The strategic integration of economic, environmental, social and governance factors is ensured through a structured process as described below.
Context and scenario analysis
Iren Group analyses the environment and the macroeconomic, financial, energy and climate scenarios in the short, medium and long term to support strategic planning to identify the factors that may be important for its business from a competitive, sustainable, regulatory and normative point of view and that may affect the pursuit of its development targets. Detailed information about the energy, regulatory and financial scenarios is provided in the Group’s Consolidated Financial Statements.
The sustainability scenario in 2020 shows how the crisis caused by the Covid-19 emergency has increased awareness of the vulnerability of our development model and brought back into focus the strong interconnection of the environmental and social dimensions.
The pandemic has generated backlogs on many of the 17 Sustainable Development Goals of the 2030 Agenda. However, at the same time, it has produced an acceleration of change in essential spheres: from politics and civil society to financial and the most dynamic economic actors. The European Union, China and Japan have made commitments in 2020 to combat climate change. In January 2021, the United States re-joined the Paris Agreements to which 127 countries are committed. Also in 2020, investments in sustainable assets by mutual fund and ETF investors nearly doubled from the previous year.
The choices made by the European Union have also given Italy a boost towards sustainable development, which may find a significant opportunity in the Next Generation EU, the European programme for recovery, through investments that have future generations as their primary beneficiaries and are aimed at building increasingly sustainable, resilient and digital societies and economies. Italy, which is one of the primary recipients of this European programme, is offered the most relevant opportunity to implement projects, investments and reforms consistent with the promotion of economic, social and regional cohesion, economic and social resilience, the mitigation of the socio-economic impact of the crisis and the acceleration of green and digital transitions. Italy will allocate a substantial share of the resources to projects linked to the targets of the Green Deal. The European Council, in its recommendations addressed to Italy, has asked for the adoption of measures to improve the water and waste system.
As highlighted by the UN General Secretary, the crisis can be a transformative opportunity to address global threats, focusing on more significant investment in public health and making the economy more resilient and sustainable, following the framework for action provided comprehensively by the Sustainable Development Goals of the 2030 Agenda.
In the light of this context, Iren analyses and evaluates the prominent trends that, in the long term, will be decisive in terms of risks and opportunities for the sustainable development of the Group.
An increasingly important role is attributed to scenarios related to climate change and its effects on the Group’s activities, deriving from the physical scenario – acute phenomena (heat waves, floods, etc.) and chronic phenomena (structural changes in the climate) – and the transition situation towards a low-carbon economy.
Underlying the Group’s long-term (2035) and medium-term (2025) strategy are various scenario analyses related to physical and transitional factors. In particular, in addition to the “Integrated National Energy and Climate Plan” and Ref-e’s “Italian Electricity Market Study: 2020-2040 scenario” for medium-term energy generation projections, the Group adopts the following scenarios:
- IPCC (Intergovernmental Panel on Climate Change) RCP 2.6 and IEA450, in line with the Paris Agreement, which predicts a temperature increase at the end of the century over pre-industrial levels of 2°C or less;
- IPCC RCP 8.5 and IEA NPS-STEPS (business-as-usual) predicting an end-of-century temperature increase of 4°C;
- WEO (World Energy Outlook) IEA450 and NPS-STEPS the analysis of transition risks.
In long-term planning, the impacts of changing the variables underlying the different scenarios are considered. For example, for physical risks, the rising temperature trend is considered and the impact that it will have on the lower heat production for district heating and the growth of electricity generation to meet the growing demand for summer air conditioning is analysed in marginality. Another analysis concerns the production of electricity from hydropower plants in relation to reduced rainfall. With regard to transition risks, for example, the reduction in margins associated with the sale of natural gas is considered.
The adoption of the scenarios described, which considers the guidelines of the TCFD (Task Force on Climate-related Financial Disclosures), will be further implemented during 2021 by developing a management model enabling the assessment of climate change-related risks and opportunities that will further support strategic planning.
Materiality analysis
The materiality analysis makes it possible to identify the priority topics for stakeholders, compare them with the Group’s priorities and its development strategy, also in order to identify any areas for improvement. The result of this analysis supports the definition of sustainable development targets and topics for the drafting of the Sustainability Report. The methodology for performing the materiality analysis is described in detail on page 8 of the “Sustainability Report”.
Strategic plan: the multicircle economy
The growth strategy, approved by the Board of Directors in September 2020, is consistent with the Group’s mission and vision and the prominent trends described above.
The Group confirms its strategic pillars of development: organic growth, sustainability, customers/residents, digitalisation, people, technological evolution and efficiency, alongside new ambitions that will characterise the coming years.
In fact, the Group, with the strength of the leadership it has acquired in its historical areas of expertise, is ready to expand nationally, broadening its horizons towards new areas, not only on a commercial level but also by exporting the excellence it has achieved in the fields of waste and energy efficiency. Therefore, Iren Group faces new environmental and social challenges by reacting to the risks and seizing all the opportunities, with a defined and long-term strategic vision transferred to its daily actions.
The growth strategy is based on overcoming the traditional concept of circular economy with the introduction of the multicircle economy: a vision, strongly sustainable in the long term, that emphasises the multi-business nature of the Group, in which the different activities share the value of the responsible use of resources. Approximately 2.25 billion Euro, 61% of total investments, are directed to projects that contribute to the achievement of the commitments made to the UN SDGs, and in particular, 93% of these investments, more than 2 billion Euro, flow into the new vision of the multicircle economy.
2020 highlighted the resilience of the Group’s business model even in the face of major unexpected turbulence, such as the Covid-19 emergency, and will be further strengthened by the investments planned to support multiple businesses. To that end, a significant portion of investments – more than 2.2 billion Euro – have been earmarked for initiatives to achieve the energy and environmental transition.
Sustainability’s integration into the Strategic Plan and among the drivers of capital allocation is taken a step further through the extension of the time horizon of the Sustainability Plan until 2035. The Plan defines the role that Iren Group intends to play in fostering development consistent with European policies and in response to the challenges emerging from the environment outlined by the pandemic, as well as in boosting the process of economic recovery in our country.
Business plan objectives and targets
GROWTH: INVESTMENTS
Pillars and directions for development
€2.25 billion in sustainable investments: 21% in circular economy, 31% for water resources, 41% for resilient cities and 7% for decarbonisation
Main Target @2025 │ @2035
€ 3.7 billion in 6 years
+12% vs compared to previous Plan
SDGs
GROWTH: EBITDA
Pillars and directions for development
+€243 million compared to 2019
Organic growth increase (water business, waste treatment, district heating and customer base development)
Net financial position/EBITDA ratio by 2025 of 2.5x
Main Target @2025 │ @2035
€ 1,160 million in EBITDA at the end of the Plan
+4% annual growth rate
SDGs
GROWTH: PROFITS AND DIVIDENDS
Main Target @2025 │ @2035
~€ 350 million in profit by the end of the Plan
+8% average annual dividend growth
SDGs
DIGITALISATION
Pillars and directions for development
Strong acceleration of across-the-board digital transformation, deployment of a new IT model and advanced platform
Main Target @2025 │ @2035
€ 300 million invested
>50% of client’s full digital question
SDGs
PEOPLE
Pillars and directions for development
Competence enhancement and reskilling
New working modes supported by digitalisation
Diversity enhancement
People care
Main Target @2025 │ @2035
25% | 28% of women among middle managers and executives
95% of staff engaged in training activities
+27% | +65% hours of training per capita
SDGs
CUSTOMERS/RESIDENTS
Pillars and directions for development
National retail clients acquisition
New product/service lines with added value
Digital operations and payments
Greater investment in infrastructure and services
Main Target @2025 │ @2035
2.4 million clients
€ 900 in investments per inhabitant served in 6 years
SDGs
SUSTAINABILITY: CIRCULAR ECONOMY
Pillars and directions for development
Increase of sorted waste collection
Growth of material recovery in Group plants
Production of fuels from biodegradable waste
Wastewater reuse for industrial and agricultural purposes
Main Target @2025 │ @2035
73.6% | ~80% sorted waste
1.6Mt | ~2.0Mt waste recovered in Iren plants
35Mmc biomethane produced
15Mmc wastewater reused
SDGs
SUSTAINABILITY: WATER RESOURCES
Pillars and directions for development
Increase in purification capacity
Rational use of water through reduction of water withdrawal and network leaks
Main Target @2025 │ @2035
29% | ~25% network leaks
~80% networks divided into districts
+16% | ~+20% wastewater plants capacity
SDGs
SUSTAINABILITY: DECARBONISATION
Pillars and directions for development
Reduction of carbon intensity of energy production
Energy saving of production processes
Emission reduction (scope 2)
Main Target @2025 │ @2035
-4% | ~-20% power generation carbon intensity
~-35% scope 2 emissions
+27% | ~+55% energy saving
SDGs
SUSTAINABILITY: RESILIENT CITIES
Pillars and directions for development
Extension of district heating networks
Reduction of corporate vehicle fleet environmental impact
Energy saving from Iren products and services
Main Target @2025 │ @2035
+16% | ~+20% district heated volumes
35% | ~50% eco-vehicles on total fleet
~25% of green electricity sold to end clients and wholesalers
SDGs
TECHNOLOGICAL EVOLUTION AND EFFICIENCY
Pillars and directions for development
Transformation into a lean organisation with an agile management model
Performance improvement projects
Advanced analytics projects
Main Target @2025 │ @2035
€ 55 million in synergies
65 performance improvement projects
SDGs
Reporting
Iren undertakes to manage and measure its performance, considering economic, environmental, and social aspects in reporting its activities and the definition of its strategic objectives. An approach in line with the United Nations Global Compact’s indications, of which Iren is a member, aimed at ever-greater integration of sustainability in the Company’s strategic choices. Therefore, the Sustainability Report is a communication and management tool for monitoring the adherence of operations to the strategy and, precisely with this objective, it reports the progress made towards achieving the targets set for 2025.