Sustainability Linked Bonds (SLB) were first introduced in the capital market in 2019. The new format gained legitimacy when the International Capital Market Association (ICMA) launched the Sustainability Linked Bond Principles in June 2020. The aim of the launch was to further develop the market for performance-based instruments.

The structure for SLBs differs from that of traditional Sustainable Bonds (Green, Social and Sustainability Bonds) as this type of debt instrument is used for general corporate purposes, and is linked to the achievement of pre-defined sustainability targets. Thus, SLBs are highly versatile instruments that can support an issuer’s entire sustainability strategy.

In addition, many companies are today unable to issue Sustainable Bonds because they cannot identify sufficient sustainable eligible assets. SLBs help overcome this issue, and hence allow a broader range of companies to participate in the sustainable debt market.