A watershed year for the SLB market

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It’s an important moment for the Sustainability-Linked Bond (SLB) market.

This year, 245 instruments have target observation dates, the largest cohort to date. The number of bonds, and range of issuers involved, means the observations provide a timely “status check” on real-world climate transition performance across geographies and sectors, at a time when every degree of global warming avoided is precious.

Our latest research reflects on the current state of SLBs, taking evidence from the four issuers that missed targets in 2024 to illustrate how the market is evolving.

In each case, these issuers’ bonds included a step-up feature that hedged investors against sustainability underperformance – just as intended. However, market inefficiencies persist. In most cases, the price of these bonds only changed when Bloomberg updated their coupons — not when issuers disclosed underperformance. This suggests that SLB-related sustainability information is not yet being digested by investors with the same rigour as financial disclosures.

This oversight creates opportunity, however. Diligent investors who pay close attention to issuers’ sustainability progress and reporting timelines may be able to anticipate pricing moves and unlock alpha. Ongoing market inefficiencies may also attract more investors into the space.

As this important year for SLBs unfolds, AFII will continue to track key developments and publish case studies to support market learning.