Most SLB issuers likely to meet end of 2023 targets but Enel falters

Seven out of 10 issuers measuring at the end of the year likely to hit their targets, but questions remain around Enel, PPC and San Miguel Industrias.

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The majority of firms with Euro and dollar-denominated sustainability-linked bonds measuring at the end of 2023 have met or are likely to meet their targets, according to research published on Wednesday by the Anthropocene Fixed Income Institute (AFII).

The climate-focused fixed income think-tank analysed 20 bonds that have targets due at the end of this year, and found that most issuers are on track to hit their goals. However, Italian utility Enel is likely to miss targets attached to $10.8 billion worth of debt, AFII said.

The AFII has written extensively on Enel, which it claims is “highly unlikely” to hit its reduction target for Scope 1 emissions intensity of its power generation activities. While Enel managed to cut these emissions by 26.7 percent in the first half of 2023 because of the sale of its Russian assets, AFII analysts said there was no clear path to hitting the target.

While Enel has hit its targets for renewable energy installation, missing the intensity goal would result in an increase in interest costs of $27 million.

Enel declined to comment this close to the presentation of its new strategic plan.

Also likely to miss its target is Greece’s Public Power Corporation, which failed to hit a 2022 target on its first SLB. The AFII said the issuer is now likely to miss the 2023 measurement on a separate bond as well, as the planned closure of its lignite plants has been delayed.

The third issuer at risk of missing its targets presents a slightly more unusual situation. Latin American plastics company San Miguel Industrias raised $380 million from an SLB in 2021, with a financing cost tied to its total tons of collected waste and use of recycled plastic.

The firm has not updated its disclosures on the two targets since 2020, when it performed worse than its 2019 baseline. While the AFII said this might suggest the targets are unlikely to be achieved, the length of time since the data was reported could hide a significant turnaround.

PPC had responded to a request for comment at the time of publication. San Miguel Industrias had not responded to a request for comment outside local business hours.

There was a more optimistic projection for the other seven issuers due to measure at the end of the year. Private equity firm EQT and brake manufacturer Knorr-Bremse have both achieved their goals of setting SBTi-approved targets, while China Construction Bank and two French companies, Forvia and Rexel, had already exceeded their targets by the last measurement period.

The two remaining issuers, Mexican chemicals firm Orbia and Yunnan Energy Investment Overseas had not yet met their targets but were highly likely to, the AFII assessed.

The authors of the report describe the bonds assessed as part of the “early vintage” of sustainability-linked bonds, with the majority issued in 2021. None of the bonds in the sample reference Scope 3 emissions, and two targets were simply to have an emissions reduction plan approved by the SBTi.

More recent structures, they say, are more rigorous and ambitious.

“We believe SLB investors now demand a higher standard of materiality and ambition, as evidenced by some of the stronger structures currently being issued… In general, we do
think the standard of KPI and SPT selection has improved even in such a short time.”