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Sustainability-Linked Bonds: a new chapter in sustainable finance

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What are Sustainability Linked Bonds?

Sustainability-Linked Bonds (SLBs) are defined as “any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined Sustainability/ ESG objectives”.

SLBs are a complementary financing instrument to traditional green, social and sustainable bonds that provide flexibility on the use of proceeds.

  • While the latter are needed to guide investments towards projects demonstrating environmental and social benefits, SLBs offer a more dynamic vision of sustainability. They require issuers to define and commit to a sustainability path over a period of years through the selection of one or several KPIs or an ESG assessment.
  • SLBs are open to issuers across all sectors, and therefore are expected to play a key role for companies looking to transition their business models towards more sustainable pathways.
  • In June 2020, the ICMA released the Sustainability-Linked Bond Principles (SLBPs) to guide market participants in structuring this new type of sustainable finance instrument.

SLBs are less time-consuming for issuers to structure than green, social and sustainable bonds.

  • The main sustainability components of an SLB that an issuer needs to define are sustainability targets (at corporate level) on one or more environmental/social issues. These targets may even be those already set within the issuer’s sustainability strategy.
  • As for all other ICMA and LMA standards, V.E offers Second-Party Opinions services (SPOs) for SLBs that assesses their alignment with the SLBPs.
    • Our SPOs are structured around two core components: the KPIs relevance and the targets’ ambition.
    • V.E has already delivered SPOs on the following SLB Frameworks: Chanel, Enel, Etihad Airways, Schneider Electric, Albioma and NRG.

Ask an expert

Watch V.E’s Head of Sustainable Finance Services, Benjamin Cliquet, discuss Sustainability-Linked Bonds in our new Ask an Expert video series.

For more information on Sustainability-Linked Bonds

Sustainable Finance Team
VEsustainablefinance@vigeo-eiris.com

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