Various performance-based sustainability-linked bonds and loans exemplify a growing market for sustainability-linked finance, which incentivises the issuer or the borrower to achieve environmental or social targets while providing the opportunity to reduce financing costs.
Despite the laudable motives behind the design of sustainability-linked finance, this edition examines its two unresolved dilemmas – the omission of the “additionality principle” and the risk of moral hazard. There is no easy answer to both dilemmas but we look forward to new structural changes that can ensure sustainability-linked money is financing genuine and additional advances in environmental and social progress.