A new concept rather than just a new label

Since the creation of green bonds, many new labels have emerged, including social bonds, sustainability bonds, and recently transition bonds, not to mention water, blue or adaptation bonds. Despite the standardisation efforts led by the International Capital Markets Association (ICMA), creativity in self-labelling has increased the number of labels. Whereas the type of activities financed by these various bond labels differ, they are all anchored to the same initial concept and to a pledge by issuers that the proceeds will be dedicated to a predetermined list of eligible projects. These are ‘use-of-proceeds’ bonds.

A more radical development marked the end of 2019. With its self-labelled Sustainable Development Goals (SDG)-linked bond issued in September 2019, Enel -- the Italian energy company -- brought a fundamentally different format into the public bond space, introducing the first-ever sustainability-linked bond (SLB). Within such a format, the pledge made by the issuer is no longer on the use of proceeds: SLBs are indeed general-purpose corporate bonds. Rather, the pledge is about achieving a quantitative sustainability target at the issuer level. In addition, SLBs depart from the vanilla structure of use-of-proceeds bonds, as the financial features of the bond are linked to the (non-)achievement of the sustainability objective.

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Head of Fixed Income SRI processes and Credit Portfolio Manager
ESG analyst, Climate Change