A review of SLBs approaching KPI observation dates

23 minute read

This note examines how Sustainability-Linked Bonds (SLBs) can be expected to behave as they go through their “trigger” dates, when the sustainability performance of the issuer will be assessed.

We find that the observation process could represent both opportunities and risks for investors. Price volatility is to be expected when expectations change around the issuer achieving its Sustainability Performance Targets (SPTs).

We illustrate the dynamics by analysing two current cases: Italian ultility company Enel, and PPC, a Greek energy producer. Italian utility company Enel’s 2022 renewables target appears achievable but there are greater risks to its emissions target in 2023, due to changing government energy policy.

A coupon step-up, potentially accompanied by technical selling from green funds, could present an attractive opportunity to increase exposure if investors believe in the company's long term sustainability performance.

PPC, a Greek utility, has stated that it believes its emissions target in 2022 is at risk, and this could impact its future funding environment.

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