The engagement of the Italian energy sector in the transition to the green economy

MSCI ESG Rating . According to Selina Xerra, Iren’s Director of CSR and Territorial

Committees, «the entry into the MIB ESG index strengthens the objectivity and transparency

of information regarding its commitments and its ESG performance»[CITATION IlC21 \l

1040 ]. Measuring key performance indicators (KPIs) across environmental, social, and

governance factors can assist investors and stakeholders in determining a company's ESG

grade. Some KPIs and company results are represented here in this table:

Sustainable KPIs and results 2023 data 2030 target

installed power from renewable sources 0.8GW 3.4GW

fossil fuels’ reduction -11% -12%

natural gas distributed -16% -25%

sorted waste collection 71% 76%

reused purified wastewater 6Ml m³ 20Ml m³

reused biomethane 9Ml m³ 44Ml m³

litres of water/inhabitant per day 272 litres 261 litres

Table 13, Sustainable KPIs and results - 3.1. Iren’s sustainability report and KPIs analysis (2023). Source: own processing

from Iren’s sustainability report

As regards green transition and decarbonization, the installed power from renewable sources

should raise from 0.8GW (2023 data) to 3.4GW by 2030; while the reduction rates of fossil

fuels and natural gas distributed (-11% and -16% in 2023) are closer to 2030 targets (-12%

and -25%). Instead, data on the circular economy emphasize how strongly the multiutility is

83 It is the first ESG index designed by Euronext to identify large Italian listed issuers with ESG best practices.

84 ESG rating presented in the first chapter of this thesis, p.16 3

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committed to waste management: 71% sorted waste collection in legacy regions, not far from

the target of 76.2% by 2030, but strategies and investments for waste material recovery

facilities are needed. In 2023, Iren Group reused 6 million m³ of purified wastewater against a

85

2030 target of 20 million m³ and 9 million m³ of biomethane against an unrealizable 2030

target of 44 million m³. On the other hand, water resources have achieved the target of 261

litres/inhabitant per day, even though actions for water distribution network leaks need to be

taken[CITATION Ire231 \p 116-117 \l 1040 ].

ESG practices are relevant to a company because they impact on financial viability, especially

on the Return on Equity (ROE). For example, bad social and governance performances could

affect this KPI. This is why a joint review and monitoring of KPIs and ESG performance

should be done periodically. Financial KPIs are part of mandatory corporate disclosure which

ensures a minimum standard of transparency according to specific laws and regulations. For

example, the ROE reflects the business ROE= Total Profit/total equity

management, financial and non-operational

choices of the company and it is the ratio between the

€ €

254,845 /2,806,301 (x100) = 9.08%

annual total profit and the total equity (formed by

share capital, reserves and operating profit or

loss). This index is considered to be excellent if it has values between 8% and 10%, while

good for values between 5% and 7%. Iren’s total profit in 2023 was 254,845€ and its total

86

equity amounts to 2,806,301€[CITATION Ire242 \p 140-146 \l 1040 ] with an optimum

return on equity of 9,08%. 87

On the contrary, the return on sales (ROS) and the

ROS= EBIT/total sales

€ € 88

return on investment (ROI) ratios, which are

464.640 /6.301.581 (x100) = 7.3% measured in the boxes next, are more contained:

respectively 7,3% and 6,3% as shown at

ROI= ROS X RA (turnover/invested capital) the left which, at its ideal range, ought to

0.073 x 0.87= 6,3% be between 10% and 12%.

One of the goals of a performance audit is to determine Equity ratio= N/n

€ €

2,806,301 /1,300,931 = 2.1 > 1

if a company is solvent in the short and long term, using

85 Methane produced from biodegradable waste.

86 The annual Report consisting of financial reports and comments is available on the company’s website.

87 It measures the profitability of an investment by comparing the gain or loss to its cost.

88 It measures the profit generated by a company for each euro of revenue. 3

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index analysis. For example, the phrase "solidity of assets" is used when a corporation is

considered “solid” and acts as a guarantor for third parties. One of the most utilized measures

is the equity ratio, shown next, which compares total equity and share capital[CITATION

89

Pao23 \l 1040 ] . The equity ratio is considered ideal if it is > 1. Iren’s share capital in 2023

was 1,300,931€, which compared to total equity, gives a positive result of 2.1.

Another interesting indicator is operating leverage which measures the sensitivity of income

to volume changes, i.e., business operating risk as the ratio between EBITDA and the

operating income, as shown next. In this case, total Operating leverage

profit will vary 4.6 times as much as the change in EBITDA/Total profit

€

1,196,896€/254,845 = 4,6

sales volumes. It is important to remember that the

more rigid the firm is on the cost side, the higher its operating leverage will be and therefore

the firm will be exposed to risk. This means that a company must carefully choose its cost

structure, as it may have a significant effect on profitability, even though keeping fixed costs

is never easy[CITATION Pao23 \l 1040 ].

The last indicator of this analysis is leverage which is expressed as the ratio between current

(p) and non-current (P) liabilities and total equity, as shown at the right. The leverage

90

measures the level of indebtedness of an enterprise and its value should be round 2 which

states a financial independence of 50%. Iren 

Leverage: P+p/N 8,444,772€/2,806,301€=

2,6

Group’s leverage in 2023 was 2.6: it means

that the company is increasing its liabilities in relation to its venture capital because of many

new investments. For this reason, it is currently extended the credits to its suppliers to keep as

91

much cash as possible .

As demonstrated, KPI analysis makes the situation and funding structure of a company

clearer. It also gives results that can be used to map out new corrective strategies and

performance targets. The pages below are dedicated to new projects, factories, and initiatives

undertaken by Iren Group in northern Italy.

89 These concepts are expressed in professor’s slides provided during the course of performance audit of my

degree program, attended in spring 2023. Formulas and calculations are self-made using data from the Iren’s

2023 annual Report.

90 Companies rely on a combination of equity and third-party capital to finance their activities.

91 All the figures in the formulas were found on Iren’s annual report[CITATION Ire231 \l 1040 ]. 3

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3.2. Iren’s structure and commitment in northern Italy

Before discussing the issue of this paragraph, it is important to make a preliminary remark

regarding the group structure. As shown in the figure below, Iren Group is structured in four

business units according to the service offered to the territory. The Group's firm Iren Energy is

involved in the production and

generation of electricity, as well

as the distribution of thermal

energy for district heating and

technology services. The waste

management business unit is the

Figure 14, Iren’s business unit - 3.2. Iren’s structure and

commitment in northern Italy. Source: Iren’s sustainability

report

Figure 15, Iren’s wastewater plant in Mancasale

(Reggio Emilia) - 3.2. Iren’s structure and commitment

in northern Italy. Source: www.eduiren.it Figure 16, Iren’s plant at north Mirafiori in

more concerned with circular economy, Turin - 3.2. Iren’s structure and commitment in

northern Italy. Source: www.irengoup.it

as it deals with

recycling and the

developing of

territory resources.

Iren Market sells

products and

services to end

consumers (such as Figure 17, Iren’s services in northern Italy - 3.2. Iren’s structure and

commitment in northern Italy. Source: Iren’s sustainability report

light and gas) while

Iren Networks (named as IRETI) manages the distribution of electricity, gas and water

throughout the country. However, the area primarily serviced by the multiutility is that of

northern Italy; indeed, in the south, there are only a few thermal power plants. As we can see

in this cropped image at the right, the most serviced regions are Piedmont, Emilia Romagna,

and Liguria. This could be attributed to two main factors: firstly, small utilities from northern

Italy initially formed the group, as mentioned in the note on page 31; and secondly, the 3

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company found better investment opportunities in northern Italy in comparison to southern

regions. As depicted in [Figure 17], waste collection services are available in most areas; as

well as electric and/or thermal energy production. Citizens' dwellings are heated by a vast

district heating network that supplies hot water and heat. Modern heating systems generate

hot water which is delivered to individual buildings through a network of subterranean pipes

spanning over 1000 kilometres. Once the heat is released, the water completes its cycle and

returns to the production centres. In 2023, 95 million cubic meters of water were heated by

Iren Group’s district heating system for Turin and its surrounds, Reggio Emilia, Parma,

Genoa, and Piacenza, and due to the participation of 9,000 organizations, it supplied a total of

879,000 residents, creating 2,994 GWh of thermal energy[CITATION Ire23 \l 1040 ]. Energy

storage technology, as already mentioned on page 26, enables savings and efficiency. For this

reason, the company has built heat storage plants in which energy is produced at nights and

then released during peak load hours of the district heating network. In March 2022, Iren

Energy inaugurated the new solar thermal and photovoltaic heat storage plant at Mirafiori in

92

Turin [Figure 16] composed by a pumping station (with a fully automated electrical system)

and a heat exchanger which connects the solar thermal system (with 111 panels) to the district

heating system. There are three 24 meters high reservoirs able to contain 2500 cubic meters of

water and to introduce it, if necessary, in the district heating network of the city of

93

Turin[CITATION Ire22 \l 1040 ] . A project in the subject of circular economy worth noting

is the investment sponsored by NRRP for the recovery facility of end-of-life solar panels at

Rapolano Terme, in the province of Siena (Tuscany). The plant will be able to recover the

different materials that make up the panel, namely glass, aluminium, copper, plastic and

silicon and then recycle them. From 2022 on, a new business area of the group named “Iren

Green Generation” has been supporting the development of renewable assets with new

investment opportunities created b