As “browner” sectors continue to find appropriate ways of embracing sustainable finance, it is worth highlighting a new landmark framework, the SNAM Climate Action Bond Framework, which Europe’s leading gas utility firm – and one of Italy’s largest companies – has published at the beginning of November.
Highlights of the SNAM framework
While structurally similar to a green bond, SNAM has worked with DNV to create a Climate Action bond suitable for its own project mix and sector, acknowledging in its framework for the bond, the sensitivities around natural gas amidst many green market stakeholders, but also stressing the importance of gas as a “flexible, safe and low environmental-impact fuel”.
In this context, to win investors' trust and provide additional authority, the framework has been aligned with the Italian government’s “National Adaptation Plan for Climate Change”, and SNAM pledges to deliver a positive impact to the 17 United Nation’s Sustainable Development Goals (“SDG”), focusing on four key goals:
- SDG 7: Affordable and clean energy
- SDG 9: Industry, innovation and infrastructure
- SDG 11: Sustainable cities and communities
- SDG 13: Climate action
Furthermore, DNV GL Business Assurance Services had been tasked to create a SNAM specific Climate Action Bond Eligibility Assessment Protocol in which DNV concluded that the bond meets the criteria established in the Protocol and that it is aligned with SNAM’s Climate Action Bond Framework, Italy’s PNACC and the Green Bond Principles 2018.
The framework lists four project categories, for which the proceeds of the bond will be used:
1) Carbon and Emission Reduction Projects include the replacements of old generation boilers, turbo-chargers and valves
2) Renewable energy projects, which include development of new biomethane plants and upgrading of existing biogas plants
3) “Energy Efficiency Projects” for SNAM’s corporate facilities or supply chain, such as – for example – the replacement of traditional lamps with LED lamps and the implementation of energy management systems and
4) “Green Development Projects” targeting the development and maintenance of conservation areas, natural capital preservation and the development and maintenance of green areas and buildings.
SNAM also details in its framework how it will ensure transparency and manage governance by setting out a process for stakeholder engagement and reporting to stakeholders, involving a number of teams such as the finance department, a climate action bond committee, functional staff, the CSR department and an external accountant.
Investor engagement is crucial
SNAM’s Climate Action Bond Framework can be a good example for green bond issuers, who want to opt for a self-designed framework to suit their specific green agenda, rather than just plain following the market leading Green Bonds principles.
While there are obvious benefits for the issuer, it may create concerns amongst investors around governance, long-term climate benefits and product liquidity.
SNAM, anticipating these worries, has addressed all of these questions in its framework, however, it will now have to prove over the coming years that it delivers on the framework’s pledges by proactively engaging investors.