Like an SLB, JERA’s “transition-linked bond” is tied to a Sustainability Performance Target and does not constrain the use of proceeds. However, the cost to JERA should the company fall short of this target – a 0.1% donation of notional to the public good – is more symbolic than substantive. The emissions intensity reduction target itself is unambitious, falling short of the level required for JERA to align with the Electric Power Council for a Low Carbon Society’s decarbonisation trajectory.
These issues mean the bond is unlikely to reap a material pricing benefit and may not provide a powerful incentive to JERA to cut emissions.
We propose an enhanced SLB structure for JERA, incorporating symmetric coupon step-up and step-down features linked to two targets, one of which is far more ambitious than that used in the transition-linked bond. This would result in a structure with a financially material option value that could make it more attractive to investors and incentivise greater sustainability performance from JERA.
