{"id":23720,"date":"2024-05-30T10:12:17","date_gmt":"2024-05-30T02:12:17","guid":{"rendered":"https:\/\/www.tejwin.com\/?post_type=insight&#038;p=23720"},"modified":"2024-06-14T14:23:38","modified_gmt":"2024-06-14T06:23:38","slug":"sustainability-linked-bonds","status":"publish","type":"insight","link":"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/","title":{"rendered":"Sustainability-Linked Bonds: A Detailed Guide to ESG Investing"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"737\" src=\"https:\/\/www.tejwin.com\/wp-content\/uploads\/face-1024x737.jpg\" alt=\"Green bonds for a cleaner future\" class=\"wp-image-23723\" srcset=\"https:\/\/www.tejwin.com\/wp-content\/uploads\/face-1024x737.jpg 1024w, https:\/\/www.tejwin.com\/wp-content\/uploads\/face-300x216.jpg 300w, https:\/\/www.tejwin.com\/wp-content\/uploads\/face-150x108.jpg 150w, https:\/\/www.tejwin.com\/wp-content\/uploads\/face-768x553.jpg 768w, https:\/\/www.tejwin.com\/wp-content\/uploads\/face.jpg 1500w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>As America continues to maintain a high-interest rate, the borrowing cost for companies still remains at a peak. However, compared to other bonds, bonds related to ESG enjoy a lower yield, but seldom do we see small or startup companies issue green bonds. This is because issuing green bonds requires the funds only to be used on certain ESG projects, which is normally not the primary goal for small and startup companies. Hence, a new type of bond, Sustainability-Linked Bonds, is created. In this article, we will briefly introduce the concept and principle of Sustainability-Linked Bonds.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69f494037b589\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"ez-toc-cssicon\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69f494037b589\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#What_Are_Sustainability-Linked_Bonds_SLBs\" >What Are Sustainability-Linked Bonds (SLBs)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#The_5_Principles_Guiding_Sustainability-Linked_Bonds\" >The 5 Principles Guiding Sustainability-Linked Bonds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#Sustainability-Linked_Bonds_Examples\" >Sustainability-Linked Bonds Examples<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#Sustainability-Linked_Bonds_vs_Green_Bonds\" >Sustainability-Linked Bonds vs. Green Bonds<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#The_Role_of_SLBs_in_ESG_Investing\" >The Role of SLBs in ESG Investing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#Conclusion\" >Conclusion<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.tejwin.com\/en\/insight\/sustainability-linked-bonds\/#Sustainable_Bond_in_Taiwan\" >Sustainable Bond in Taiwan&nbsp;<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Are_Sustainability-Linked_Bonds_SLBs\"><\/span>What Are Sustainability-Linked Bonds (SLBs)<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Sustainability-Linked Bonds (SLBs) are fixed-income financial instruments that usually have a yield lower than normal bonds. However, on SLBs, there are some conditions, requiring the company to meet certain sustainability or ESG goals in a given timeframe. If the company fails to achieve those targets, a penalty of higher interest is given to investors. SLBs are designed to be a supplement of green bonds, aiming to provide easier access to finance in the sustainable debt market for small companies.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_5_Principles_Guiding_Sustainability-Linked_Bonds\"><\/span>The 5 Principles Guiding Sustainability-Linked Bonds<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>&nbsp;In order to provide a clear guideline for issuers, investors and underwriters on SLB, ICMA (International Capital Market Association) issued the Sustainability-Linked Bond Principles (SLBP) with 5 main components:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Selection of KPIs (Key Performance Indicators):<\/strong> The credibility of SLBs rests on the selection of KPIs, which should be material to the corporate issuer\u2019s core sustainability and business strategy and address relevant ESG challenges of the industry sector and be under management\u2019s control. Moreover, KPI should have the following characteristics:\n<ul class=\"wp-block-list\">\n<li>Relevant, core and material to the corporate issuer\u2019s overall business.<\/li>\n\n\n\n<li>Measurable or quantifiable on a consistent methodological basis.<\/li>\n\n\n\n<li>Externally verifiable.<\/li>\n\n\n\n<li>Able to be benchmarked.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Calibration of SPTs (Sustainability Performance Targets): <\/strong>The process for calibration of SPTs per KPI expresses the level of ambition the issuer is ready to commit to, and thus considers realistic. SPTs must be set in good faith and the issuer should disclose strategic information that may decisively impact the achievement of the SPTs. Furthermore, a good SPT should:\n<ul class=\"wp-block-list\">\n<li>represent a material improvement in the respective KPI.<\/li>\n\n\n\n<li>be possible to compare to a benchmark or an external reference.<\/li>\n\n\n\n<li>be consistent with the issuer\u2019s overall sustainability and business strategy in the case of corporate issuers.<\/li>\n\n\n\n<li>be determined on a predefined timeline and set before the issuance of the bond.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Bond Characteristics: <\/strong>The cornerstone of an SLB is that the bond\u2019s financial and structural characteristics can vary depending on whether the selected KPI reaches or not the predefined SPT. The potential variation of the bond\u2019s interest is the most common example, but variation of other SLB\u2019s financial and structural characteristics is also possible.<\/li>\n\n\n\n<li><strong>Reporting: <\/strong>Issuers of SLBs should publish\n<ul class=\"wp-block-list\">\n<li>up-to-date information on the performance of the selected KPI.<\/li>\n\n\n\n<li>a verification assurance report relative to the SPT, outlining the performance against the SPTs and the related impacts, and timing of such impacts, on the bond\u2019s characteristics.<\/li>\n\n\n\n<li>any information enabling investors to monitor the level of ambition of the SPTs.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Verifications: <\/strong>Issuers should seek an independent and external verification of their performance against each SPT for each KPI once a year, and in any case for any period relevant for assessing the SPT performance, until the last SPT trigger event of the bond has been reached.<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sustainability-Linked_Bonds_Examples\"><\/span>Sustainability-Linked Bonds Examples<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In September 2019, ENEL, an energy company based in Italy, became the first issuer of SLB with a total initial issuance of US$1.5 billion, which then got oversubscribed by almost three times. Normally, a conventional bond without sustainability elements is priced 10 bp higher than US Treasuries. However, the SLB that ENEL issued was priced at 125 bp over US Treasuries, suggesting both great interest and potential in SLB. Moreover, the funds raised through SLB can be allocated to any project, as long as ENBL fulfills the SPT of having renewable energy to account for 55% of its installed electricity generation capacity by 2021. Otherwise, ENEL will suffer a 25 bp increase in coupon as a penalty.&nbsp;<\/p>\n\n\n\n<p>After 2019, ENEL continued issuing new SLBs, and received great favor from the market. At the end of 2021, ENEL met its targets for its first SLBs, and successfully met its target for 2022, which is achieving 60% of its overall installed generation capacity from renewables. Despite the speculation, ENEL continues making ambitious SPTs, and has now become the world\u2019s largest issuers of SLBs.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sustainability-Linked_Bonds_vs_Green_Bonds\"><\/span>Sustainability-Linked Bonds vs. Green Bonds<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Green bonds and Sustainability-Linked Bonds (SLBs) are distinct in their application and flexibility:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li><strong>Use of Proceeds:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Green Bonds:<\/strong> Funds raised through green bonds are earmarked exclusively for specific environmental projects, such as renewable energy, green infrastructure, and waste management. This strict use-of-proceeds requirement ensures that the capital directly supports environmental initiatives but limits the flexibility for issuers.<\/li>\n\n\n\n<li><strong>SLBs:<\/strong> The proceeds from SLBs are not restricted to specific projects. Instead, issuers must meet predefined sustainability performance targets (SPTs) within a set timeframe. This flexibility allows funds to be used for a broader range of purposes, provided the issuer adheres to their sustainability commitments.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Issuer Profile:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Green Bonds:<\/strong> Typically issued by large corporations and entities with the capacity to undertake significant environmental projects. The high cost and stringent requirements of green bonds can be a barrier for smaller firms.<\/li>\n\n\n\n<li><strong>SLBs:<\/strong> Accessible to both large and small companies. SLBs enable smaller firms to participate in the sustainable finance market without the burden of committing funds solely to green projects. This inclusivity encourages a wider adoption of sustainability practices across various sectors.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Flexibility and Appeal:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Green Bonds:<\/strong> While green bonds are highly effective in promoting specific environmental outcomes, their rigid structure can limit their attractiveness to issuers seeking more versatile financing options.<\/li>\n\n\n\n<li><strong>SLBs:<\/strong> Offer a more flexible approach, allowing issuers to allocate funds as needed while incentivizing them to achieve broader sustainability goals. This flexibility has made SLBs increasingly popular, appealing to a diverse range of companies looking to balance financial and ESG objectives.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-a89b3969 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-light-green-cyan-to-vivid-green-cyan-gradient-background has-background wp-element-button\" href=\"https:\/\/www.tejwin.com\/en\/insight\/esg-bond\/\">Read more about ESG bonds<\/a><\/div>\n<\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Role_of_SLBs_in_ESG_Investing\"><\/span>The Role of SLBs in ESG Investing<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>SLBs aim to further develop the key role that debt markets can play in funding and encouraging companies that contribute to sustainability from an ESG perspective. However, like every green bond, SLBs have the risk of greenwashing. Since companies define their own SPTs and KPIs, it is possible for ill-intentioned companies to set up targets that can be easily achieved. As a result, companies can raise funds with less interest, while investors can gain a reputation from \u201cGreen Investment\u201d, thereby reducing the incentive for companies to set more challenging goals.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Trends in the SLB market suggest a promising trajectory with significant growth potential. As more companies prioritize sustainability and investors seek impactful ESG investments, SLBs offer a dynamic solution that aligns financial goals with environmental and social objectives. The evolving landscape of sustainable finance continues to foster innovation, leading to the development of new financial instruments like SLBs that catalyze positive change.<\/p>\n\n\n\n<p>For investors looking to make a difference while achieving financial returns, exploring sustainability-linked bonds is a prudent step. Incorporating SLBs into a diversified investment strategy focused on sustainability not only supports responsible business practices but also positions portfolios for long-term resilience in a changing world.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sustainable_Bond_in_Taiwan\"><\/span>Sustainable Bond in Taiwan&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In recent years, ESG-related bonds in Taiwan have gradually gained the favor of investors. Based on data from Taipei Exchange (TPEx), until May 2024, ESG-related bonds in Taiwan have accumulated 538 billion NTD starting from 2017, with green bonds accounting for 64%.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" width=\"1024\" height=\"636\" src=\"https:\/\/www.tejwin.com\/wp-content\/uploads\/bond-1024x636.png\" alt=\"Taiwan ESG Bond database\" class=\"wp-image-23721\" srcset=\"https:\/\/www.tejwin.com\/wp-content\/uploads\/bond-1024x636.png 1024w, https:\/\/www.tejwin.com\/wp-content\/uploads\/bond-300x186.png 300w, https:\/\/www.tejwin.com\/wp-content\/uploads\/bond-150x93.png 150w, https:\/\/www.tejwin.com\/wp-content\/uploads\/bond-768x477.png 768w, https:\/\/www.tejwin.com\/wp-content\/uploads\/bond-1536x954.png 1536w, https:\/\/www.tejwin.com\/wp-content\/uploads\/bond.png 1600w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>With the development of ESG issues, related financial instruments have also seen vigorous growth. Investors can utilize ESG datasets to monitor issuers&#8217; ESG performance and ensure that the objectives of SLB bonds are gradually being achieved.TEJ Sustainable Dataset includes ESG bond data from seven Asian countries, allowing for in-depth exploration based on individual bonds and horizontal data integration based on issuers. Moreover, leveraging its extensive database for quantitative analysis and international ESG standards, TEJ has developed the TESG Sustainability Development Index specific to Taiwanese listed companies. Get TEJ Sustainable Dataset provides you with stronger data support for your sustainable investments.<\/p>\n\n\n\n<div class=\"wp-block-buttons is-content-justification-center is-layout-flex wp-container-core-buttons-is-layout-a89b3969 wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link has-light-green-cyan-to-vivid-green-cyan-gradient-background has-background wp-element-button\" href=\"https:\/\/www.tejwin.com\/en\/solution\/esg-sustainability-solution-2\/\"> Click here to learn more about TEJ&nbsp;ESG Sustainability Solution<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>As America continues to maintain a high-interest rate, the borrowing cost for companies still remains at a peak. However, compared to other bonds, bonds related to ESG enjoy a lower yield, but seldom do we see small or startup companies issue green bonds. This is because issuing green bonds requires the funds only to be used on certain ESG projects, which is normally not the primary goal for small and startup companies. Hence, a new type of bond, Sustainability-Linked Bonds, is created. In this article, we will briefly introduce the concept and principle of Sustainability-Linked Bonds.<\/p>\n","protected":false},"featured_media":23723,"template":"","tags":[2909,2916,2962,3199],"insight-category":[],"class_list":["post-23720","insight","type-insight","status-publish","has-post-thumbnail","hentry","tag-bond","tag-credit-risk","tag-market-data","tag-tej-database"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight\/23720","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight"}],"about":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/types\/insight"}],"version-history":[{"count":2,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight\/23720\/revisions"}],"predecessor-version":[{"id":23726,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight\/23720\/revisions\/23726"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media\/23723"}],"wp:attachment":[{"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/media?parent=23720"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/tags?post=23720"},{"taxonomy":"insight-category","embeddable":true,"href":"https:\/\/www.tejwin.com\/en\/wp-json\/wp\/v2\/insight-category?post=23720"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}