Italian utility Enel is continuing to innovate with a sustainability-linked financing framework which is the first of its kind and allows the company to tie multiple instruments to the same targets, in a move that many issuers are expected to follow.
Enel unveiled the framework at the same time as a successful £500m sterling sustainability-linked bond, which is in line with the International Capital Market Association’s June principles and has a second-party opinion from Vigeo Eiris.
"Full alignment with the ICMA principles was our objective," said Alessandro Canta, head of finance and insurance at Enel.
Enel issued the first SLBs in 2019, and is using its experience as a repeat issuer to connect more sustainability-linked instruments to its ESG targets and strategy, and show how targets change over time in a transitioning company as the SLB market continues to develop.
"It's a question of courage. Connecting everything just means that we are current with all the instruments we're devising and with the format that we invented. By the way it's not a new format anymore; it's a new asset class," Canta said.
As well as the £500m sterling SLB, Enel has also tied two sustainability-linked loans (a €5bn deal from April and a €1bn deal from October) and a commercial paper programme of up to €6bn to the same targets and company strategy, which are based on the UN SDG number 13 for climate action and number 7 for affordable and clean energy.
"This is the first sustainability-linked framework where it covers a range of financing instruments,” said Agnes Gourc, co-head of sustainable finance markets at BNP Paribas.
Enel is choosing different KPIs for different instruments based on maturity, while the sustainability performance targets which calibrate the KPIs are changing over time as Enel’s business plan is updated and the company decarbonises.
"The target is changing on a rolling basis every year along with the business plan," Canta said.
Instruments with intermediate maturities, including the sterling 2027 note, are linked to a KPI based on the percentage of renewable installed capacity, whereas those with longer maturities, such as a 2034 euro note, have a KPI tied to scope one greenhouse gas emissions.
The sustainability performance targets on the renewable capacity KPI have risen to 60% by 2022 on the sterling bonds, up from 55% by 2021 on Enel’s original 2019 deals.
"Linking the whole of your financing to particular targets makes it even more powerful in terms of the signal you're giving to the market," said Federica Calvetti, head of ESG DCM for EMEA at Deutsche Bank.
Enel is considering adding more sustainability-linked instruments under the framework, including subsidised and development finance with lenders such as the EIB. Enel's subsidiary, Endesa, has already linked a factoring loan to its CP programme and a syndicated loan.
"Linking the factoring and trade financing to certain KPIs is something that we are also evaluating, also on the supply chain,” Canta said.
The framework is flexible and has been designed for further iteration.
"It is relatively easy to add other financing instruments on top," Gourc said.
Although having different targets on different transactions could be confusing and could make price discovery more difficult, Canta said that investors had understood the concept of regularly updating targets.
"We do not see major risks if you have a serious approach to what you're doing. The benefit is that investors will start to look at you in a different way – you are confirming on the financial side what you're saying on the strategy side," Canta said.