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Iberdrola on track for EU Taxonomy investment alignment

© ShutterstockIberdrola sign above closed roller grilles.

Iberdrola’s latest credit agreement is to fund a €1.1 billion portfolio of wind and PV generation, which builds on its green debt strategy. The group now has more than €33 billion in green and sustainable financing with 90 % of its credit lines being sustainable in one way or another.

Iberdrola (MC:IBE) signs €550 million green loan with EIB to fund €1.1 billion
portfolio of low carbon power.

The transaction brings Iberdrola’s green and sustainable financing to €32 billion, and follows agreement on a multi-currency €2.5 billion line of credit with 21 banks, the first transaction at risk free rates (RFR) instead of LIBOR for a Spanish company.

Alignment with the EU Taxonomy is an opportunity for market leadership and affordable capital restructuring.

Funding wind & solar project win-win for EIB and Iberdrola.

Iberdrola is a key player in helping the EU speed up its energy transition and reduce its dependence on fossil fuels to achieve its decarbonisation goals.  Iberdrola has said it plans for green and sustainable financing to account for nearly two-thirds of its debt by 2025. Working closely with the European Investment Bank (EIB) means that it’s strategy supports the EIBs long term plans.

The EIB is one of the largest providers of climate finance, with a target of €1 trillion of climate and environmental sustainability investments by 2030. All of those funds are to be in alignment with the principles and goals of the Paris climate agreement.

The EIB’s plans are laid out in its Climate Bank Roadmap. Part of this roadmap was to end all funding for fossil fuel projects by 2022, yet funding for six previously approved gas projects in the interim period has drawn sharp criticism from climate activists. The concern of activists is two-fold – prolonging the use of gas, and the risk of owning stranded assets.

Why is Iberdrola intent on turning its debt green?

Multinational utility Iberdrola’s rationale for creating a debt structure almost entirely composed of green and sustainable financing seems to be built around building a competitive advantage. It is among the largest private green bond issuers in the world, was the first Spanish company to issue a green bond in 2014, and in 2016 took out Spain’s first Spanish green loan.

What’s interesting is the way in which its debt programme is mirroring developments in the wider market, from a ‘green’ or solely low emissions focus, to one that is exploring alignment with the Sustainable Development Goals. Its multibillion euro credit line is linked to two sustainability indicators: the reduction of emissions by the company (SDGs 3 and 17); and a greater presence of women in leadership positions (SDG 5). Iberdrola proposes 30% of these positions should be occupied by women by 2025, in line with UN SDG 5, related to gender equality.

Sustainability criteria in deal-making is on the increase

One further social factor has also been announced. Each year, a financial contribution will be made by Iberdrola to a sustainable project, for an amount dependent on how much of the credit line is drawn. The beneficiary project will be defined in 2022 and the first contribution will be made in 2023.

By structuring the deal in this way, the financial institutions syndicating this credit facility also demonstrate their sustainability commitment, aligned with SDGs 5, 7 and 13 to which the operation is linked. This move is an interesting reflection of the current discussions going on about the extent to which sustainability issues should be integrated into deal terms. This has been seen most recently in an analysis by the Environmental Defence Fund on the impact of asset sales in oil and gas.

Today a total of 90% of Iberdrola’s 2020-2025 investment plan – with an allocation of €75 billion until 2025 and an estimated of €150 billion to 2030 — is aligned with the European Union taxonomy for mitigating climate change. The long-term EU goal of realigning investment through the EU Platform for Sustainable Finance, the Green Deal and the EU taxonomy for sustainable activities is underpinned by actions such as this.

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