Sustainability-Linked Bond Handbook

Sustainability-linked bonds are innovative financial instruments that enable fixed income market participants to supplement portfolio returns and hedge against unwanted risks while contributing to a sustainable future.

The SLB Handbook from the Anthropocene Fixed Income Institute offers a practical overview of this nascent market. It explores both the financial and sustainable impact aspects of the instrument and includes a first-of-its-kind pricing model for understanding SLB dynamics.

The Handbook provides an objective view of the SLB as a tradeable product by exploring over 40 case studies covering a wide range of actual and potential bond deals, from both the issuer and investor perspective.

It is our intention that this first edition of the Handbook becomes a trusted reference for practitioners and a source of inspiration for SLB structurers, helping to accelerate fixed income capital flows into sustainable and transition financing solutions.

Who should read this Handbook?

This book has been written for fixed income market participants – portfolio managers, traders, credit analysts, and investment strategists. However, all those curious to learn more about the SLB market and the unique dynamics of the instruments will find much to value in its pages.

Access the SLB Handbook

The SLB Handbook can be accessed as an online flipbook by filling in the contact form.

Individualised, downloadable PDFs are available for non-commercial purposes; please complete the form and check the box, and a PDF will be sent to you.

Printed copies will be made available on a discretionary basis. Please contact the team to discuss.

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In this book you will find:

Chapter 1: Introduction to SLBs

  • Understanding the SLB structure
  • Market overview
  • Capital markets activity
  • Main critiques of SLBs

Chapter 2: Basic pricing of SLBs

  • The option pricing approach: concept
  • The option pricing approach: worked examples
  • Pricing - the empirical evidence
  • Probabilities - central to SLB pricing
  • Greenback  SLB ambition through the size of the option premium

Chapter 3: SLBs as a fixed income portfolio tool

  • Three portfolio perspectives
  • Alpha generation through SLBs
  • Sustainability-correlated risk hedging
  • Impact through SLBs
  • Managing high-level sustainability commitments
  • Financial incentives for transparency
  • Interoperability

Chapter 4: Setting sustainability performance targets

  • Target-setting principles
  • Second party opinions
  • Diversity of targets
  • Step-up or step-down?
  • Understanding triggers
  • Alternative steps
  • Greenwashing risks in target settings
  • Weak SPTs and greenwashing risks
  • Target-setting case study: chemicals sector

Chapter 5: SLB pricing with credit risk and stochastics

  • Credit risk in a sustainability context
  • Default rates conditional on triggering of SLB steps
  • Pricing using rating curves
  • Stochastic pricing: the Black-Scholes approach
  • Multiple KPIs

Chapter 6: Advanced modelling

  • SLBs for specific credit solutions
  • Hybrid SLBs
  • Contingent Resilience-Linked (CORL) Bonds
  • Callability: a loophole or a chimera?