Sustainability-linked bonds – the next big thing to hit the bond markets
In recent years, there has been growing interest in sustainable financing by companies and investors as a result of an increasing focus on climate change and environmental and social impact of corporate activities. This has led to a proliferation in the variety of sustainability-linked financing products in recent times, including green, social and sustainable loans and bonds. Bonds linked to sustainability performance targets, so called “sustainability-linked bonds” (“SLB”) are one of the latest product offering in this space.
On 9 June 2020, the International Capital Markets Association (ICMA) published its Sustainability-linked Bond Principles (the Principles) to serve as a voluntary guide to support the development of a sustainability-linked bond market. The Principles set out a core framework for issuers and underwriters in relation to the structuring, disclosure and reporting in respect of SLBs. The publication of the Principles is expected to play a key role in the development of the environmental, social and governance (ESG) investment market. Given that we are in a decade with increasing focus on urgent environmental and sustainability agendas, there has been an increase in issuer and investor interest in sustainable financing products.
This client update provides an overview of SLBs, their core components as set out in the Principles, discusses the pros and cons of SLBs as well as key considerations for issuers and investors when considering an SLB issue.
