In June 2020 the International Capital Market Association (ICMA) published a new set of standards, the Sustainability-Linked Bond Principles (SLBP), which heralded the birth of a new asset class called Sustainability-Linked Bonds (SLBs). Unlike green bonds, social bonds or sustainability bonds – which place strict restrictions on the use of proceeds for predefined projects – funds raised from SLBs can be used by issuers without restriction. Whilst SLBs open up plenty of room for innovation, they also create a number of potential pitfalls which issuers and investors should treat with care.
This issue explains what SLBs are, their focus and challenges, as well as who stands to benefit most.