Sustainability-linked debt rising as new asset class: S&P


The issuance of sustainability-linked debt instruments will top 200 billion dollars this year due to burgeoning sustainability-linked loan market and growing popularity of sustainability-linked bonds, according to a report published recently by S&P Global. It said the pool of companies that can obtain sustainable financing is expanding quickly to include issuers who may not have sufficient capital expenditures directly related to sustainability projects, are just beginning their sustainability journeys, or are in transition and hard-to-abate sectors.

The issuance of sustainability-linked debt instruments–including sustainability-linked loans (SLLs) and sustainability-linked bonds (SLBs) is on the rise worldwide. S&P Global Ratings expects SLL and SLB issuance to surpass $200 billion this year. Total sustainability-linked debt issuance exceeded $130 billion in 2020, according to Bloomberg, up nearly 300% from 2018 levels (see chart 1).

Chart 1


In contrast to other types of sustainable debt instruments, including green, social, or sustainability bonds or loans, sustainability-linked instruments, aren’t dependent on dedicating issuance proceeds to defined environmental or social projects. Instead, a borrower can apply the label to any type of loan or bond instrument that directly links funding costs to achieving predetermined sustainability performance targets (SPTs). The use of proceeds, which isn’t usually identified when the loan or bond is issued, could be for any general corporate purpose.

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