Anthropocene Fixed Income Institute

 The option pricing model for SLBs, developed by AFII, draws on a Black-Scholes approach, with KPIs linked to carbon emissions. Using case studies, we show that a lower cost-of-capital can be achieved by issuers that choose to introduce transparent and impactful targets.  

This is the revised version of our Mar-22 discussion paper.

(8 Nov 2022)

Based on our option pricing framework, we propose to set parameters in SLB structures in order to increase optionality/materiality and with standardised payout terms that corresponds to forward credit hedging possibilities.

(10 May 2023)

Nobian has just released its 2022 sustainability report, announcing a 25% reduction in direct emissions, meeting the target on its SLB. Detailed analysis of the report suggests possible creative emissions accounting with regards to steam generated from Municipal Waste Incineration.

(16 May 2023)

SLB structures have evolved in which, rather than paying a coupon step-up, a penalty is donated to charity, or used to purchase carbon offsets when targets are missed.

In this note we evaluate these alternative steps, for issuers, investors and the broader market.

(23 May 2023)

The Uruguay SLB, issued in Oct 2022, has outperformed its closest vanilla bond in the last quarter.

We use the AFII option pricing model, and new KPI data, to see if changes in option value could be a driver of this bond performance.

(5 Jun 2023)

Carrefour issued its fourth Sustainability-Linked Bond at the start of May.

At pricing, the market seemed not to give benefit for its more ambitious structure.

In the last month, the bond has outperformed, suggesting the market has digested, and is pricing, a higher probability of receiving a step-up due to more stretched and impactful targets.

(7 Jun 2023)

 Japan is looking to finance its decarbonisation program using transition bonds. A sovereign SLB could be a better option.

(15 Jun 2023)

 Japan is looking to finance its decarbonisation program using transition bonds. A sovereign SLB could be a better option.

(15 Jun 2023)

 Deutsche Post has issued its first SLB on 26 Jun 2023.

Our analysis commends this structure for using material KPIs with ambitious, scientifically verified, targets.

We calculate the option value to be 4.5bp running, which is significant for a highly rated issuer.

(27 Jun 2023)

Chile became in June 2023 the third largest overall issuer of SLBs, and one of only four issuers borrowing for longer than ten years. We examine the new bonds, compared to the original issuance.

(29 Jun 2023)

As the third largest industry subsector of direct carbon dioxide emissions and the largest industrial energy consumer, the chemicals sector will be an essential part of the transition to a net-zero world.

 We analyse the SLBs which have been issued by the sector, and provide key recommendations and takeaways for improving issuance in the space.

(13 Jul 2023)

Earlier this month Aeroporti di Roma and Heathrow both issued benchmark Sustainability-Linked Bonds. In 2023 nearly 4% of total SLB issuance has been from the airport sector.

We review ESG-labelled bond issuance in the sector. We assess whether they are effective at raising capital for transition. We also analyse the sustainability impacts for investors, and compare the recent structures and sustainability commitments from different airports

(25 Jul 2023)

Chile's recent CLP Sustainability-Linked Bond moves it into the silver medal position of total SLB issuance.

(27 Jul 2023)

 The first five business days of September were very busy for Sustainability-Linked Bond issuance, with eleven bonds pricing totalling $4.8bn.

The deals of the past week are diverse. They include a hybrid, a convertible, three bonds buying offsets or making a charitable donation rather than paying a step-up coupon, six inaugural SLB issuers, and four EUR SLBs which include Scope 3 emissions targets.

(11 Sep 2023)

JBS, a Brazilian meat producer, has issued three Sustainability-Linked Bonds.

Its recently published 2022 sustainability report includes a restatement of 2019 data, which forms the baseline of its SLB targets. SLB investors have an opportunity to request clarification, given their bonds have financial exposure to this reporting.

(21 Sep 2023)

 A common criticism of SLBs has been around callability, where it is sometimes suggested that bond issuers introduce calls into structures to avoid paying any step-up coupons.

In this note we compare a large sample of SLBs with traditional bonds, to identify relative trends of callability.

(20 Sep 2023)

Elo Group, owner of Auchan Retail, has issued its first Sustainability-Linked Bond.

Retail is an important sector for climate transition, due to its significant emission production in Forest, Land and Agriculture (FLAG), a new category of guidance from SBTi.

We analyse this SLB, the impact of its KPIs, and the value of its optionality.

(22 Sep 2023)