For the first time, the United Nations Global Compact has galvanized the chief financial officers (CFOs) of global companies—responsible for investments worth $14 trillion—by establishing a taskforce to help close the gap in funding a sustainable future.
The CFO Taskforce for the Sustainable Development Goals (SDGs) was launched on December 17 at the U.N. Global Compact’s SDG Investment Forum in Milan, where CFOs convened to kick-start solutions linked to the U.N.’s 17 SDGs. Adopted in 2015, the U.N.’s 2030 Agenda for Sustainable Development and its SDGs have become the global framework for sustainable growth.
Enel, Europe’s largest utility1 and the world’s largest renewable energy provider2, with 73 million end users across 33 countries, is the taskforce’s patron sponsor and co-chair. Last fall, the company issued the world’s first SDG-linked bonds, denominated in U.S. dollars and euros, as part of its sustainable finance strategy.
The U.N. Global Compact—which encourages companies to do business responsibly and takes strategic actions to advance sustainability—announced the CFO Taskforce as a two-year initiative to bring together “a multi-sector group of corporate finance leaders to develop innovative strategies to mobilize finance toward sustainable development3.”
Nearly 10,000 companies participate in the U.N. Global Compact, and the CFO Taskforce is expected to facilitate and expand sustainable finance worldwide.
CFOs “have a critical role to play in ensuring that companies’ financial strategies are aligned to the Sustainable Development Goals,” states the U.N.’s Global Compact, which established the taskforce as a platform for CFOs to “interact with their peers, investors, financial institutions, and the United Nations to share ideas, develop new concepts and frameworks, and provide recommendations to unlock private capital and create a market to mainstream SDG investments4.” The initiative is intended to facilitate the scale of investment urgently needed for sustainable development.
“Through this initiative, we want to give an answer to the world looking at us—not with statements or promises, but with clear targets and solid results,” emphasized Alberto De Paoli, Enel’s CFO, the nominated co-president of the CFO Taskforce.
Closing the SDG Financing Gap
The global transition to renewable energy sources and business models is well underway, and sustainability is viewed as a trillion-dollar investment opportunity5. While the appetite for sustainable finance is growing, the U.N. Global Compact believes CFO engagement is key to achieving the SDGs.
“The global CFO community and their companies manage $14 trillion in annual investments globally, including more than $7 trillion in emerging markets,” said Lise Kingo, CEO and Executive Director of the U.N. Global Compact, at the forum. “Through our CFO Taskforce, we want to activate the CFOs as stewards of trillions in investment to focus business strategies to close the SDG financing gap. Our vision is to create a neutral platform for CFOs to collaborate and drive positive SDG outcomes.” To achieve this, the taskforce plans to develop a set of principles for corporate finance designed to make it easier for companies to integrate the SDGs into their financial strategies.
“We want to implement a global plan of action, promoting the numerical mindset and the target-driven approach that characterize the role of CFOs with concrete actions, leveraging drivers such as the formulation of an SDG-aligned strategy, sustainable finance initiatives, relationships with investors and rating agencies and the way we communicate what we do to all our stakeholders,” De Paoli added.
Enel Sets the Pace
Enel, Italy’s largest company by market cap6 and the world’s largest player in renewables, was an early adopter of renewable energy technologies—producing geothermal power in 1973, constructing the world’s first large-scale Fresnel reflector thermal solar power plant in 1981 and opening Italy’s first wind farm in 1984—and it continues to invest heavily in clean energy.
With around 46 GW of renewable energy capacity, Enel has committed to a 70% reduction of its direct greenhouse gas emissions by 2030 from 2017 levels—a goal that has been certified by the Science Based Targets initiative as consistent with the “well below 2°C pathway”—and plans to fully decarbonize its energy generation mix by 2050. It was the only Italian company to commit to the U.N. Global Compact’s “Business Ambition for 1.5°C” global call to action in advance of the 2019 U.N. Climate Action Summit.
Last year marked the first time that the utility’s “renewables and thermal power generation were at par,” says Francesco Starace, CEO of Enel Group. “With renewables going up and the others going down, they crossed over in 2019. The value creation through this transition is mind-boggling.”
Enel’s 2020–2022 Strategic Plan: Maximizing Value Through Sustainability “envisages higher overall investments compared to our previous plan and directly addresses the pursuit of the U.N. Sustainable Development Goals,” says Starace, adding that “2019 marked a turning point for the dynamics of transformation within the world’s energy systems, and we expect an acceleration of the trends of decarbonization and electrification in the years to come.”
Through its sustainable business and sustainable finance model, Enel forecasts earnings growth of 27% over the next three years.
Enel’s SDG-Linked Bonds
In September 2019, Enel launched the world’s first general-purpose SDG-linked bond, which was oversubscribed almost three times over, with orders of around $4 billion. In October it issued a euro-denominated SDG-linked bond that was around four times oversubscribed, with orders of around €10 billion ($11.18 billion). The value of sustainability was reflected not only in the demand but also in the pricing mechanics of the bonds, allowing Enel to obtain a discount of around 15 bps with respect to a conventional bond, and in line with this embedded commitment they will pay out a higher rate of interest if the company fails to meet certain key performance indicators linked to the SDGs.
“The introduction of SDG-linked general purpose bonds in capital markets is a new and groundbreaking tool through which we have demonstrated that sustainability generates real value for companies and their stakeholders,” said Alberto de Paoli, Enel’s CFO, in December, noting that sustainability “is also increasingly a key driver of our financing strategy.”
Written by Gabe Kirchheimer for Bloomberg Media Studios.
- By market cap, as of January 2020, Bloomberg Market Data
- www.enel.com/investors/presentations/2019/capital-markets-day-2019 (pg. 6)
- As of January 2020, Bloomberg Market Data