In 2018, the environmental team started considering sustainability from a finance perspective, and the finance team started to incorporate ESG targets. Telefónica saw the opportunity to enlarge its investor base, explore opportunities within sustainable financing, and to start conversations with its investors that had not happened before.
After developing its SDG financing framework, Telefónica launched a roadshow with investors to kickstart and socialise the project. Telefónica knew its existing investors (and investors generally) were already interested in sustainability and the effects that climate change has on the financial world. Despite this, it was unsure how its own investors would react to the idea initially and whether they would buy into it. However, the sustainability and finance teams were both confident that Telefónica was well-prepared to join the emerging trend of green bonds in other industries. It had the credentials required to convince investors of its idea, i.e. the creation of the sustainable financing framework, and demonstrable progress on achieving ambitious energy saving targets with its fibre efficiency and building closures. Between 2016 and 2018, Telefónica reported its copper to fibre transition had already delivered 208GWh of energy savings and avoided 56,500 tonnes of CO2 emissions, equivalent to the carbon absorbed by 900,000 trees.
Initially Telefónica did receive a small pushback from investors because of the scant knowledge of the sector from an environmental perspective. However, the evidence it was able to present investors was clearly compelling, given the level of enthusiasm for the bond. The Green Bonds have been extremely popular, with the first and third bonds being five times oversubscribed, and second one being seven times oversubscribed.
Telefónica works with third parties, Sustainalytics and PwC, to verify and audit its sustainable financing framework and annual sustainable financing reports.
Telefónica launched a hybrid Green Bond (of debt and equity) in 2020, the first of its type in the telecoms industry, amounting to €500 million. This Green Bond further also served finance projects aimed at transforming the copper network to fibre optic in Spain. This bond saved 50 GWh between May 2019 and August 2020, avoiding 10,075 tonnes of carbon emissions, equivalent to the carbon absorbed by 165,000 trees.
In February 2021, Telefónica launched its third sustainable bond, a sustainable perpetual hybrid issue22 amounting to €1 billion, and another first of its kind in the telecoms industry worldwide. A perpetual bond has no maturity date, which allows it to be considered as equity rather than debt, while a sustainable bond is a mixture of both green and social bonds. This means that the proceeds must be used for either social or environmental projects that impact as it was stated in the framework. This third Green Bond was met with much enthusiasm from investors, with demand from over 500 institutional investors. This suggests that Telefónica has built enough trust with investors to achieve greater leeway in how it invests financing to achieve ESG targets.
In November 2021, Telefónica launched another sustainable hybrid bond, amounting to €750 million. Telefónica is using these funds to finance or refinance social and environmental initiatives in Spain, Germany and Brazil. The environmental initiatives continue the focus on transforming the copper network to fibre (85% more energy efficient); the social initiatives focus on bringing connectivity to undeserved areas and improve internet access, therefore reducing the digital gap and further encouraging worldwide digitalisation.
In January 2022, Telefónica refinanced its main €5.5 billion syndicated facility under sustainable criteria. The company´s interest rates will depend on the compliance with an environmental objective (the reduction of direct and indirect greenhouse gas emissions) and a social objective, (the increased percentage of women in executive positions), both of which will be verified annually. Sustainalytics provide the framework for the bonds, writing yearly reports on them which are verified by PwC. These reports are published on Telefónica’s websites with PwC’s verification.
In STL’s Partners report Telefónica’s 10 steps to sustainable telecoms, we explore what other telcos can learn from Telefónica’s experiences.