Sustainability-Linked Bonds bumper week

12 minute read

The bond market woke up in the first week of September, with at least 40 corporates tapping the high-grade debt markets on the 5th, making it the busiest session in US this year. In the first five trading days of the month, eleven Sustainability-Linked Bonds (SLB) were priced, totalling $4.8bn of issuance. Here we review this bumper week of issuance.

Using AFII methods and models, we analyse the impact and pricing of bonds, and look for trends in the structuring of SLBs.

The sectors are broad, with the majority of these issuances coming from outside the industries that most frequently use SLBs. The eleven bonds include diverse structures, with a hybrid, a convertible bond, and securities buying offsets included in this group.

This shows that the SLB structure is being adopted more widely by fixed income market users. Four of the five EUR SLBs include Scope 3 emissions, increasing the potential for impact by covering the full footprint of an issuer. To achieve attractive pricing for issuers this must be combined with ambitious targets. The inaugural Ferrovial SLB has one target that seems easy to achieve, and one that has already been achieved, which reduces its option value.

Structures do not yet offer the minimum level of materiality, to be classified as a “Greenback SLB”, More material structures could encourage more investors into the asset class, and further tighten spreads for issuers.

Download pdf (0.2mb)