CAP Group chooses sustainable finance with a €105 million sustainability-linked bond. The green utility that manages the integrated water service for the Metropolitan City of Milan has adopted its own Sustainability Linked Financing Framework, which defines a sustainable finance strategy consistent with its business plan and Sustainability Plan. The first step is the placement, with the support of Mediobanca, of a sustainability-linked bond, whose coupon is linked to the reduction of direct and indirect greenhouse gas emissions, as defined in the framework. The bond — a €105 million non-convertible debenture loan — is secured with Pricoa Private Capital, the private debt arm of the US group PGIM Inc. and one of the world's leading asset managers, and will be used by CAP to support the investments foreseen in the integrated water service business plan, from reducing losses to improving network efficiency and adopting innovative technologies. This is the first issue under CAP's $260 million sustainability-linked Private Shelf Facility. The Shelf Facility is a revocable framework agreement that allows for multiple issuances during its term — in this case three years — which will allow the Group the flexibility to issue notes according to specific capital needs and with minimum lead times.
“Water services are increasingly at the centre of the challenges facing local communities, both because of the ongoing climate crisis and because water and its industrial management is an enabler of the technological transition. In 2019, we made the important decision to adopt a Sustainability Plan that identifies ambitious environmental goals to be pursued in the coming years,” explains Alessandro Russo, CEO of CAP Group. Today, by adopting a clear strategy of sustainable finance, we intend to continue with greater conviction along the path we have taken. We have an industrial plan that will lead us to invest more than half a billion euro over the next five years, thanks to our own resources and those that we will be able to raise on the financial markets. Consistent with our values, we wanted to link this bond issue to the decarbonisation goals that are fundamental to our company, which, like all those in the water sector, has a high rate of energy use intensity.”
The bonds are listed on the Irish regulated market, have a maturity of 14 years and pay a semi-annual coupon of 5.1%. There are two decarbonisation targets linked to the bond: a 42% reduction in direct emissions and indirect emissions from energy consumption (scopes 1 and 2) by 2030 compared to 2021 emissions, and a 25% reduction in indirect emissions from other sources (scope 3) by 2030 (again compared to 2021 emissions).
"After building a relationship of trust with CAP Group, we are delighted to formalise our partnership through an investment that allows the group to diversify its sources of funding and promote its green transition goals,” says Francesco Ascoli, Senior Vice President – Pricoa Private Capital. Our local presence and long-term approach mean we can provide customised capital for our issuers, and support CAP Group in fulfilling its aspirations in the years to come.”
The bond was issued as part of CAP Group's Sustainability-Linked Financing Framework, the main objective of which is to align its financial strategy with its sustainability commitments, integrating it with the company's plan to promote the green transition. This framework contains the guidelines that CAP Group will follow in the issue of sustainable financial instruments. In particular, it sets the targets for the reduction of greenhouse gas emissions and the reduction of water losses, which will contribute to the achievement of the Sustainable Developments Goals (SDGs) of the UN 2030 Agenda. In addition, the international rating agency Standard & Poor issued a Second Party Opinion certifying the framework's alignment with the Sustainability-Linked Bond Principles (SLBPs) published by the International Capital Market Association (ICMA) and the Sustainability-Linked Loan Principles published by the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications & Trading Association (LSTA). Mediobanca supported CAP Group in the transaction as Sole Arranger of the bond issue and as Sole Structuring Advisor of the Sustainability-Linked Financing Framework, and the law firm Simmons and Simmons advised the company on all related legal and tax aspects. Sustainable finance aims to create both economic and social gains by generating environmentally compatible economic value. In this sense, it fits into the broader concept of ethical finance, where economic choices are not necessarily linked to profit. Sustainable finance proposes investments that also consider environmental, social or governance (ESG) issues.