Whatever the debates of the moment amongst political leaders, the world is experiencing rapid climate change. The increasing impact is one thing no politician can stop, though it can be ignored or downplayed by many of them for years at a time. If there is a fortunate side for WAIFC members and the financial actors in their jurisdictions, it is the evolving creativity in defining financial responses that provide capital for the urgent transitions society needs to make.
In business as in life, incentives matter. Reducing carbon can be profitable.
This opinion presents a look at sustainability-linked bonds and loans, using the example of the Italian energy company, Enel. An energy company might have been the last place to look, which only underscores the point: actually, all actors in society in 2025 have their roles to play, including bankers and capital markets experts who can respond positively to their corporate clients’ changing positions.
The Start in 2019
Here is the background: Enel S.p,A. was founded in 1962 to create a unified company for Italy’s national electricity generation, transmission, and distribution.
The world’s first sustainability-linked bond (SLB) was issued by Enel in September 2019. It was a five-year bond in the amount of USD 1.5 bn. Crucially, the target was to increase the share of renewable energy generation to 55% of all Enel’s offer by 2021, a very short timeframe. Included in the offering prospectus was a penalty for non-achievement of this goal: if Enel failed to reach this target, the bond’s interest rate was to increase by 25 basis points (0.25%). The global interest in such issuance was highlighted by the US dollar denomination of the security.
The innovation came from the following. Unlike green bonds, which finance specific environmental projects, sustainability-linked bonds (SLBs) allow funds to be used for general purposes but impose financial penalties if sustainability targets are not met. This model incentivized Enel to transition faster to renewable energy, making it a game-changer in sustainable finance.
The Monitoring Criteria
Enel went out on a financial ledge in this commitment. How were the metrics for the change in energy production to be established and monitored? In 2020, Enel published the world's first Sustainability-Linked Financing Framework (SLFF), which extended the sustainability-linked financing approach to all financial instruments of the Group (bonds, loans, credit lines, commercial papers, guarantees, interest and foreign exchange derivatives). This ensured that sustainability criteria were structurally embedded across the company's financial toolkit. To this end, a set of ambitious and transparent KPIs, targets, and principles governing the development of sustainable finance throughout the group was established.
The Evolution of Corporate Thinking
During Enel's 2021 Capital Markets Day, the group announced its commitment to fully decarbonize the company by 2040, advancing the previous public target for both direct and indirect emissions by a full ten years.
Further, in December 2022, Enel's commitment to fighting climate change reached a historic milestone as its comprehensive decarbonization roadmap was certified by the Science Based Targets initiative (SBTi)[1] as being consistent with limiting global warming to 1.5º C. Enel’s business planning was thus aligned with the most ambitious temperature goal of the Paris Agreement adopted by the United Nations in 2015. Specifically, the plan adopted envisages Enel reaching 100% of its electricity generation free of greenhouse gases by 2040, and also to exit from natural gas sales to end customers. Clearly, this work and these changing corporate goals confirm that it makes good business sense for an energy company – even an energy company! - to adopt and regularly confirm its leadership role in the decarbonization transition. Equally clearly, it makes sense to its financial partners and the investors who have bought these financial instruments.
In February 2023, yet again Enel updated its Sustainability-Linked Financing Framework, introducing a brand-new set of KPIs linked to the EU Taxonomy and to the Scope 3 emissions reduction. As part of the update and the innovation brought to the market, Enel added the following KPIs:
- Scope 1 and 3 greenhouse gas emissions intensity relating to integrated power
- Absolute Scope 3 greenhouse gas emissions relating to gas for retail
- and the proportion of CAPEX aligned to the EU Taxonomy
Progress Continues
In 2024, a remarkable 84% of group energy production was free of greenhouse gases. Also last year, Enel was the first Italian company to issue a senior dollar Sustainability-Linked Bond with D&I broker-dealers[2] acting as co-managers.
Enel has earned its stated corporate mission: “Build the future through sustainable power. We are committed to actively shape a better tomorrow, looking beyond the present. We reduce environmental impact with clean, innovative and responsible energy solutions, ensuring a better world for future generations.”
The bankers, broker-dealers, and investors have made Enel’s progression possible.
For WAIFC
In coming WAIFC opinions, other examples will highlight evolving financial services responses that facilitate the corporate climate transition. Sometimes they will show those with a track record as Enel now has, sometimes simply new financing ideas. The purveyors of financial services to Enel have responded, as has the investment community – there is profitable and very necessary work to be done in green finance.
[1] https://sciencebasedtargets.org/
[2] D&I is short-hand for broker dealers which promote diversity and inclusion in their staff levels.