Pricing Sustainability-Linked Bonds Based on Ambition

In this episode, Stephanie and I delve into sustainability-linked bonds (SLBs) to explore their potential benefits and risks. SLBs have grown to a USD 280 billion market and represent an exciting alternative to green bonds in the sustainable debt market. When issuing an SLB, companies pledge to reach a sustainability performance target as part of the contract. If the company does not reach the target, the bond investors receive an additional “step-up” coupon. We analyze the example of a recent Air France KLM issue. One of Stephanie’s key points is that market pricing should reveal which SLBs have ambitious targets.

Here are a few links if you want to follow up on some of the points we cover.

Anthropocene Fixed Income Institute Research on SLBs

Second party opinion on Air France-KLM SLB