A bond whose coupon moves with the issuer's achievement of environmental targets, with no earmarking of proceeds to any particular project.
A sustainability-linked bond bends not the use of funds but the remuneration: proceeds fund the issuer's general activity, and the coupon steps up by an agreed amount if an environmental performance target is missed at a set date. The instrument therefore suits companies whose footprint is largely not separable into projects, which is what a green bond requires, and it places the promise on the trajectory of the whole company rather than on a line of spending. Its credibility rests on three points analysis must check one by one: the ambition of the target against a business-as-usual path, the relevance of the chosen indicator to the real footprint, and the size of the step-up, which must be heavy enough to weigh on an industrial decision rather than symbolic. The main criticism leveled at the market is indulgent calibration, since a target the company would meet without changing anything turns the instrument into ordinary funding at a lower cost, and the first observed misses at least proved that the step-up mechanism works.
The Italian utility Enel issued in September 2019 the first sustainability-linked bond placed in the public market, indexed to its renewable generation capacity, with a coupon step-up if the target was missed. The company announced in 2023 that it had missed one of its interim targets, triggering the step-up on several tranches.
sustainability-linked bond, SLB, emprunt indexé sur la durabilité