23 January 2020

ICMA: Green Bond Principles establishes a Working Group on sustainability/KPI-linked bonds

The Executive Committee of the Green Bond Principles, the Social Bond Principles and the Sustainability Bond Guidelines, supported by ICMA, decided to establish a working group on emerging sustainability/KPI-linked bond products.

The remit of the Working Group will be to (i) take stock of recent and ongoing developments in the market for sustainability/KPI-linked bond products(ii) establish their main characteristics including by using what has been developed in the Sustainability-linked Loan market; (iii) examine any concerns; and (iv) consider and potentially propose market guidance.

Sustainability/KPI-linked bonds are an emerging product where the coupons of general corporate purpose bonds can vary depending on the achievement by the issuer of environmental, social or governance (ESG) related key performance indicators (KPIs), providing a new way for issuers to underline their commitment to sustainability. This is a different approach from the Green, Social and Sustainability Bond market where the issuer commits to earmark the use of proceeds to specific projects with environmental benefits in line with the Principles. Sustainability/KPI-linked bonds come after related and earlier developments in the Sustainability-linked Loan market following the publication in 2019 with the support of ICMA of the Sustainability Linked Loan Principles by the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTSA). Lars Eibeholm, Chair of the Green Bond Principles Executive Committee, Head of Treasury at Nordic Investment Bank, stated: “It’s important we continue to promote integrity in the rapidly growing green bond markets. This new sustainability-linked bond product potentially needs further guidance to make sure it will complement the current well-functioning use of proceeds bonds in the best way.”

Martin Scheck, CEO of ICMA, stated: “We strongly support the efforts of the GBP Executive Committee to consider the implications of new sustainable products in the bond markets. Given the Committee’s role in developing the Green and Social Bond Principles, it has the expertise and credibility to provide any necessary guidance as this new market sector develops.”

Full press release

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