governments and companies, to be tackled by 2030.
- Enel is the leading global energy transition private player, both industrially (1st for Renewables installed capacity, Energy Distribution customers served and retail customers base) and financially speaking (2nd utility globally in terms of market capitalisation and 1st in terms of EBITDA and net income).
- Enel’s strategy and Business Plan have a direct impact on 4 SDGs which account for around 95% of capital spending through 2022, when Enel is expected to generate 20.1 billion euros of EBITDA:
- Around 14 bn will be devoted to SDG 7 on Affordable and Clean Energy to support the decarbonisation process driven by our Global Power Generation line and accelerated by our retail unit.
- Around 12 bn are linked with SDG 9 on Industry, Innovation and infrastructure and will be deployed in reinforcing the resiliency and improving the digitalisation, efficiencies and quality of our networks.
- Around 1 bn will be invested in SDG 11 on Sustainable Cities and Communities, mainly to new electrification oriented services.
Through these, we aim at acting on SDG 13 on Climate Action, thus achieving the targets we have set for 2020 and 2030 in term of CO2 emissions, both certified by Science Based Target Initiative (SBTi)
Sustainability is Value Framework
Sustainability and value creation are not mutually exclusive – If you plan and act for Sustainability, you generate value by means of superior financial performance through higher cash generation, more predictable results and lower risk… Such a framework is the strategy that every company should follow to address the challenges we face and generate more value. At the same time, Investors should weigh Environmental, Social and Governance factors in their investment decisions, while Credit Rating Agencies need to incorporate sustainability in a transparent way when assessing the credit profile of companies, resulting in a lower cost of debt for the best performing ones.
Value drivers of a sustainable company – Enel is committed to a strategy based on meeting the objectives of the Paris Agreement (COP21) whilst creating sustainable value over the long term. Over the last five years (2015-2019), the Group has increased profitability with the dividend per share (DPS) expected for 2019 reaching 0.33€ from 0.16€ in 2015, an increase of more than 100%, while achieving objectives related to decarbonization, digitalization, and customer service. The Group’s 2020-2022 Strategic and Business Plan continues on this pathway, based on a long-term view and the achievement of a series of objectives aiming to reach an implicit DPS of 0.42€ by 2022. Our market capitalization has passed from 35€Bn in 2014, to 70€Bn today.
- An overview of sustainable finance so far – Sustainable finance today is mainly driven by financial products that embed an ESG component in the structuring. Green, Social and Sustainability Bonds have specific requirements in terms of «use of proceeds», that have to be invested in sustainable activities and require a specific level of reporting.
- Enel’s leading role in the Green Bond space – Since 2017, Enel has issued 3 Green Bonds for a total amount of 3.50€Bn outstanding: 1.25€Bn in 2017, 1.25€Bn in 2018 and 1.00€Bn in 2019.
Enel has committed to investors to allocate its Green Bonds to sustainable activities only.
Over the last 3 years, Enel has experienced a constantly growing demand for its Green Bonds by investors.
- Still a (green) drop in the (fixed-income) ocean – It is fair to say that Green Bonds (and use-of-proceeds bonds more in general) represent useful tools for those companies that have a segregated sustainable business that they would like to develop. For those companies like Enel, instead, where the strategy and business model are clearly sustainable, we strongly believe that innovative general corporate purpose financing products which create financial incentives for the company to fulfil its sustainable business model are the best way to progress the evolution of sustainable capital markets.
A new “general purpose” to accelerate sustainable finance – Enel’s SDG Linked Bonds Programme
From the experience of green bonds, we therefore elaborated a new “general purpose” approach with our new SDG Linked Bond Programme, complementary to the “use of proceeds” model of the Green Bonds, that aims at accelerating capital flows towards sustainable investments, leveraging on:
- The guarantee of a fully sustainable strategy – a clear link to the sustainability strategy of the issuer has been set (55% renewable installed capacity by 2021 and direct GHG emissions by 2030 equal to or less than 125g of CO2 per kWh), representative of almost 100% of Enel investments linked to the UN SDGs.
- The translation of sustainability into economic and financial value – a clear evidence of the value of sustainability has been achieved with both our SDG Linked transactions, with an upfront discount of around 15 basis points with respect to a comparable bond without sustainability features.
- The transparency of the sustainability performance of the Company – to ensure the transparency of the results, the achievement of the target will be certified by a specific assurance report, in the context of the comprehensive reporting on the sustainability performance of the Issuer.