Sustainability Linked Bonds and their Decreasing Popularity

The podcast episode discusses the decreasing popularity of sustainability linked bonds (SLBs) compared to green bonds. While green bonds have seen significant growth in the past years, reaching nearly a trillion dollars in issuances, SLBs seem to be losing attractiveness in the market. The episode questions why this is happening and raises concerns about the effectiveness and credibility of SLBs as an incentive for issuers to meet targets related to sustainability and climate goals. It suggests that the market for SLBs lacks clarity and standardization, with repetitive evaluative language and boilerplate terms across different bonds. The 25 basis point step-up, which is the common incentive in SLBs, appears to be insufficient to drive real change. The episode concludes by highlighting the need for a reevaluation of SLBs and the possibility of other instruments, such as warrants or separate tradeable components, that could provide more meaningful incentives.