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.
