Electricity and gas supplier Enel underwent a dramatic journey when it moved to embrace a fully sustainable strategy in 2015. The result has been that the Rome-headquartered firm has seen its market value rise sharply to over €90bn, making it Italy’s biggest company and Europe’s largest utility.
For Alberto De Paoli, Enel’s CFO, the rise of the utility to such a dominant position from harnessing renewable energy, is a cause for celebration, reflecting his vision that “sustainability was coming into the mainstream.”
But when the group embarked on a journey to become greener, the response from shareholders and other stakeholders was not immediately positive.”At the time there were doubts about renewables,” he says.
The move into the utility space came when he was tasked as CFO of launching Enel Green Power, the sustainable energy arm of the former state entity which the Italian government still owns just under a quarter of.
“At the very beginning, this position was very hard to present. We didn’t have a simple concept for the financial markets,” he says.
De Paoli says that renewables as a source of energy were considered something of a joke when he started out. “But we decided at the time that this joke was going to change the world,” he says.
But he applied the same vigour and revolutionary spirit that he previously demonstrated in 16 years in the telecom space as controller of Telecom Italia, and then strategy roles at Tiscali and Wind Telecommunications, becoming CFO of the latter. Most notably, he was part of the start-up team at Wind, that now has around 30 million customers.
In telecoms he experienced a sudden, profound change heralded by players such as Vodafone that exploited the development of mobile phones and then internet technology, “that completely destroyed and rebuilt the field,” he says.
When he joined the energy sector, he felt it was at a pivotal moment “like the telecoms industry ten years before,” as renewables could provide a cheaper, sustainable energy form, through smart grids and digitisation.
The business that was launched developed technologies across wind, solar and hydropower, with a smaller interest in biomass and geothermal, after it was founded in 2008. Seven years later the entity was bought back by Enel for €3.1bn, as the parent sought to reinvent itself as a business focused on sustainable energy, and as a result De Paoli became CFO of the enlarged group in 2014.
By last year, around 60 per cent of Enel’s energy source came from renewables. That figure is set to rise further as the group seeks to reach full decarbonisation by 2050. “We have committed to an 80 percent reduction in direct greenhouse gas emissions kWh (kilowatt hour) by 2030. That is the level we have to have to be consistent with the United Nations pledges to limit global warming to 1.5 degrees Celsius above pre-industrial levels,” says the finance leader.
One of the biggest lessons for De Paoli has been that only through trial and error can big breakthroughs be achieved. “My mindset has been about making all the mistakes possible.
“You need to be able to make big mistakes, to work on the mistakes, and to understand why these mistakes happened”, he says, referring to an approach he shares with Enel’s CEO Francesco Starace.
If the language sounds similar to Silicon Valley talk, it may not be a surprisie to learn that De Paoli is a keen observer of innovations in the tech world. “We look at renewables in the same way we view other trends such as electric vehicles and digitisation, trends that are going to change the world,” he says.
It was this ethos that inspired Enel’s move to buy back the 30 percent of listed shares in Enel Green Power to transition the parent to a long-term sustainable footing. “It was a very bold move, but we came to the decision to move all the business over to this model of transforming Enel to green power”, he says.
As renewable energy has become much more cost effective, the group’s profitability has risen and its market value has almost tripled- from around €35bn in 2015 to over €90bn today. “What is reshaping the world is the economic rationale behind a sustainable choice. Only through the evidence of this value, more and more buyers will make sustainable choices changing the world,” says de Paoli.
“This increase in market capitalisation is related to a lot of the decisions and actions we have taken, but also the trust we have developed in our model,” he says.
“You have to build trust around how you think, and how you see the world, the story that you can tell, and then the results you deliver.
“We also worked on developing the culture of the company, exiting the silos approach in which many companies have lived for the last 30 years,” De Paoli adds.
Another key ingredient for reconfiguring the company was exploiting the power of digital tools which finance can use to communicate to all parts of the business. “CFOs can be a powerful enabler of change, if they set a common language across the group that ensures data can support day-to-day decision-making.
“But if you don’t work on the quality, the structure and availability of data, you will fail. So you need to be able to move forward in a balanced way,” says De Paoli.
Having strong data is vital, says De Paoli. He says: “You can’t work in a decarbonised world without full digitisation and smart networks. To have these networks work, you have to invest a huge amount of Capex (capital expenditure) to completely reshape the business, like telecoms firms are having to do with fibre optic.”
He puts a lot of emphasis on the importance of financial data as well as financial data to produce a range of sustainability, financial and operational KPIs (key performance indicators). Last year Enel produced for the first time an integrated and fully digitised report that combines financial and sustainable information that received ten times more visits than the previous version.
In 2019 De Paoli was named as co-chair of the UN Global Compact for the CFO Task Force for SDGs (social development goals), reflecting a commitment to sustainability.
He is questioning of the effectiveness of green bonds that he says have no long-lasting impact other than “making everyone aware of the fact that this is money spent for specific renewables projects.
De Paoli says more targeted instruments such as sustainability-linked bonds are a better bet. “With them I can reach a specific target that is sustainable within my strategy for delivering the highest level of profitability. Then we are talking the same language, because you can get a better return, because I am offering a lower risk,” he adds.
In this context, he has strong views on how the world is responding the challenge of climate change. “My personal feeling is that we are progressing,” he says.
“Ten years ago, solar energy cost €350 per megawatt hour. For coal plant energy, the cost was around €60. Today, one megawatt hour of coal is still €60 but solar is €35. There’s no way to stop it. No way.
“We are in a rush because we know that we have no time, but we are lucky because technology is already here. Coal plants were shut down more in the US during the last administration than ever before, because of economics,” says De Paoli.
He believes the CFO is the key player in every organisation for delivering value creation from a sustainable business model, given the digital tools at their disposal for measuring the impact on the environment of any approach. “We know through digitiisation, we can do things differently to what we may have been accustomed to doing before,” he says.
Despite the current challenge thrown up by coronavirus, that was largely the reason for a 19 percent fall to €48m in Enel’s revenues in the first nine months of 2020, De Paoli believes that the pandemic won’t limit global ambitions to address climate change and improve sustainability. “With full respect to the pain being suffered by people in this crisis, I think this big shock can be a crucial moment for humanity,” he says.
“It has created a greater conversation about improving our living conditions, from a health, economic and climate perspective. The pandemic might steer us on a better path,” adds De Paoli.
He is referring to a demand for more joined up thinking between government and the corporate sector to deliver large-scale solutions to problems such as climate change.
“More investment will come from a greater push from the European community and the United States that will deliver energy transition,” says De Paoli.
“There is a recognition that how we produce and use energy is at the centre of what we do and is at the heart of geopolitics. As we come out of the crisis, the energy revolution could be key to reinventing the world,” he adds.