Sustainability-linked bonds are performance-based bond instruments where the issuer is committing to future improvements in sustainability outcomes within a predefined timeline.
ICMA (International Capital Market Association) has released new voluntary guidelines for sustainability-linked bonds (SLBs).
SLBs are any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined sustainability or ESG objectives.
In this sense, issuers of SLBs are committing explicitly (including in the bond documentation) to future improvements in sustainability outcomes within a predefined timeline.
“SLBs aim to further develop the key role that debt markets can play in funding and encouraging companies that contribute to sustainability (from an environmental and/or social and/or governance perspective),” ICMA says.
The proceeds of SLBs are intended to be used for general purposes, hence the use of proceeds is not a determinant in its categorisation. The financial and/or structural characteristics of SLBs can also vary depending on whether the issuer achieves its predefined sustainability performance targets.
The Sustainability-Linked Bond Principles offer best practice guidance on SLB structuring features, disclosure and reporting. They also aid investors by promoting accountability of issuers in their sustainability strategy and availability of information necessary to evaluate their SLB investments.
The Principles are intended for use by market participants and are designed to drive the provision of information needed to increase capital allocation to such financial products – applicable to all types of issuers and any type of financial capital market instruments.
SLBs are “a highly innovative and versatile debt instrument that can really expand the sustainable finance market while preserving its integrity,” says ICMA chief Martin Scheck.
The following publications have also been updated:
- Social Bond Principles(providing expanded social project categories, additional target populations, and guidance for addressing Covid-19)
- Harmonized Framework for Impact Reporting(now including guidance for biodiversity)
- Working Towards a Harmonized Framework for Impact Reporting for Social Bonds
- High-level Mapping of Green, Social and Sustainability Bonds to the Sustainable Development Goals
- Guidance Handbook
- External Review Guidelines
ICMA serves as Secretariat of the Green & Social Bond Principles, a key forum where market guidance and best practices are discussed and decided for the global sustainable fixed income markets.