By Pauline Bacos and Naelle Verniest
Sustainability-linked bonds (SLBs) have an innovative format that links the bond’s coupon to the achievement of environmental, social or governance targets. Many SLBs now include targets for reducing greenhouse gas emissions. However, this mechanism must impose greater constraints on issuers in order to become a real decarbonisation tool.
Chart 1: Mechanisms of SLBs Source: Banque de France. Note: A step-up is a coupon increase applied if an environmental, social and governance (ESG) target is not achieved. A step-down is a coupon decrease applied if an ESG target is achieved. These mechanisms are defined at issuance