The financing for environmentally and socially committed projects is already part of Sacyr's business scope, since it aligns with two relevant milestones of our 2021-2025 Strategic Plan: to situate sustainability as the cornerstone of the company's actions and to strengthen our commitment to reducing net recourse debt.
"Nowadays, companies being environmentally aware has become an indispensable requirement in the financial world", explains Pablo Otero, Financial Director of Sacyr Holding. "The international finance community requires all companies to invest in green, social and sustainable projects. Thus, today we don't only consider profitability when assessing a project, but also its ability to enhance environmental and social welfare", Otero emphasizes.
There are two types of green financing:
i) One in which the company applying for financing commits to exclusively use the proceeds to finance projects that will have positive environmental and/or social outcomes, also known as green loans or bonds;
ii) And another one in which the ESG lines of credit are tied to the company's sustainable actions and their performance. The interest rate in the latter is directly connected to the projects' ESG ratings and its compliance with sustainability or social KPIs in the future, as is the case of sustainability-linked loans.
Under these formulas, the company in question makes a public commitment to sustainability, but the proceeds are not directly set aside for sustainable projects but for companies committed to the environment and circular economy.
Environmental risk analysts in banking investment portfolio management already rate aspects such as the reduction of CO2 emissions; the use of non-polluting raw materials and/or production equipment; training employees in security; whether companies conduct internal safety and health audits, the production of sustainable, recyclable products; etc.
“In this sense, it’s possible for us to have different ratings for the different projects we finance for a specific project, and then, a corporate rating for the Group. In any case, companies should aspire to have the highest ratings possible to meet the minimum parameters required by the financial community", explains Otero. “In the past years, Sacyr has fully committed to obtaining the best ratings both at the project level and at the corporate level".
Of the latest processes that Sacyr has reached financial close for, many have obtained green or social ratings. Last year we closed four financings that are especially relevant to us:
- The securitization of Sacyr Industrial Operación y Mantenimiento (SIOM)’s operation and maintenance contracts for nine cogeneration, biomass, and alpeorujo treatment plants.
- The financing operation for Valoriza Servicios Medioambientales.
- The social bond issuance for the Montes de María project. Thanks to this project, Sacyr Concesiones won the LatinFinance award in the category "Best financing in local currency".
- The first issuance of a social bond in Latin America tied to an infrastructure project, the Puerta de Hierro-Cruz del Viso road project, in Colombia.
Puente Genil (Córdoba), Alpeorujo treatment plants.
Origins of green financing
The history of green bonds dates back to 2008, when the World Bank issued the first green bond at the request of a group of Swedish pension funds seeking to invest in climate-related projects.
The increase in demand led several organizations to reconsider the necessity of creating a framework to define sustainable financing practices. In 2017, the International Capital Market Association (ICMA) published a pioneering project called the Green Bond Principles (GBP). These principles offered some practical recommendations to promote transparency and the disclosure of information regarding the issuance of green bonds.
This provided a reference framework for organizations to refer to when issuing these instruments. The GBP also promote the disclosure of information to help investors assess the environmental outcomes of their investments.
The European Commission has also launched an ambitious Action Plan for a greener and cleaner economy, which aims to incorporate the notion of sustainability into the EU Financial Regulation. The creation of a market-wide standard for the issuance of green bonds is one of the goals of this Action Plan.
It's not only investors that seek to back sustainable projects or environmentally-aware companies, but also equity investors.
"Since 2021, we have put our minds to improve our scores in ESG ratings to show the company's great advances, and in turn, help our stakeholders (shareholders, investors, analysts...) to have a better understanding and grasp of the company's evolution when it comes to ESG aspects", says Alberto Gárgoles, Head of Investor Relations at Sacyr.
Last year was particularly relevant for us, because we have decided to actively participate in some of the questionnaires of the best-valued ESG rating agencies: Sustainalytics, Standard & Poor’s, MSCI, and Carbon Disclosure Project (CDP).
"We have received high ratings from all of these agencies, and we have differentiated ourselves as industry leaders in some of them, which helps us gain more trustworthiness among our shareholders and investors and improve the public's perception of companies", explains Gárgoles.
According to the assessment carried out last June by Sustainalytics ESG Risk Rating, Sacyr is the most sustainable company in the infrastructure and construction sector in Spain, and the fifth worldwide out of the more than 280 companies analyzed.
This rating, developed by Sustainalytics, a Morningstar company, assesses the sustainability performance of more than 20,000 companies internationally. "The analyzed aspects include different environmental, social and governance elements", stresses Gárgoles.
Sacyr is among the most sustainable companies in infrastructure and construction internationally, according to Standard & Poor's Corporate Sustainability Assessment (CSA) questionnaire. Sacyr's score in 2021 was 66 points, situating itself in the 90th percentile ranking, and it managed to exceed its 2020 score by 38 points.
But there is still a long way to go in terms of sustainable financing. At a national level, some pending challenges are to decouple the sectors dependent on fossil fuels from public financing and gradually reduce the cost of renewable energies, as corporate interest in renewable energies will continue to decline if the price remains higher than that of fossil fuels.