Energy Giant Enel Faces Higher Interest on $14.5 Billion ESG Bond

Utility giant Enel, one of Europe’s largest power generators, is set to pay higher interest rates on its sustainability-linked bonds as it has tied the coupons to an emissions reduction target it has missed.

Italy-based Enel – which also has large operations in Spain, North America, and South America – has failed to meet its 2023 emission targets. Since it has linked the emissions target to several sustainability-linked bonds, the utility giant now faces higher coupon payments.   [if !supportLineBreakNewLine] [endif]

The emissions target that Enel missed is linked to a few ESG loans, including the largest such loan on record – a $14.5-billion (13.5 billion euros) revolving credit facility, per data compiled by Bloomberg.

Last week, Bloomberg Intelligence estimated that now that Enel has missed its 2023 emissions target, it would have to pay an additional interest of a total of $89 million (83 million) on several bonds worth a total of $11 billion.

This would be the highest such coupon penalty since Enel first launched a sustainability-linked bond in 2019.

Back then, Enel decided to issue an innovative general corporate purpose financing product, which creates financial incentives for the company to fulfill its sustainable business in order to foster the evolution of sustainable capital markets.

Enel’s approach was to link the sustainability strategy of Enel or its subsidiaries as an issuer or borrower to the terms of general corporate purposes debt, incentivizing the achievement of pre-determined Sustainability Performance Targets (SPTs) within a pre-determined timeline. Enel’s SDG-Linked Bonds issued in September 2019 marked the beginning of the Sustainability-Linked Bond Market.

Enel has attributed the 2023 emissions reduction miss to the energy crisis.

“Due to the unprecedented crisis faced by the European energy system in 2022 and 2023, the group’s emission reductions in 2023 were not sufficient,” the company told Bloomberg. “Despite these unprecedented circumstances, the group’s emissions intensity in 2023 remained in line with the 1.5C trajectory” that Enel has committed to, the utility group said.  

By Tsvetana Paraskova for Oilprice.com

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