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Sustainability-Linked Bonds

Enel SLBs: fortes fortuna juvat

Written by Josephine Richardson

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Ten Sustainability-Linked Bonds will pay higher coupons after the Italian energy company fell short of its emissions intensity target. The event is a milestone in the development of the SLB market that could raise awareness of the value these instruments can bring investors looking to hedge issuers’ sustainability performance.

On April 23, Enel announced it missed its 2023 emissions intensity target, automatically triggering a 25bps step-up to ten of its outstanding SLBs. Investors will now receive millions of euros in additional interest payments from the company. The market reacted swiftly to the coupon uplift, causing prices for its EUR and USD SLBs to rally on average 0.43% and 0.63%, respectively.

These price moves reflect investors’ appreciation of SLB dynamics, while the outperformance of the stepped-up instruments may help accustom investors to their value, leading to wider adoption of the structure. In addition, the target miss should assuage concerns that SLB targets lack ambition or constitute “greenwashing”, since Enel is now paying a substantial amount for falling short.

* Fortune favours the bold

About the author

Josephine Richardson

Josephine Richardson

Managing Director, Head of Research

Based in London, Jo leads AFII’s research and a global team supporting fixed income investors as they align their portfolios with climate and sustainability goals. She joined AFII after 18 years in fixed income markets at JPMorgan.

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