Italian banking group Intesa Sanpaolo has made its first international investment in the circular economy in a £175 million (€200 million) finance agreement with Thames Water.
The funding arrangement with the UK’s largest water and wastewater company is one of the first to use the banking group’s €5 billion fund dedicated to developing the circular economy.
Thames Water will be incentivised to meet targets based around adopting circular economy principles which, if met, can unlock improved finance terms.
The transaction was led by the London Hub of Intesa Sanpaolo’s corporate and investment banking division and structured by Banca IMI.
It was supported by the circular economy team of the Intesa Sanpaolo Innovation Center, the group company focused on innovation and promoting the circular economy, which is chaired by Maurizio Montagnese.
The investment reflects the bank’s global commitment to environmental improvements. It is included in the Dow Jones Sustainability Index Europe and Dow Jones Sustainability Index World, which are among the most important global stock exchange sustainability indices. Since 2015, the bank has been the sole financial services global partner of the Ellen MacArthur Foundation, the leading organisation promoting the circular economy.
The circular economy is a new economic model aimed at decoupling business growth from reliance on using an ever-increasing amount of finite natural resources; instead, the focus is on redesigning the industrial system to prioritise sustainability, reuse and recycling.
Mauro Micillo, head of Intesa Sanpaolo’s corporate and investment banking division and chief executive officer of Banca IMI, said: “We are very pleased with this transaction alongside Thames Water. Our division is providing financing that goes beyond just the economic dimension; the agreement foresees regular checks based on circular economy metrics, linking these indicators to certain economic incentives that can improve the loan conditions.
“Thanks to the support of the Intesa Sanpaolo Innovation Center, we have all the tools we need to leverage opportunities offered by new sustainable financing initiatives; it is an innovative and strategic challenge that can bring significant benefits at a global level.”
Thames Water is the UK’s largest water and wastewater company, supplying around one quarter of the population of England and Wales. Each day, it supplies 2.7 billion litres of drinking water to 9 million people and removes 4.4 billion litres of wastewater from the homes of 15 million people, through a network of 109,000km of pipes and sewers.
The banking group was one of the founding signatories of the Principles for Responsible Banking, a UN initiative that provides a framework for a sustainable banking system by encouraging banks to align business strategy with environmental goals.
There is an increasing global interest in the development of the circular economy amid warnings from the Intergovernmental Panel on Climate Change that the world must act immediately to avoid an environmental crisis.
For businesses, this means significant change in the coming years, as many countries move towards a zero-carbon economy, where there is less reliance on fossil fuels and a greater focus on sustainable ways of doing business.
Earlier this year, Jaguar Land Rover revealed its investment in a closed loop strategy for its vehicle production to maximise recycling of materials into its next generation models.
The REALITY project will recover aluminium from existing Jaguar and Land Rover vehicles and is being tested on early, pre-production prototypes of the Jaguar I-Pace electric vehicle.
This year, BNP Paribas Leasing Solutions and 3stepIT launched their circular economy-focused joint venture in France and Italy with plans to expand to 11 European countries next year.
The new company, BNP Paribas 3 Step IT, provides technology lifecycle management based on circular economy principles that aim to reduce waste by extending the life of assets, enabling the reuse of returned equipment and maximising recycling of end-of-life items.