Sustainability-linked bonds aim to further develop the key role that debt markets can play in funding and encouraging companies that contribute to sustainability (from an environmental and/or social and/or governance perspective).
The Sustainability-Linked Bond Principles provide guidelines that recommend structuring features, disclosure and reporting. They are intended for use by market participants and are designed to drive the provision of information needed to increase capital allocation to such financial products. The SLBP are applicable to all types of issuers and any type of financial capital market instruments.
For additional information on how to interpret this guidance especially for its practical application for transactions, as well as in the context of market developments and complementary initiatives, see the Guidance Handbook.
The Sustainability-Linked Bond Principles (SLBP) 2020
Translations of the Sustainability-Linked Bond Principles
Illustrative examples for the selection of Key Performance Indicators (KPIs) for Sustainability-Linked Bond issuers, underwriters and investors
The Sustainability-Linked Bonds Working Group (SLB WG) of the Executive Committee of the Green and Social Bond Principles is delighted with progress being made in the issuance of Sustainability-Linked Bonds (SLBs) since the release in June 2020 of the Sustainability-Linked Bond Principles (SLBP). The SLB WG’s objective is to offer suggestions on how to identify, select and use KPIs for SLB structuring purposes. As part of this work, please find below high-level recommendations as well as illustrative examples for the selection of Key Performance Indicators (KPIs) for Sustainability-Linked Bonds (SLBs).
Context and commentary for users
At a high level, the SLBP recommend that KPIs should be:
- relevant, core and material to the issuer’s overall business, and of high strategic significance to the issuer’s current and/or future operations;
- measurable or quantifiable on a consistent methodological basis;
- externally verifiable; and
- able to be benchmarked, i.e. as much as possible using an external reference or definitions to facilitate the assessment of the SPT’s level of ambition.
In the table that you can download here, the SLB WG has drawn up illustrative examples of potential KPIs applicable to SLBs without being prescriptive. The table is structured as follows (from the left to the right columns):
- starting with general themes
- drilling down into a more specific sub-theme
- providing a generic KPI and global benchmarks
- providing sectoral specific KPIs and benchmarks
The examples in the table are illustrative only and are not intended to be the exclusive approach for the selection of KPIs for SLBS. They represent samples of KPIs and are therefore not exhaustive.
The KPI examples combine:
- means/outcomes (measures, resources deployed and efforts) with impact (performance or result) KPIs, considering that both can have their own benefits and drawbacks depending on available information and sector issues (and can be mixed through a basket of KPIs); and
- reduction of/minimising/eliminating negative impacts1 (e.g. % activities causing deforestation in the supply chain where target should be zero deforestation, phasing-out of solid fossil-fuel related activities) with increase of/maximising positive impacts (e.g. % of production certified with sustainable agriculture certification standard).
It is noteworthy that while some of the suggested KPIs work well as a basket of KPIs, they may be insufficient in isolation, depending on the sector/issues at stake. Some KPIs are applicable to both corporate and SSA issuers while others are not. Generic KPIs can be customised and/or adapted for a given sector or sub-theme.
Global and sector benchmarks and initiatives are provided to guide market participants in the understanding of material issues, definition of calculation methodologies and/or calibration of their targets2.
The proposed KPIs are expected to be used at corporate/organisation level in the context of SLBs. It is important to note that the Handbook - Harmonised Framework for Impact Reporting provides separately suggested impact metrics for green eligible projects, many of which may also have application as corporate-level KPIs.
The intention of the SLB WG is to progressively propose additional sustainability themes and high level KPIs in order to cover a broader scope of topics. The SLB WG will continue to monitor developments in the SLB market and evaluate if updated guidance is warranted.
1. Note that the SLB format provides pathways to phase-out significantly harmful activities, a fundamental dimension of transition.
2. Their mention should not be seen as an endorsement by this group of any of these benchmarks which inherently have pros and cons, nor a statement that they are necessarily sufficient to demonstrate the robustness of the KPI and target as they may need to be combined with each other or complemented by other data to show the performance and ambition.