Iberdrola's Green Bonds and the Appetite for Climate Finance

Iberdrola, Iberia's largest provider of renewable energy infrastructure, has successfully placed an €800m (US$845m) hybrid green bond in the Euromarket, securing huge swathes of investment for its upcoming sustainable projects.

This news is just the latest in a series of sustainability success stories to come from the Spanish firm in 2024, a year in which Sustainability Magazine has named them the world's most sustainable company.

The Bilbao-based utility giant made the issuance this year and investors flocked to register interest. In the end, the bond was 3.75 times oversubscribed, which just demonstrates how confident investors are in Iberdrola and the climate tech market right now, despite the prevailing economic trends of the day.

The perpetual bond, which includes a par call option in August 2030, was met with overwhelming demand, reaching more than €3bn (US$3.17bn) from more than 200 international investors.

The bond's coupon rate of 4.25% marks Iberdrola's most competitive hybrid transaction in three years, reflecting favourable market conditions and strong investor appetite for green financial instruments.

This issuance is part of Iberdrola's broader strategy to diversify its funding sources and maintain its position as a leader in sustainable finance.

Ignacio Galán, Executive Chairman of the Iberdrola Group, says: "As a leading green bond issuer and renewable developer, Iberdrola supports sustainable finance to accelerate the energy transition, as well as any initiative to tackle climate change."

Behind the investor confidence

The proceeds from the bond will be used to refinance renewable assets previously allocated to a 2019 hybrid bond, which is set to be called back soon. This refinancing strategy will keep Iberdrola's hybrid stack stable at €8.25bn (US$8.73bn), demonstrating the company's prudent approach to financial management.

Iberdrola's latest green bond issuance comes at a time when the sustainable finance market is experiencing significant growth. According to recent data from the Climate Bonds Initiative, global green bond issuance reached US$500bn in 2023, a 15% increase from the previous year.

This trend reflects growing investor interest in environmentally responsible investments and the increasing importance of ESG criteria in financial decision-making.

Iberdrola's recent successes

The success of Iberdrola's bond placement is particularly noteworthy given the current market environment, which has been influenced by geopolitical instability and economic uncertainties.

Despite these challenges, the company secured a competitive coupon rate with a new issuance premium close to zero, which speaks to the resilience of the green bond market and Iberdrola's strong market position.

It's important to note that Iberdrola's bold sustainability strategy has been a huge factor in its strong market position. But what exactly does its strategy entail? Here are five key points from it:

1. Decarbonisation efforts: Iberdrola aims to achieve carbon neutrality in Scope 1 and 2 by 2030 and net zero emissions before 2040 including Scope 3.
2. Renewable energy expansion: The company has invested more than €100bn (US$105bn) in renewable energy – resulting in an installed capacity of 41,246 MW as of 2023, a 6.5% increase from the previous year.
3. Sustainable finance: Iberdrola has made gross investments during 2023 totalling €10.73bn (just over US$11bn), reinforcing its commitment to sustainable growth.
4. Biodiversity initiatives: The company is committed to having a net positive impact on biodiversity by 2030, integrating environmental considerations into its operations.
5. Community engagement: Iberdrola's community contributions are detailed in the Assurance Report 2023, highlighting its social commitment.

The hybrid structure of this green bond

The hybrid nature of the bond is also significant, as it counts as 50% capital according to the methodology of major rating agencies. This structure helps Iberdrola maintain its credit ratings while providing flexibility in its capital management strategy.

Iberdrola's latest green bond is part of a series of successful market operations in 2024, which have collectively raised €6.6bn (US$7.19bn). These include a €700m (US$740m) hybrid bond in January, a 335 million Swiss franc (US$369m) bond in June, and a £500m (US$634m) green bond in October, among many others.

This diverse range of issuances across different currencies and markets underscores Iberdrola's global financial reach and its ability to tap into various investor bases.

A commitment to sustainable finance

Iberdrola's commitment to sustainable finance aligns with its broader business strategy focused on renewable energy and grid infrastructure development.

The Basque firm has set ambitious targets to increase its renewable energy capacity and reduce its carbon footprint, with plans to invest significantly in wind, solar, and smart grid technologies over the coming years.

And as the global energy sector continues its transition towards cleaner technologies, Iberdrola's successful green bond issuances position the company as a key player in financing the shift to a low-carbon economy.

What's more, the strong investor response to this latest bond offering suggests that the market remains confident in Iberdrola's long-term strategy and financial health.

Iberdrola's self-belief and commitment to sustainability was summed up well by Rui Afonso, Managing Director of Iberdrola Clientes Portugal, in a recent interview.  

"We are active agents in the decarbonisation of industry," he said. "It is part of our corporate goals." 

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