Sustainable bonds are maturing

The sustainable bonds market exceeded $1 tn issuance and total volume in 2021 as investor interest peaked, which now provides an opportunity for issuers to include more relevant and ambitious sustainability targets, says Pimco.

“Unlike traditional green, social, or sustainability use-of-proceeds bonds, which fund specific projects dedicated to environmental or social utility, sustainability-linked bonds (SLBs) typically are not directly linked to the financing of particular projects,” writes Samuel Mary, ESG Research Analyst at Pimco. “Instead, they fund the operations of issuers that explicitly link sustainability objectives across their business with financing conditions.”

Talking about the benefits of sustainable bonds, Pimco says it will motivate businesses to reduce greenhouse gas emissions, motivate issuers to targets aligned with the UN Sustainable Development Goals, enable issuers to access ESG-labeled bond markets, and allow investors to diversify across geography, bond maturity, industry or bond rating.

As an elected member of the ICMA Green Bond Principles and Social Sustainable Bond Principles Executive Committee, Pimco gives guidance on how issuers can bolster sustainable bond structures.

The investment management firm says issuers can introduce shorter trigger dates, build milestones into their Sustainability Performance Targets (SPT), provide external verification of the historical performance, and follow practices in line with typical covenants for bonds.