The Sustainability-Linked Bond Principles are voluntary process guidelines that provide best practices and recommendations for financial instruments to incorporate forward-looking sustainability performance.
In December 2020, utility NRG Energy became the first company in North America to issue an SLB and in February 2021 UltraTech Cement became the first Indian issuer to tap the market.
[6] Other recent SLB issuers include United Arab Emirates airline operator Etihad Airways, Brazilian paper and pulp firm Suzano, French payment solutions-provider Edenred,[7] and Swiss pharmaceutical company Novartis.
[9] The expectation is that this structure allows investors to target funding towards environmentally-friendly projects while incentivising issuers to ensure institution-level sustainability alignment.
Some bond issuers and investors view linker mechanisms within ‘fixed’ income as an oxymoronic concept, defeating the purpose of known and consistent nominal cashflows, which are characteristics that are conducive of efficient and effective financial planning and security valuation; step-up and step-down events also introduce the risk of higher intermittent volatility in what is typically a more risk-averse asset class.