SUSTAINABILITY-LINKED BONDS AS A PART OF THE SUSTAINABLE DEBT MARKET – STATE, OPPORTUNITIES AND CHALLENGES
Keywords:
sustainability, sustainable debt market, GSS+ bonds, sustainability-linked bondsAbstract
The roots of the sustainable bond market are connected to the ecological component – the basis of the concept of sustainable development, but the consolidation of this market is a consequence of the overlay of innovative and diverse products in the financial toolbox. Due to dynamic political, economic and social processes on a global scale, leading investment guidelines are also changing and therefore it is difficult to classify the sustainable debt instruments. As a suitable criterion for differentiation, the presence of a commitment on the part of the issuer for a specific direction of the accumulated funds or the connection between bond payments and the realization of certain goals can be used. On the one hand, there are bonds related to a specific purpose of the collected funds, popularly known as "use of proceeds". On the other hand, these are the bonds with a general purpose, the payments of which are aligned with the realization by the issuer of predefined, time-bound sustainability goals – environmental, social or governance, known as "sustainability-linked bonds". The latter have a fundamentally different model of formation of the financial-technical parameters of bonds in general – a model linking key performance indicators (KPIs) with the specific interest and/or principal payments, and are a variant of the so-called KPI-linked bonds.
Sustainability-linked bonds are young financial instruments, first issued by the Italian state energy company Enel, but have seen dramatic growth since then and are considered by financial analysts as a rising star in the sustainability market. However, the turbulent processes in 2022 led to cataclysms in the markets, as well as to changes in the direction and structure of the sustainable debt market.
In this article, we set out to explore the specifics of sustainability-linked bonds and their place in the global market of sustainable instruments, to analyse their strengths and weaknesses, as well as to outline future directions for the development of this market segment.
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