SLBs: a summary of 2024 targets

24 minute read

Understanding the likelihood that a Sustainability-Linked Bond (SLB) issuer will hit or miss a sustainability target is essential to investors. This knowledge is important when it comes to pricing these instruments and can determine how and when investors should engage with companies to accelerate their sustainability performance.

Seeking to improve the market’s understanding of SLBs with observation dates in 2024, the Anthropocene Fixed Income Institute presents the following analysis of SLBs with targets falling due in 2024.

We analyse 24 bonds issued by 19 companies, including well-known names Coca-Cola Femsa, Eni, Enel and EC Finance, a financing vehicle for Europcar, and offer our assessment of whether their targets will be achieved this year.

The findings are illuminating, showing a range of performance from a diverse group of issuers across many sectors, from car rental, to drinks bottling, to oil & gas. Each of these sectors has their own set of ESG challenges and it is useful to review the Key Performance Indicators they select to structure their Sustainability-Linked Bonds.

We conclude that three of the bonds are likely to miss their targets. These bonds were issued by Italian utility A2A SpA, EC Finance, and London & Housing Quadrant. If targets are missed, the bond coupon steps up, delivering a valuable hedge to protect investors.

For a further four bonds, our analysis cannot conclusively say the targets will likely be met or missed, and so the SPT performance will be a coin-toss.

This target performance analysis from AFII should help investors price the analysed bonds – since the chance of target achievement determines whether or not a coupon step-up or step-down will occur. When it comes to those issuers we judge likely to miss their targets, or where the probability is 50:50, investors may consider stepping up their engagement with these companies to get their sustainability performance back on track.

SLBs with 2024 observation dates

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