Awareness of environmental protection is permeating through all layers of our society and the financial sector is no stranger to this trend. In fact, just over ten years ago it began to appreciate the important role it plays in the transition towards a greener and fairer model of society. That's when what we call today ‘sustainable financing’ was born.
The fundamental nature of this type of financing is that sustainability and financial profitability are not at odds. In this way, investors have begun to support solutions that address climate change and other causes through a new credit instrument called ‘green bonds’. This type of bond differs from traditional ones because the funds are specifically earmarked to be used to finance or refinance green projects, that is, initiatives that are environmentally friendly and contribute to environmental conservation.
Although the beginnings of the green bond market were quite timid, in recent times it has managed to skyrocket reaching a level of 185.9 billion dollars worldwide issued up until September 2019. In Spain, energy and financing companies have been the ones that have been the most involved in this market to date.
Red Eléctrica, as a facilitator of the energy transition in Spain, is one of the companies that lead this commitment towards green financing. In fact, in December 2017, it became the first company in the utilities sector to transform its €800 million syndicated loan into sustainable financing by adding Environmental, Social and Governance (ESG) criteria to the interest rate.
Since then, the Company has continued to be committed to socially responsible investment and has recently announced two milestones that have given a tremendous boost to this strategy. In October 2019, the Company took a step forward and presented its Green Financing Framework, to issue financial instruments that allow it to help promote projects that will accelerate the energy transition in Spain.
Just three months later, Red Eléctrica has made its inaugural issuance of green bonds for an amount of €700 million to finance eligible projects within this Green Financing Framework. The operation has had a great reception in the market. The interest of investors in Red Eléctrica and the reception of this new Green Financing Framework have resulted in a demand for this financial instrument worth €4.75 billion, equivalent to more than six times the amount of issuance offered. This has enabled a highly competitive price to be obtained, 0.50% over an eight-and-a-half-year term.