Sustainable Issuer: Snam
Rethinking transition finance For pioneering multi-format ESG bond offerings and a new third-party net-zero assessment, broadening its bonds’ key performance indicators and entering new currencies while also having the flexibility to move beyond the transition bond label it pioneered, Snam is IFR’s Sustainable Issuer of the Year.
Italian gas distributor Snam is one of the veterans of the sustainable finance market, holding the distinction of having pioneered labelled transition bonds, as well as becoming the first gas utility to close a sustainable loan.
Snam’s hefty €3.8bn of transition bonds, a use-of-proceeds format that finances projects that exceed definitions of green such as retrofitting gas networks, dates as far back as 2020 – or even 2019 if its inaugural ESG deal is included, a “climate action bond” to fund investments in biomethane and energy efficiency.
But while the company’s efforts to attract financing through the instrument have been rewarded with a series of oversubscribed deals, with orders for a €1bn two-trancher in 2021 reaching some €2.3bn, most notably, and even led to the world’s first equity-linked transition bond in 2023, a €500m exchangeable into shares of peer Italgas, Snam remains almost the only issuer of transition finance deals outside Japan.
In Japan, corporate issuers have adopted the format quite widely and the sovereign's green transition bond is IFR’s Sustainable Bond of the Year. But takeup elsewhere has been limited.
In the face of this indifference, as well as the emergence of sustainability-linked bonds as an alternative that also benefits from principles administered by the International Capital Market Association (whereas transition bonds have only the support of ICMA’s “Climate Transition Finance Handbook”), Snam has reshaped its financing strategy.
It was active in 2024 for the first time in two ESG bond formats other than transition bonds. This broadened approach included its debut in green bonds in response to the partial acceptance of gas, which emits less carbon than other fossil fuels, in the EU Taxonomy of sustainable activities as a transition fuel to renewable energy.
It also furthered its move into SLBs, having issued its debut in early 2022, achieving benchmark sizes and becoming one of the first borrowers to adopt a “multi-ESG” approach. This involved offering use-of-proceeds and SLB instruments to attract different types of ESG investors in a simultaneous offering that showcased sustainability and financing strategies.
“We wanted to test the market,” said chief financial officer Luca Passa, who expects to see further such packages. Its €1.5bn four-year green bond/10-year SLB deal's more than four times' subscription in February “is testimony to the fact the investor base is ready to look at the two standards in a proper manner".
Moreover, Snam found ways of adding significant credibility to its offerings. It added Scope 3 value chain emissions to its SLB KPIs while becoming one of the first issuers to share a new net-zero assessment by Moody’s in support of its ESG bonds. This reflects the lack of a sector pathway for oil and gas from the Science Based Targets initiative, the normal benchmark.
Despite some teething troubles, the new assessment helped reassure investors. “It's a good methodology from the quantitative standpoint, but it's true to say that from the investor standpoint it is not as recognised as SBTi,” said Nicole Della Vedova, finance director at Snam.
Snam in October announced what it called a “detailed and actionable” transition plan. As well as allocating some €5.4bn of capital over the next three years to emissions reductions, energy transition businesses and (two-thirds of the investment) hydrogen-ready pipelines, the plan’s key targets include achieving a net positive impact on nature by 2027, aligning more than half of investments (52%) with the EU Taxonomy by 2032, and reaching carbon neutrality by 2040 and net zero by 2050.
No-grow green
Snam’s €500m no-grow four-year green debut in February was a striking hit, attracting some €3bn of investor demand and narrowed pricing to mid-swaps plus 70bp at launch from initial price thoughts of plus 110bp–115bp. Some €100m and larger orders were from major institutions such as Amundi and BlackRock, according to Passa.
However, the company’s limited taxonomy-aligned expenditure means that it may not seek to issue under the EU’s new Green Bond Standard when it returns to the format, Passa said. He is also sceptical of the green SLB hybrid pioneered some years ago by Austrian utility Verbund.
Equipped with its transition plan and accompanying roadmap, Snam expanded its financing palette in November by entering a non-euro market for the first time. Its £600m 12-year SLB followed a non-deal roadshow with UK fixed-income buyers in summer and attracted nearly £1.5bn of orders.
“We've been very surprised positively over the demand we found,” Passa said.
In a variation on the multi-ESG theme, it issued a €750m seven-year SLB as part of the deal.
Snam is set for another currency debut with its first US dollar SLB. The company has board approval for a US$3bn multi-tranche deal likely in spring or autumn.
Although widespread initial enthusiasm for SLBs has waned, Snam is positive on the KPI-linked format. “We intend to finance the transition through SLBs. We find [them] a very useful tool because basically investors are buying your performance on company commitments,” Passa said.
He contrasted this with the “very useful, but misunderstood” transition instrument. “When we issued transition bonds, we've been questioned quite dramatically [over] greenwashing.”
With the ESG bond market coalescing around green bonds and SLBs as core instruments, “we're going for the standard because otherwise investors find it difficult to allocate their exposure in their portfolios”.
That has driven Snam’s recent strategy of spreading issuance across the two formats, with a bias to SLBs due to taxonomy limitations. “Clearly the green bond, if it’s structured in the proper way, goes into what we call the dark green asset managers or insurers. Sustainability-linked doesn't fall into that bucket – at least for the majority, not all, of investors,” he said.
Loan contribution
Loans and commercial paper played important parts in Snam’s ESG financing as it pushed towards its 2027 goal of obtaining 85% of funding through sustainable finance. As recently as 2020 that figure was 40%.
Having already reached 84%, Passa expects to raise this target after Snam publishes a 2025–29 strategic plan in late January.
After signing a €1bn sustainability-linked revolving credit facility in May, it returned to the SLL market in December for three and five-year syndicated facilities of €2bn each, plus an option to increase by up to €1.1bn. The pair, which followed the company publishing its transition plan, included KPIs to reduce Scope 3 emissions, in addition to Scope 1 and 2, and having more women in executive and middle management roles.
Together, they rank as the utility sector’s largest SLL incorporating Scope 3 reductions.
In May, it took an ESG-linked €200m loan from Cassa Depositi e Prestiti to renovate its Ravenna-Chieti natural gas pipeline. The four-year facility followed €300m from the state development bank a year earlier for a new “Adriatic Backbone” pipeline, to which Ravenna-Chieti – which can also transport hydrogen – will be connected.
During the year Snam averaged €2.5bn outstanding under its ESG ratings-linked CP programme, making it one of the largest issuers in the fledgling short-term ESG debt market. The €3.5bn facility’s ESG label depends on it retaining a minimum rating of EE– from sustainability rating agency Standard Ethics, which rates it EE+ on a nine-point scale between EEE and F.
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