The Green Bond
In July 2014, the Hera Group – the first in Italy – launched a green bond, with the aim of financing the sustainability investments, so as to contribute via its activities to an improved environmental quality.
The bond issue, availing of the euro medium term notes programme, for a total of 500 million repayable in 10 years, was illustrated to the investors and analysts via a roadshow which was staged in the main European financial marketplaces. The instrument aims to finance or refinance projects linked to sustainability in four main spheres: the fight against climate change, reduction in emissions, quality in water treatment and the waste cycle.
The instrument envisages a coupon of 2.375% and a return on 2.436%. The orders received were mainly taken from investors resident outside Italy (75%) with France, Germany and the UK which reported the greatest percentages, and a predominance of asset managers. 69% of demand came from investors who have Environment, Social and Governance (ESG) among their investment criteria, so-called “sustainable” investors.
The Hera Group thus unveils, in Italy as well, a form of financing already used in Europe by other leading utilities, which places funding at the service of the environment, with resources which will then be specifically allocated to investments linked to improving the environmental performance in the area.
The list of the projects eligible for funding has been established by Hera on the basis of precise environmental criteria and subsequently confirmed by DNV GL to ensure the correct allocation of the funds. With regard to each sphere of the project, a set of indicators have been identified which reflect the environmental benefits associated with the individual initiatives. These indicators are shown within sections “Spreading renewable energy”, “Transition to a circular economy”, “Sustainable management of water resources” and “Air and soil protection” in this Sustainability Report.
|%||Total funds raised (in millions of Euro)
||Number of projects|
|Increase in energy generation from non-fossil sources||57.1||10|
|Increase in energy efficiency||219.1||7|
|Increase in the use of waste-to-energy plants for the treatment of waste||173.2||4|
|Improvement of the water purification plants||31.9||4|
|Increase in separate waste collection and reduction in the use of landfills||18.8||1|
Downstream from the fund raising, 26 projects were financed/refinanced, belonging to the categories indicated in the table presented above. Overall, projects financed reached Euro 500 million, covering the entire amount of the bond.
Green bonds are those which associate environmental-type investments and activities with the funds raised. The first financial instrument of this type was issued by the World Bank in 2008. Interest for green bonds has grown over time and 2018 was a new record year in terms of number of issuers; in fact, green bond issues in 2018 came to US$ 167.3 billion, up 3% compared with last year.
In Italy, the Hera Group was the first to launch this new financial instrument (for an equivalent value of 500 million) and opened the way up for other operators in the utility sector or otherwise. The bond was very successful, with applications for an equivalent value of around three times the amount of the bond.
The first sustainable revolving credit facility in Italy
In May 2018 a new credit facility was taken out for Euro 200 million, entitled “ESG Linked RCF Facility”, which introduces elements of sustainability by means of an incentive mechanism linked to the achievement of specific environmental, social and governance objectives. In the commitment undertaken with the banks, a number of sustainability performance indicators have been defined, by virtue of which the multiutility company may benefit over time by more favourable rates.
In the definition of the agreement, the Hera Group availed itself of the collaboration of Vigeo Eiris, which drew up an independent opinion with regard to the significance of the identified indicators and the level of ambition of the future improvement of said indicators, to which the margin of the transaction is linked.
The following supported Hera in the club deal: BBVA in the role of Sustainable Coordinator, BNP Paribas and UniCredit as Documentation Agents, and Crédit Agricole CIB as Facility Agent. All the financial institutions involved also operated as Mandated Lead Arrangers.
The spheres of the identified indicators coincide with two CSV drivers: smart use of energy and efficient use of resources. In particular, they concern the following areas of CSV impact: promotion of energy efficiency, reduction of greenhouse gas emissions and transition towards the circular economy. The identified indicators are among the GRI indicators of the Sustainability Report submitted for external audit.
Hera is classified fifth among the best companies listed according to the Integrated Governance Index, obtaining first place in the extraordinary survey into the links between business and responsible finance. One of the reasons which have contributed to the achievement of this success is precisely the launch of the first sustainable revolving credit facility in Italy. The Integrated Governance Index is the only model for the analysis of the degree of integration of the ESG factors in the business strategies and has been created on the basis of the answers which 47 among the leading 100 listed Italian companies provided to a questionnaire comprising around forty questions. The research confirms the growth of awareness regarding the need to integrate sustainability in the strategies of the companies and highlights an interest which increasingly concerns roles of the company other than the CSR manager, in particular in the finance area.