10/06/2020

Sustainability-Linked Bond Principles 

ICMA expands the sustainable finance universe with new Principles for Sustainability-Linked Bonds and updates other guidelines.

The International Capital Market Association (ICMA)’s Green & Social Bond Principles have released the long-awaited Sustainability-Linked Bond Principles. Sustainability-Linked Bonds are the latest addition to the bouquet of sustainable debt instruments and are defined as forward-looking performance-based bond instruments where the issuer is committing to future improvements in sustainability outcomes within a predefined timeline.

A characteristic feature of Sustainability-Linked Bonds is that the financial aspects of the bond can vary depending on whether or not the issuer reaches the pre-defined sustainability performance targets, notably by a coupon step-up if targets are not reached.
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While Green, Social and Sustainability Bonds are all defined by the use of the bond proceeds to finance specific and eligible green, social or sustainable investment projects, Sustainability-Linked Bonds are linked to an issuer’s overall sustainability strategy and efforts. 

The Sustainability-Linked Bond Principles are voluntary process guidelines that outline best practices for financial instruments to incorporate forward-looking sustainability outcomes and are expected to play a key role in the development of the Sustainability-Linked Bond market.

Based on this new framework, the Luxembourg Green Exchange (LGX), Luxembourg Stock Exchange’s platform fully dedicated to sustainability securities, will soon increase its scope of securities to reflect new market developments.

More diversity

Discussions around this new sustainability debt instrument emerged in 2019 as market players expressed a need for more diversity in sustainability debt instruments. Some issuers would like to tap into the market for sustainable finance to fund their sustainability journey, but do not have a specific project that would be eligible for existing sustainability bond categories. Thanks to Sustainability-Linked Bonds, issuers can now finance their transition through ambitious, science-based and externally verified sustainability objectives, defined as clear sustainability performance targets. 

Sustainability-Linked Bonds thereby increase the variety of sustainable financial products impact-conscious investors can choose from, and offers a broad range of issuers an opportunity to opt for sustainable securities to finance their sustainability journey.
Download and explore the Sustainability-Linked Bond Principles on ICMA's website

Updated Social Bond Principles

The Green & Social Bond Principles have also released a 2020 update of the Social Bond Principles, providing expanded social project categories and additional target populations, and incorporating new guidance for social bonds addressing the COVID-19 crisis.

The novel coronavirus outbreak led to a significant uptick in the issuance of social bonds. This debt instrument raise funding for projects linked to healthcare, education, food security and social housing among others, and are crucial when it comes to mitigating the enormous social and economic consequences of COVID-19 in different parts of the world. 

As a direct contribution to the recovery efforts, the Luxembourg Stock Exchange decided to waive the entire listing fee for social and sustainability COVID-19 response bonds from April and up until 30 September 2020. Read more about this decision here.
Download and explore the updated Social Bond Principles on ICMA's website

In its 2020 review, ICMA also updated the following guidelines:
    • Harmonised Framework for Impact Reporting, now including guidance for biodiversity 
    • Impact Reporting Social Bonds Handbook
    • High-level Mapping of Green, Social and Sustainability Bonds to the Sustainable Development Goals
    • Guidance Handbook
    • External Review Guidelines
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