Enel’s Mission to Sustainably Finance a Green Future

Corporations are raising billions of dollars to invest in environmental projects by issuing sustainable bonds and creating loans linked to sustainability. Last year, sustainable debt issuance totaled $566 billion, and it has already moved past $460 billion so far in 2020.

The market for green funding has evolved rapidly over the past few years, with $31 trillion held in sustainable investments in 2018, a 34% increase since 2016. Through innovative approaches to sustainable finance, businesses are creating new ways to fund environmental commitments as they seek to cut carbon emissions and boost renewable energy capacity.

Enel Bonds Sustainability to Performance

In October, Italian energy group Enel issued its newest bond linked to its sustainable strategy, the first of its kind in a sterling market. The company, which generates and distributes electricity in over 30 countries, is committed to decarbonizing its energy production by 2050. Last year, for the first time, it produced more electricity from renewables than from fossil fuels.

To fund its switch to renewable energy, Enel has been a significant player in the green bond market, issuing a series of green bonds over the past five years. More recently, the company has created a new credit instrument, the sustainability-linked bond (SLB). Since then, other companies have followed Enel’s lead, with Brazilian pulp and paper company Suzano, fashion house Chanel and drug company Novartis issuing their own versions of sustainability-linked bonds.

“Choosing sustainability is no small matter. It involves totally overhauling the way a company works.”

Alberto De Paoli, CFO, Enel

While green bonds focus on a company’s specific environmental projects, they ignore wider measures of sustainability. This means a company can launch a green bond to fund a handful of renewable energy projects irrespective of its overall record on the environment. A sustainability-linked bond, however, takes account of a company’s overall sustainable strategy and performance. Enel’s sustainability-linked bond measures the company’s performance in achieving benchmarks linked to the United Nations’ Sustainability Development Goals (SDGs) and the group believes that sustainability-linked bonds will be crucial in helping businesses play their part in achieving the Paris Agreement targets of keeping global warming to well below 2C.

Creating a Framework for Completely Sustainable Finance

In October, Enel launched the Sustainability-Linked Financing (SLF) Framework, which measures the company’s progress in contributing to the U.N. SDGs across all of its activities. SDG 13, which promotes climate action, is the cornerstone of the SLF strategy. Enel’s framework allows the company to adopt the same goals for other financial instruments as it has set for bonds. With the SLF Framework in place, Enel is extending its range of sustainability-linked debt instruments, and it has created a loans and revolving credit product linked to the company’s contribution to meeting the U.N. SDGs. The launch of such debt instruments shows how sustainability has become embedded in all the financing tools of the company. 

“Choosing sustainability is no small matter. It involves totally overhauling the way a company works and devising new strategies for the future,” says Alberto De Paoli, Enel’s CFO. “We made this choice in 2015, after having closely observed the megatrends reshaping the world. Even though they were not as evident as they are today, we realized that they were ushering in a sea change that would soon be upon us. Consequently, we chose to completely reshape our strategy and link our finance to sustainability, imagining how the world would be following that change.”

Sustainability-Linked Finance Reaches a Key Milestone

The development of sustainability-linked finance is a fast-evolving story. A crucial development in this evolution was the publication of a set of principles by the International Capital Markets Association—the self-regulating body for participants in capital markets—that provide guidelines on the features, disclosure and reporting required for sustainability-linked bonds (SLBs). This added credibility to the asset class has provided market participants with the information they need to boost spending on these products. The guidelines, drafted by a group of interested parties including Enel, are aligned to the U.N. SDGs.

The European Central Bank (ECB) recently gave its blessing to SLBs. The ECB announced on Sept. 22 that SLBs would become eligible as bank collateral, so bonds with coupons linked to sustainability performance targets could be placed at the ECB. From January 2021, they will be eligible for purchase under the ECB’s Asset Purchase Programme and Pandemic Emergency Purchase Programme. This development shows that SLBs can play an equally critical role within the finance system as other debt instruments. 

Sustainability-linked finance will play an increasingly important role in credit markets, as the growth of sustainable finance is destined to fund the transition to a green economy.