New innovative financial instrument aims to advance the Sustainable Development Goals
UNITED NATIONS, New York, 11 October 2019 — The United Nations Global Compact welcomes the issuance in Europe of the first general-purpose SDG Linked Bond — an innovative corporate financial instrument that aims to contribute to the achievement of the Sustainable Development Goals (SDGs).
The €2.5 billion multi-tranche bond released by the multinational energy company Enel on Thursday was almost four times oversubscribed signalling strong demand for SDG-related investment opportunities. It follows the company’s first SDG Linked Bond issued on the American market in September, which raised US$ 1.5 billion.
“Once again, the strong interest from investors shows that the demand for SDG investments is out there,” said Lise Kingo, CEO and Executive Director of the UN Global Compact. “We hope that SDG-linked bonds, like this one, will inspire a flood of innovative financial instruments and demonstrate that a mainstream market for investments in the Global Goals is possible. This is the kind of financial innovation that the world needs to make the 2030 Agenda for Sustainable Development a reality.”
Also this week, PepsiCo Inc. announced that it has priced the company’s first-ever Green Bond, saying that the net proceeds from the US$ 1 billion bond offering will fund a series of key initiatives to advance the company’s sustainability agenda. These initiatives focus in the areas of sustainable plastics and packaging, decarbonization of operations and supply chain, and water sustainability.
Since 2018, the UN Global Compact Action Platform on Financial Innovation has worked to inspire companies to develop innovative private financial instruments that have the potential to direct private finance towards critical sustainability solutions. Enel serves as a patron of the Action Platform, which has released a series of reports on SDG Bonds and sustainable corporate finance.
A recent guidance encourages major players in the investment value chain to build a market for mainstream SDG investments, with enough scale, liquidity and diversification to attract large institutional investors and finance a broad set of private- and public-sector activities in support of the Global Goals. The new Enel bond is an exact application of the “Integrated Model for Corporate SDG Finance” introduced by the UN Global Compact in Corporate Finance — A Roadmap to Mainstream SDG Investments.
A unique feature of the Enel bond issued in Europe is that its interest rate is linked to the company’s performance on ambitious commitments to increase the generation of renewable energy and lower greenhouse gas emissions. Specifically, according to Enel’s press release, the money raised will be used to advance the following Global Goals:
- Goal 7 on affordable and clean energy, through the achievement, by 31 December 2021, of a percentage of installed renewable generation capacity (on a consolidated basis) equal to or greater than 55% of total consolidated installed capacity.
- Goal 13 on climate action, through the achievement of a level of greenhouse gas emissions by 2030 equal to or less than 125 g of CO2 per kWh, in line with the commitment to reduce Enel’s direct greenhouse gas emissions per kWh by 70% by 2030 compared to the 2017 values, as certified by the Science Based Targets initiative (SBTi) and consistent with the Paris Agreement on climate change.
According to the United Nations Conference on Trade and Development, investments of US$ 5 to 7 trillion are needed each year to realize the SDGs by 2030. While the public sector and public finance will be core to the implementation of the SDGs, it is widely acknowledged that the private sector and capital markets must also play a key role.
As a special initiative of the UN Secretary-General, the United Nations Global Compact works with companies everywhere to align their operations and strategies with ten universal principles in the areas of human rights, labour, environment and anti-corruption. Launched in 2000, the UN Global Compact guides and supports the global business community in advancing UN goals and values through responsible corporate practices. With more than 9,500 companies and 3,000 non-business signatories based in over 160 countries, and more than 60 Local Networks, it is the largest corporate sustainability initiative in the world.