The European Investment Bank (EIB) announced its first sustainability-linked loan agreement, in a €600 million deal with multinational power provider Enel’s electricity distribution company E-Distribuzione.
The loan will support the launch of E-Distribuzione’s investment in the “e-Grid” project, is aimed at the renewal and development of the power grid. According to Enel, benefits of the project include increased climate resilience, improved the quality of electricity services, and it will enable the network to host a rising proportion of renewable generation capacity and electric mobility, while reducing exposure to climate change-related risk.
The announcement follows the approval late last year by the EIB’s board of directors of the EIB Group Climate Bank Roadmap, which guides future climate action financing by the EIB and European Investment Fund (EIF), supporting €1 trillion of climate and environmental sustainability investments by 2030, and to align all financing activities with the principles and goals of the Paris climate agreement. In 2019, EIB decided to increase its level of climate and environment commitment, effectively transforming the group from being “an EU Bank supporting climate” into “The EU Climate Bank.”
Miguel Morgado, Director of the European Investment Bank for lending operations in Italy, Malta, Croatia, Slovenia and the Western Balkans, said:
“This transaction marks a big step for the EIB as part of its roadmap to become the EU’s ‘climate bank’”, stated. From 2025, at least half of our lending is required to positively impact the climate, while all EIB transactions from this year onwards are aligned with the objectives of the Paris Agreement. Thanks to the synergy with Enel, leveraging on its leadership and know-how in Sustainable Finance, this loan is fully in line with our goals of combating climate change.”
Sustainability linked securities and loans are an emerging form of sustainable finance, with attributes including interest payments tied to an issuer’s achievement of key sustainability targets. The market for sustainability-linked debt is currently experiencing rapid growth, with a recent report from Moody’s Investor Service revealing that global sustainability-linked loans reached $97 billion in the first quarter of 2021, up 29% over the prior quarter.
E-Distribuzione’s agreement with the EIB provides for a step-up/step-down mechanism that will trigger a margin adjustment based on Enel’s achievement of its Scope 1 greenhouse gas emissions reduction goal.
Enel CFO Alberto De Paoli, said:
“As a leader in Sustainable Finance and pioneers of Sustainability-Linked instruments, a historic agreement has been signed together with the European Investment Bank, which is certain to affect the future of development and public finances. The evolution of sustainable finance will support long-term growth and a just transition in Europe, by means of an acceleration of sustainable investments, in line with the Paris Agreements and the achievement of the United Nations Sustainable Development Goals: this is an unprecedented opportunity for both private and public institutions to mobilize sustainable capital via the use of sustainability-linked instruments, therefore achieving our ambitious climate targets.”