Telco giants Ericsson and Telefónica are betting on green bonds to finance their energy transition, and together have raised more than €1.3 billion in the past week.
Ericsson today issued its first sustainability-linked bond for €500 million with a maturity of four and a half years, saying the proceeds will be used exclusively for energy efficiency investments. Meanwhile Telefónica closed this year’s third green bond issuance last week with a 10-year, €850 million transaction, which will also be allocated to energy investments.
The two transactions suggest that appetite is strong for bonds linked to sustainability performance – at least in the telco sector – and confirm predictions that corporate green bonds are making a come-back.
In its latest ESG Bond Supply Outlook, ING Bank notes that although “the sustainability bond format has hardly been used in 2023 thus far” in the corporate world, the instrument “could reappear on the market in 2024”. The bank forecasts about €63 billion of corporate green bond issuances next year.
Two other companies are currently seeking to raise green funding in the form of sustainability-linked bonds on the European market: wind turbine maker Vestas and mining firm Imerys, whose Chief Financial Officer Sébastien Rouge and Chief Sustainability Officer Leah Wilson gave a joint presentation to investors earlier this week.
Green bonds: aligning sustainability and finance strategies
For both Ericsson and Telefónica, green bonds are part of a plan to align the companies’ financing activities with their sustainability goals: this month, the Spanish telco announced a goal to link 40% of its total funding activities with sustainability KPIs.
At Ericsson, CFO Carl Mellander explains that “issuing the bond is a direct consequence of our work to fully integrate sustainability into our finance operations, including last year’s launch of our Green Financing Framework”.
“The proceeds raised will support R&D investments in enhanced energy performance in both existing and future solutions. This will strengthen operators’ competitiveness and enable further societal climate action through solutions made possible by mobile connectivity,” he adds.
Joint bookrunners on the Ericsson bond are Citi, Credit Agricole CIB, Danske Bank, Deutsche Bank and SEB – which updated its sustainable finance targets last week.
Green bonds are perceived as one of the more mature areas of the broad sustainable finance ecosystem, with clear guidelines on the use of proceeds and now even an EU government standard to ensure their quality.
But as a relatively new instrument, they could soon face their first major test as the first large issuers start missing their ESG targets. Some predict this will be the case for oil and gas firm Enel at the end of this year, which would trigger the largest step-up in the history of this market.