Sustainable finance

In today's financial landscape, sustainable finance is emerging as a key player in the drive towards a more environmentally friendly society. More and more companies and investors are joining the initiative as a way of backing projects with ESG criteria that not only generate financial returns, but also have a positive impact on the environment and society. In this context, which reflects a new paradigm in the way we invest, Iberdrola invites you to explore the transformative role of sustainable finance.

What is sustainable finance or ESG?

Sustainable finance is a financial approach that seeks to integrate environmental, social and governance (ESG) elements into business management or investment decision-making. It is a paradigm that goes beyond conventional financial performance, as it prioritises the generation of positive impacts on society and the environment through the channelling of resources.

This term was coined by the European Commission after the adoption of the Paris Agreement in December 2015. According to the European institution, sustainable finance represents a comprehensive vision to address environmental and social challenges and achieve the goals of the agreement in a responsible manner. In fact, in its strategy to reduce greenhouse gas emissions, it establishes the need to redirect capital flows as a way of financing sustainable growth.

To achieve what is proposed, there are various financial tools, but one of the best known is green bonds. These are instruments that are issued for the specific purpose of financing or refinancing projects with environmental benefits, such as renewable energy installations, expansion and digitalisation of electricity transmission and distribution networks, energy efficiency, electric mobility projects or green hydrogen, among other activities. Social bonds or sustainable bonds, in turn, focus on purposes with positive social impact or that address both environmental and social issues.

In addition to bonds, there are also other forms of financial products that are structured with the same aim of supporting projects that integrate specific environmental criteria, such as green loans or sustainable credit lines. However, in order to understand how this set of financing options work effectively and ethically, it is crucial to know how ESG criteria are structured.

ESG criteria 

Sustainable finance also involves the adoption of ESG criteria in the assessment of financial risks and opportunities. These criteria relate to three key categories:

Environmental (E): assesses the impact of a company or project on the environment. It considers elements such as waste management, energy efficiency, greenhouse gas emissions, conservation of natural resources and other practices related to environmental sustainability.

Social (S): focuses on a company's social and community impact practices. It includes aspects such as labour relations management, diversity and inclusion, occupational health and safety, human rights and contributions to the local community.

Governance (G): This criterion assesses the quality and efficiency of a company's governance structure. It seeks to integrate principles such as transparency, business ethics, board independence, risk management and regulatory compliance. Sound governance contributes to more ethical and responsible decision-making.

The integration of these three criteria in financial and business decision-making seeks to ensure that financing is socially responsible, environmentally sustainable, and ethically managed by the governance mechanisms, with the goal of contributing to long-term sustainable development. At Iberdrola, we have been incorporating ESG factors into our business strategy for decades, a decision that has allowed us to be a leading company in ESG+F.

 SEE INFOGRAPHIC: The Iberdrola Group's ESG financing portfolio [PDF]

Iberdrola's contribution to sustainable development

Iberdrola is positioned as one of the world's leading companies in green finance. Its business model based on fundamental principles such as responsibility, rigour, transparency and care for the environment sets a standard for sustainability in the energy industry. And this approach not only consolidates the company's position in the financial arena, but also demonstrates its strong commitment to creating sustainable development in the world.

Over the past two decades, and in anticipation of the energy transition, the Group has been dedicated to developing sustainable solutions to support the increasing electrification of the global economy: from the implementation of clean energy to the deployment of smarter grids. In this context, sustainable financing has become a powerful tool that Iberdrola uses to develop its investment plan, while offering investors the ability to measure their contribution to sustainability.

The data confirm the company's leadership in ESG project finance: the volume of operations at the end of 2023 was already almost than €54.5 billion. Moreover, the projected investment plan has a very high degree of alignment (approximately 90%) with the European Union Taxonomy, one of the fundamental bases of the EU sustainable finance framework.

It is also important to note that the projects to which the resources obtained with this type of investment are allocated comply with the environmental and sustainable development criteria described in Iberdrola's Green Finance Framework. The framework is aligned with the Green Bond Principles (GBP) established by the International Capital Markets Association (ICMA) and with the Green Loan Principles (GLP) of the Loan Market Association (LMA). This framework has been structured to try to meet, on a best effort basis, the requirements of the EU Green Bond Standard, drafted by the European Commission's Technical Expert Group, and has been adapted to include all elements of the Green Bond Framework.

The financing of ESG projects at Iberdrola is also aligned with the Sustainable Development Goals (SDGs) of the United Nations, reflecting Iberdrola's clear focus on the achievement of key global goals. Among the SDGs on which the Group focuses its efforts are SDG 7 (Affordable and Clean Energy) and SDG 13 (Climate Action). 

Green bonds awarded to Iberdrola

As one of the leading groups in the area of financial sustainability, Iberdrola maintains its commitment to environmentally-friendly business practices through the issuance of green bonds. It currently has senior and subordinated debt transactions, known as hybrid bonds, which have contributed to the financing of green, socially responsible projects with the least possible environmental impact.

The company issued its first green bond in 2014, becoming the first Spanish company to implement this practice in its business. Since then, it has significantly expanded its financing through this type of sustainable instruments and has carried out multiple issues in various forms, both public and private, carrying out operations from the corporation itself or from its subsidiaries such as AVANGRID or Neoenergia. 

In February 2021, it reached a milestone with the largest green hybrid bond issue in history, amounting to €2 billion. The proceeds were used to finance and refinance the Saint-Brieuc and Baltic Eagle offshore wind farms, which will have an installed capacity of 496 MW and 476 MW respectively.

At the end of the first half of 2024, Iberdrola remains the world's leading private group in green bond issuance, with a total value of almost €21 billion. Below, we review some of our latest transactions:

• In March 2022, EUR 1 billion was issued with a 10-year term for the financing of the Saint-Brieuc (France) and Baltic Eagle (Germany) offshore renewable wind farms. 
• In November 2022, a EUR 1.5 billion operation was carried out to finance renewable assets, mainly photovoltaic solar energy, in Spain and other European countries, which is divided into two tranches of EUR 750 million, one with a six-year maturity and the other with a ten-year maturity. 
• In July 2023, the closing of a green bond issue in the Euromarket was reported, with the Company's guarantee, for a total amount of EUR 850 million and under Iberdrola's medium-term bond issuance programme.