The Sustainability-Linked Bonds market is evolving rapidly with new guidelines, standards, and data solutions being launched to support its quality and integrity.

• AFII handbook: The Anthropocene Fixed Income Institute (AFII) released its SLB Handbook where amongst a variety of topics it released its 5 key benefits of SLB. These include Alpha generation- where investors can try to generate alpha through identifying mispriced SLBs (due to unique structures), Sustainability risk hedging - correlation between credit risk and sustainability performance risk makes the instrument an effective risk hedge, Impact investing- SLBs allow for the potential to influence an issuers’ behaviour by changes in their cost-of-capital, Management of sustainability commitments- due to SLBs being outcome focussed rather than investment focussed, it emphasises the issuers overall environmental impact, Financial incentives for transparency- the structure has the potential to drive transparency as issuers improve data provisioning to avoid higher cost-of capital. AFII has also released a report where it analyses SLBs with 2024 observation dates, finding multiples issuers who have a high probability of not meeting their sustainability performance targets (SPTs). They identified three SLB issuers likely to miss the targets and a further four where it is a toss-up whether the targets will be met or not. Post Enel’s missed SPT investors may be more diligent when it comes to the pricing of SLBs with a likely coupon step-up. 
• New guidance for Sustainability-Linked Loans financing Bonds?: The Loan Markets Association (LMA) and the International Capital Markets Association (ICMA) have jointly developed Sustainability-linked Loans financing Bonds (SLLBs) guidelines. These guidelines define a dedicated bond instrument designed for issuers wishing to finance or re-finance a portfolio of eligible sustainability-linked loans (SLLs) aligned with the Sustainability-Linked Loan Principles. The SLLB is a use of proceeds-type bond in which the funds raised are used to refinance a pool of SLLs which satisfy a specific set of criteria and thresholds identified by the bank. Market participants are hoping that this will add further credibility to the SLL market.
• Data solutions for SLBs: Bloomberg released new data solutions to help investors evaluate SLB performance. Bloomberg’s Sustainable Debt Data Solution provides a range of data points such as Key Performance Indicator (KPI) name and SPT value. The depth and breadth of this dataset is key since conducting systematic analysis on SLBs has historically been a difficult undertaking as objectives and performance indicators vary for various issuers.
• One of the first SLBs to step-down: Thai seafood supplier has achieved all three of its ESG targets, triggering interest rates on its three sustainability-linked bonds impacting 11bn baht ($300mn) of securities. This is one of the first instances where a corporate has its coupon payments decreased due to it meeting its SPT. Last quarter we saw Enel miss its first SPTs resulting in a 25bps step-up on ca. $11bn of debt. Q2 supply from SBTi issuers: ~89% of SLBs in the past quarter were issued by companies with SBTi validated targets, for a total supply of EUR 4.5bn. This compares to 75% in Q1 2024 and Q4 2023 highlighting the use and growth of having SBTi targets. While, issuance volumes in Q2 were down compared to Q1 with EUR 4.6bn compared to EUR 8.5bn, we are continuing to see repeat and inaugural issuers come to market with strong reception from investors.
• Notable transactions: CapMan Oyj, a Nordic private asset management company, issued a new EUR 60m SLB. While small in size this is interesting as it highlights use of sustainability-linked structures from private equity firms specifically linked to the management of real estate assets. Another notable transaction was Enel returning to the SLB market, after announcing it missed its 2023 SPT, with a $2bn dual tranche (5y / 10y) including its scope 1 intensity target, reaffirming its commitment to the SLB format. The issuance was met with a strong reception from the market, tightening 40bps and 35bps and being over-subscribed 2.6x and 3.1x across both tranches.