06.11.2020

New Principles Issued For Sustainability-Linked Bonds

The Green & Social Bond Principles released Sustainability-Linked Bond Principles (SLBP) at their 6th Annual General Meeting. These are voluntary guidelines for sustainability-linked bonds (SLBs) defined as forward-looking performance-based bond instruments where the issuer is committing to future improvements in sustainability outcomes within a predefined timeline. The financial and/or structural characteristics of SLBs can vary depending on whether the issuer achieves those predefined Sustainability Performance Targets. Within these parameters, the use of funds for SLBs are intended for general purposes rather than for underlying sustainable projects as in the case of existing green, social and sustainability bonds.

SLBs are highly versatile instruments that can be applied to many sustainability topics, in particular climate change mitigation and adaptation. Surveys conducted by the Green & Social Bond Principles have confirmed the need for a bond instrument linked to an issuer’s sustainability strategy and ambitious, credible targets, including those connected to climate transition. They also indicate that market participants expect any debt finance for climate transition to be aligned with the goals of the Paris Agreement.

The Green & Social Bond Principles further released a 2020 update of the Social Bond Principles providing expanded social project categories and additional target populations, and also incorporating recent guidance for social bonds addressing the COVID-19 crisis. Separately, a collection of Social and Sustainability Bond Case Studies has been published. The Green Bond Principles and Sustainability Bond Guidelines remain otherwise unchanged (2018 versions remain applicable).

The following publications have also been updated:

Every year half of the Executive Committee of the GBP & SBP (in each of its issuer, underwriter and investor categories) is renewed through an election with a vote of its near 200 members representing the vast majority of participants in the sustainable debt capital markets. View the resulting composition of the Executive Committee for 2020.

Martin Scheck, Chief Executive of the International Capital Market Association (ICMA), said: “By publishing Sustainability-Linked Bond Principles, the GBP & SBP Executive Committee is providing guidance for a highly innovative and versatile debt instrument that can really expand the sustainable finance market while preserving its integrity. Separately, the update of the Social Bond Principles accompanies a pivotal moment for social bonds that have shown their relevance with a surge of issuance addressing the consequences of COVID-19.”

Lars Eibeholm, Member of NIB’s Executive Committee, and Chair of the GBP & SBP said: “The many key deliveries today demonstrate that the market for green, social and sustainability bonds continues to evolve and so does the need for prudent guidance. We have published new Principles for sustainability-linked bonds and delivered a market-based consensus on how climate transition is perceived. A new instrument and an important terminology, which will be key building components for further development, market integrity and transparency. All required, as sustainable finance will need to be more targeted to address the pandemic and at the same time tackle the emerging climate threats. The relevance of targeted bonds has clearly been demonstrated in the surge of social bonds, where today’s important updates of the Social Bond Principles provide new improved guidance.”

Tanguy Claquin, Managing Director, Crédit Agricole CIB, and Vice-Chair of the GBP & SBP said: “This year’s deliveries show, once again, that the Green & Social Bond Principles are the key forum where market guidance and best practices are discussed and decided for the global sustainable fixed income markets.”

Johanna Köb, Head of Responsible Investment at Zurich Insurance and Vice-Chair of the GBP & SBP said: “Green bonds are not ‘only’ a debt capital instrument – they were the beginning of a transformative journey. This year the GBP & SBP took a leap forward in its vision to provide guidance for debt capital market instruments that finance progress towards environmental and social sustainability. We expanded our recommendations from the well-known family of use-of-proceeds instruments (green, social and sustainability bonds) to a new sustainability-linked performance instrument. We are committed to continue providing best-practice guidance to all market participants through an inclusive process, which is underpinned by many diligent working groups and a new advisory council, which has set a precedent in showing extraordinary commitment and enthusiasm.”

Source: ICMA

Related articles

  1. Esma Urged to Open Up Trade Reporting Data

    JP Morgan's fixed income markets revenue was $7.3bn, up 99% year-on-year.

  2. AFME said the COVID-19 recovery is being led by record issuance of investment grade securities and ESG bonds.

  3. The firm has also launched Dealer Direct, a tool for the sell side to stream axes to investors.

  4. Aberdeen AM Looks to Grow In China

    The trading platform has onboarded 2012 investors from 33 jurisdictions.

  5. Europe Leads Sustainable Investing

    The exchange has launched a new ESG index and its first ESG future.