Anthropocene Fixed Income Institute

Chile issued the first sovereign SLB in March 2022 with some robust KPIs aligned with Chile's NDCs. Our review illustrates how to price the optionality value in the bond.

(5 April 2022)

This paper published in March 2022 looked at a novel pricing approach for Sustainability-Linked Bonds. In November 2022 a final paper was published describing this approach, that can be found here:

 AFII SLB II (anthropocenefii.org) 

Adani  Electricity, a important part of the Adani Group's coal play, is looking to do a sustainability linked bond, structured by the bank with the most fossil-linked fixed income fee dependency. AFII suggest as alternative SLB structure where the coupon of the bond increases if Adani's Carmichael coal mine is finished. That would be "cool."

(14 July 2021)

AFII does a deal review of a potential forthcoming sustainability linked bond (SLB) from one of the key oil sands players in the world. We are underwhelmed by some of the specific metrics, and shocked of the audacity in general

(23 June 2021)

Eni was the first company out of the oil sector to issue a sustainability-linked bonds. The company has some fairly ambitious net-zero plans, including Scope 3 emissions. We analyse how this should be translated into targets in an SLB structure that might be forthcoming.

(19 July 2022)

Enel is the largest issuer in the sustainability-linked bond (SLB) market with USD 22.7bn outstanding, and representing over 40% of their total public debt. We conduct an analysis to see what we can learn from the most prolific issuer in this market, as SLBs become their benchmark debt product.

(25 July 2022)

Deforestation and associated carbon emissions are high on the agenda of investors' minds. Brazilian meat producer JBS has shown progress in terms of issuing bonds with sustainability links (SLBs). This article proposes a more ambitious structure and quantifies how this should drive lower cost-of-capital for the issuer, while providing attractive optionality and impact for investors.

(16 August 2022)

We examine how Sustainability-Linked Bonds can be expected to behave as they go through their “trigger” dates. 

We find that the observation process could represent both opportunities and risks for investors. We illustrate the dynamics by analysing two current cases, Enel and PPC.

(17 November 2022)

In this note, we review the first known case of a Sustainability-Linked Bond (SLB) that has triggered a sustainability related financial penalty for the issuer.

PKN Orlen, a Polish oil refiner and petrol retailer, has issued two SLBs with coupons dependent on the issuer’s MSCI ESG rating. In December 2021, the issuer was downgraded from A to BBB, which triggered a step-up to the coupon on both bonds.

(29 November 2022)

 Air France-KLM is currently speaking to investors on its inaugural sustainability financing framework, and is in the market today (9 Jan 2023) with two Sustainability-Linked Bonds (SLBs). Examining the public information on this deal, we find several positive elements of use of this product in the aviation sector. Using the AFII option pricing model, we estimate the value for the 5y bond SLB premium to be 7.5bp.

(9 January 2023)

SLBs offer an option-like pay out tied to sustainability performance, which will lead to differing behaviour from traditional bonds. We examine the relationship between sustainability and credit performance, and explore how investors can convey their views using SLBs compared to traditional bonds.

(26 January 2023)

NSANY has been issuing labelled bonds in a sustainability use-of-proceeds format. We propose to switch issuance into SLB format, where sustainability targets link directly to bond coupon payments. By providing that optionality to investors/hedge on achievements on targets, the cost-of-capital could - according to the AFII SLB option pricing model - move 10-15bps lower. Japanese language version below.

(5 February 2023)

Japanese language version.

(5 February 2023)

The current trading level of ENELIM £1 27s implies a high probability of the renewables capacity 2022 target being missed. Our earlier analysis concluded this target was achievable, but this pricing shows uncertainty in the market. Either way, we expect volatility as the numbers are reported, and the market digests whether this bond will pay a step-up or not.

(8 Feb 2022)

Mining giant BHP is looking to tap the USD bond market for the first time in nearly ten years.

We propose an alternative Sustainability-Linked Bond structure. This could open up a potential for more investors to buy the deal as part of a credible transition story. Such a structure would likely lead to lower funding costs for the company as well as a higher probability of better environmental outcomes.

(23 Feb 2022)

Two high yield SLBs are expected to announce missing their Dec 2022 sustainability targets. Both are index-eligible so a wide investor base will be affected.

In our research we analyse the fund holdings of these two securities, to see if a thematic default may result in "forced" selling by ESG-index funds.

(28 Feb 2023)

In the light of the recent debate around the pros and cons of Sustainability-Linked Bonds (SLBs), this note analyses the different characteristics of issuers in the SLB market compared to the to-date dominant labelled bond product, green bonds.

The SLB market shows a complementary issuance profile to green bonds. As a product, it has demonstrated broader accessibility, successfully allowing a wide range of issuers to access capital while committing to sustainability improvements.

(13 Apr 2023)

Carrefour is in the market today with a 7y Sustainability-Linked Bond, using emissions KPIs which are complementary to their outstanding three SLBs.

Pricing on the existing issuance suggests the market believes those targets are easily achievable. The new SLB uses both more ambitious direct emissions targets and a target for Scope 3 emissions. If the market considers these targets to be more challenging, we would expect the bond to outperform existing issuance.

(02 May 2023)