The Role of Sustainable Finance in the Journey Towards Climate Neutrality

The business contribution is core to Europe moving towards a sustainable future. However, sustainability is no longer about individual company’s management, but it is about the entire eco-system and is only possible if implemented through strengthening of local communities.

This month, we talked with Gonzalo Juárez de la Rasilla, Head of Sustainability Stakeholders Engagement at Enel, about the role played by sustainable finance in channelling public and private investment in transitioning to a climate-neutral, climate-resilient, resource-efficient and fair economy. The interview is part of “The Sustainability Agenda Towards 2030” a new series of monthly interviews with CSR Europe’s Board Members to shed light on key CSR challenges and discover how leading companies are turning threats into opportunities.

From the EU taxonomy to the Corporate Sustainability Reporting Directive, the European Union is turning to sustainable finance to emerge stronger from the pandemic and transform the economy. What are the main challenges Enel faces, when it comes to ESG investment?

The role of corporations is fundamental to achieve the most ambitious targets related not only to low carbon solutions, but to society’s development in general. This should be understood as a great opportunity. Those investing in resources to develop the right sustainable business model are not only going to survive to the new challenges but are also going to generate value. As we have seen this during the pandemic, early ESG adopters were quicker to adapt to the situation. This was also clearly recognized and certified by the investors community. In Enel, around 90% of our investments in our Strategic Plan Period 2021-2023 are aligned to four SDGs, SDG 7 (Affordable and Clean Energy); SDG 9 (Industry, Innovation and Infrastructure); SDG 11 (Sustainable Cities and Communities) and SDG 13 (Climate Action), In addition, between 80% and 90% of our consolidated capital expenditure in the period will be aligned to EU Taxonomy criteria to ensure a substantial contribution to climate change mitigation.

In this context, the main challenge for Enel, the business community, and other stakeholders alike, is linked to having the right regulatory environment to support the ongoing transition. The European Union has been able to achieve incredible goals, such as the implementation of the Next Generation EU. However, we believe additional efforts are needed to further simplify and harmonize procedures at EU level that would facilitate investments.

Back in 2019 Enel issued the world’s first SDG-Linked Bonds, marking the beginning of the Sustainability-Linked Bond Market. Could you tell us a bit more about Enel’s approach to sustainable finance? Did it change with the pandemic?

In 2019 Enel was the first company in the world to launch Sustainability Linked Bonds (“SLBs”). One of the main features of SLBs, as well as the main differentiating factor from Green Bonds, is that they do not provide for specific use of proceeds.

Both models have their own merits, both for issuers and for investors. However, simply directing a portion of debt towards green projects does not change a company’s overall environmental footprint and strategy.

SLBs provide investors with the visibility they need on where a company is headed in terms of sustainable strategy, as well as whether any target set has been achieved or not. Our intent in issuing Sustainability Linked Bonds was to provide such visibility to our investors.

The pandemic worked as an accelerator of this inevitable change. Investors prefer to focus on companies with a fully sustainable strategy rather than on single sustainable projects. In fact, a fully sustainable strategy makes things easier all around by creating a clear sustainable long-term vision for investors, our company, and other companies with similar objectives.

Today we are proud to be the largest SLB issuer globally with more than €14,5bn issued in loans, commercial papers and even in hedging instruments, all under an all-encompassing Sustainability-Linked Financing Framework.

The share of sustainable finance sources on our total gross debt will increase from around 33% in 2020 to around 50% in 2023 and more than 70% in 2030.

Your company is also involved in the United Nations Global Compact CFO Taskforce, the first integrated, UN-backed principles for integrated SDG Finance and Investment. Could you tell us about Enel’s work with the Taskforce and how it is contributing to advance your company’s overall sustainability strategy?

The UN Global Compact CFO Taskforce, co-chaired by our CFO, Alberto De Paoli, was launched by the UN Global Compact in December 2019, recognizing the importance of the role of CFOs as the architects of long-term sustainable value creation. This was also a recognition of the transformative impact of corporate finance across financial markets, the global economy, and society as a whole.

CFOs play a leading role in establishing clear indications and best practices for making corporate finance and investments a real driver of social and business growth.

Integrating SDGs into corporate strategies drives more solid, profitable, and long-lasting results and financial evidence by focusing on actions that need to be delivered as soon as possible.

The CFO Taskforce first outcome was the release of CFO Principles on Integrated SDG investment and Finance. The principles aim to support companies in the transition to sustainable development, engaging the global CFO community to align corporate investments and finance with the SDGs. To proceed with concrete actions and to commit to specific targets in order to scale up the Sustainable Finance, the UN Global Compact CFO Taskforce has now committed to key performance indicators (KPIs) with a two-fold aim: measuring the progresses made towards the implementation of the principles and serving as a benchmark on the integration of the SDGs in corporate finance.

Enel will be the premium sponsor of the European SDG Summit 2021: For Climate Action and a Just Transition, which will kick off next week on 11th October. As the pandemic and its fallout exposed deep divisions within society - affecting the most vulnerable - how can sustainable finance define the boundaries of a new economic system that protects people and the planet?

In the coming years we will see a strong acceleration of SDG-aligned investments, which will represent a key lever in creating long-term sustainable value for everyone: mobilizing public and private capital to serve sustainable strategies is therefore of crucial importance for achieving the SDGs.

Developing sustainable finance for Enel means not only pursuing sustainable investment objectives, but also decreasing the cost of debt. It is a very simple win-win approach. This is why in 2020, Enel extended the sustainability-linked approach to all its debt instruments by publishing the Sustainability-Linked Financing Framework, an all-encompassing document that governs the link between sustainability and loans, credit lines, commercial papers, and bond issues.

THE SUSTAINABILITY AGENDA TOWARDS 2030

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