EDP: Green Bonds Foster Sustainable Investing

Steering a green portfolio ensures EDP’s long-term value creation
EDP: Green Bonds Foster Sustainable Investing
Publ. date 19 Feb 2020
Alternative forms of investments are becoming more predominant in corporate financial structures. Companies that leave a bigger fingerprint are encouraging internal collaboration by pairing unrelated divisions to one another. Energias de Portugal is living proof of this, blending its corporate vision with investors’ desire for portfolio diversification. Hedging both financial and environmental risk factors, green bonds enable alignment and play an active role in a strategic point of view.

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The green bond milestone    

Indeed, 2019 was a breaking point to set this financing measure as a reference, as $255bn was issued during the course of the year; representing a 49% increase compared to the previous year. According to Climate Bond Initiative, the broad view of green investments is expected to reach a staggering $1 trillion; an emblematic figure that serves as proof in this decade of change.    

The previous year also had the EU as the dominant green bond market provider ($106.7bn), with clean energy representing the bulk category of bonds exchanged (31.5%).    

The rise of green financing in Portugal  

Benefiting from favorable geographic terrains, Portugal’s wind and solar power plants are growing in abundance. Feeding of these demographic conditions is Energias de Portugal (EDP), which through its Renewables subsidiary EDP R has formed a renowned green portfolio that is impacting economic outcomes at both industry and nation level.    

EDP – A catalyst with green bond initiatives in Europe    

EDP is well familiar with this financing mechanism, as it has been issuing green bonds since 2018. Portugal’s largest energy provider and the third largest in Spain started 2020 by issuing its third green bond issuance, a further $814,125m* with a maturity date prolonging to 2080. According to Bloomberg, the demand for EDP’s bonds more than exceeded the quantity issued, which was estimated to be worth four times higher than what was offered.    

The figures show the alignment between the issuer EDP, who furthers its vision and statement, and its investors, who opt to diversify their portfolio with responsible investing. Through this financing measure, the firm will be enhancing its green portfolio, which consists of renewable energy production projects, such as wind power plants and solar power plants. 

The world’s fourth largest wind energy producer emerges as an example in its sustainable investment approach for several reasons. Mainly:   

  • Being transparent and eager to comply with regulatory framework: EDP has published a green bond framework which states that all green bond initiatives follow the green bond principles, a volunteering guideline provided by International Capital Market Association, which promotes transparency and integrity in the development of the green bond market. EDP’s framework is based on a well-structured, 5-pillar approach, from the use of the proceeds to a final external review.
  • Promoting internal cooperation and integration in the company’s capital structure: EDP ensures cooperation between its financial and sustainability teams when crafting its capital structure. This is crucial for these two pillars within a company structure, as it helps the sustainability team improve their understanding of investors’ perspectives, which can then improve their ability to communicate the financial value of EDP’s sustainability efforts.
  • Alignment with the company’s environmental strategy and priorities put forth: The energy provider excludes projects related to fossil fuel and hydro energy production, as these go against the ESG strategy envisioned, and is not part of the EDP R portfolio of projects. Furthermore, EDP establishes relevant impact indicators such as the installed capacity of renewable energy and its annual net production, as well as the CO2 emissions avoided, linking them to UN Sustainable Development Goals and the already established targets. Whilst providing the necessary impact reporting, EDP clearly states the potential impact of their investments, ensuring full transparency in all aspects relating to green bond financing.   

 

Want to incorporate a green portfolio, aligned with your company’s vision?    

Diversifying portfolio risk through alternative, greener approaches can enhance corporate value. In addition, it helps companies pave their sustainability journey and ensure actions which foster impact investing, as EDP demonstrates. If you are interested in learning more about how Finch & Beak helps companies ensure that they focus on long-term value creation, please contact Nikkie Vinke, Senior Consultant, at nikkie@finchandbeak.com or say hello by calling +34 6 82 04 83 01.     

*For consistency, these figures have been converted from Euros to Dollars (provided by Morningstar).    

About Tomás Flora da Silva

Young professional seeking to aid companies make a difference through sustainable approaches. tomas@finchandbeak.com

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