Enel to fail its green bond emissions targets?

The Anthropocene Fixed Income Institute, one of our favourite sources on green bonds, recently (20th Oct) highlighted that Enel, the Italian Utility, looks likely to miss its Sustainability Performance Targets (SPT's) on 10 of its green bonds. The bonds have a total notional of €10.bn, so a material amount. The specific target in question relates to its efforts to reduce scope 1 emissions intensity for its electricity generation fleet to 148gCO₂e/kWh. The measurement date is the end of this year.

A failure to hit the targets means that Enel will be liable to pay what is known as a step up coupon. So the bond interest will cost the company slightly more than anticipated. The analyst's highlight that this doesn't seem like a shift in the companies approach to sustainability. It's just the consequence of external events (war in the Ukraine etc).

Why raise this, after all this is what is supposed to happen. Companies that miss their SPTs pay a higher coupon. First up, Enel is the largest issuer of Sustainability Linked Bonds (SLBs), apparently 4x the size of the next issuer, which is Chile. So, when the event happens at the end of this year we may see some negative news flow. And so we are preparing you. It's probably going to be a non event, but just in case.

For those new to Green Bonds, we wrote a short description of some of the issues Sustainability Professionals needed to watch on sustainability linked bonds, specifically the lack of ambition from issuers, the low level of punishment and the ability to wriggle out of paying the extra coupon.

Link to blog 👇🏾

Defining what a sustainability linked bond is

Standards matter - vagueness in the definition of what makes a sustainability linked bond makes it tough for investors to be sure that they “do what it says on the tin”.

The Sustainable InvestorSteven Bowen

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