Sustainable bonds and loans 3.5 Innovative financial instruments specifically aimed at driving scale and impact for energy transition technologies are also crucial in addressing the financing gap. Sustainable bonds are an instrument already widely used. However, their impact can be significantly increased when they do not require underlying assets: instead of being linked to a specific project, they can then be backed by an issuer’s entire balance sheet. As a result, these sustainability-linked bonds are considered low-risk and can be issued at large amounts and with longer tenors than project-specific instruments. To ensure their climate impact, they can be linked to existing sustainability pledges, such as SBTi (Science Based Targets initiative) targets to guarantee the issuers’ accountability. The use of sustainable finance instruments can be linked to the user’s stage in the energy transition and follow several steps: starting with specific- purpose instruments such as green bonds for isolated assets and activities within generally accepted impact categories (a wind energy project or a project to electrify industrial operations for instance), evolving towards general-purpose and performance-based instruments such as sustainability-linked bonds. A final stage, when a company’s projects are all in line with the energy transition would involve unlabelled instruments, which validate the transition journey and represent the user’s overall strategy, quality and maturity. One such example is the sustainability-linked bonds that ENEL has been issuing since 2019 on international capital markets for a total of €32 billion. In addition, since 2022, the European Investment Bank – as well as ECAs from Italy, Denmark and Finland – have started issuing multi-country, multi-business and multi-currency sustainability-linked loans with ENEL linked to the company’s greenhouse gas emissions reduction key performance indicators (KPIs).40 Financing the Energy Transition: Meeting a Rapidly Evolving Electricity Demand 21

Financing the Energy Transition 2025