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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.
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