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A Sustainability-linked bond (SLB) is a fixed income instrument (Bond) where its financial and/or structural characteristics are tied to predefined Sustainability/ESG objectives. The objectives are measured through predefined Key Performance Indicators (KPIs) and evaluated against predefined Sustainability Performance Targets (SPTs).

The proceeds of SLBs are intended for general purposes, and the use of proceeds is not determinative in their categorization. Bonds where the proceeds are used to finance or re-finance green projects, social projects or a combination of both are called GreenGreen, Social Bond and Sustainability bonds respectively, and should not be confused with SLBs.

Sustainability-Linked Bond Principles
The Sustainability-Linked Bond Principles are voluntary process guidelines that provide best practices and recommendations for financial instruments to incorporate forward-looking sustainability performance.

Over 80% of sustainability-linked bonds followed ICMA's SLBP in 2020. Principles expected to play a key role in the development of the Sustainability-Linked Bond market by enhancing market integrity and consistency and helping mitigate investor fears of ESG-washing.

The SLBPs have five core components :


 * 1) Selection of Key Performance Indicators: Selecting KPIs that are relevant, core and material to the issuer's overall business. They should be measurable or quantifiable on a consistent methodological basis, externally verifiable, and able to be benchmarked.


 * 1) Calibration of Sustainability Performance Targets: SPTs must represent a material improvement in the respective KPIs and be beyond a business-as-usual trajectory. Targets must be consistent with the issuers’ overall strategic sustainability / ESG strategy; and determined before (or concurrently with) the issuance of the bond on a predefined timeline. An external review is recommended.


 * 1) Bond characteristics: The variation in the financial and/or structural characteristics of the bonds must be proportional and significant in relation to the original financial characteristics of the issuer's bonds.


 * 1) Reporting: Issuers should publish regularly, and at least annually, information on the performance of the selected KPIs, a verification report outlining the performance against the SPTs and any information enabling investors to monitor the level of ambition of the SPTs


 * 1) Verification:  Issuers should provide independent, external verification of their level of performance against each SPT for each KPI by a qualified external reviewer with relevant experience.