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1、SUSTAINABILITY-LINKED BONDS:Building a High-Quality Market Prepared by the Climate Bonds InitiativeSponsored by the Singapore Exchange(SGX Group)Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 2Contents1.Introduction 22.Report summary 33.Market profile 5Overview 5

2、 Issuer and deal profile charts 6Public sector issuance 84.Structural features 10 KPI selection and materiality assessment 10 Financial mechanisms and structures 14 Other structural factors 15 Alignment with SLBDB Methodology 155.KPI performance assessment 18 Methodology 18Results overview 19 Disclo

3、sure issues:reasons,restatements,inconsistencies 19 Results detail:target observation dates,alignment with SLBDB,KPIs 206.Transition plan assessment 22 Guidance and link with SLBs 22 Methodology and results overview 22 Results detail:date of first bond,regional analysis,alignment with SLBDB 23 Best

4、practice examples 25 Summary transition plan chart 267.Discussion and recommendations 27 Best practice checklist for issuance 27 Other mechanisms formarket development 29Appendix 31 Definitions&acronyms 31 Transition plan elements and scoring 31 KPI mapping methodology 35Endnotes 351.IntroductionThi

5、s is Climate Bonds first report focused on sustainability-linked bonds(SLBs),which are general-purpose debt instruments where the financial and/or structural characteristics vary depending on whether the issuer achieves predefined sustainability objectives.1 These objectives are:i.Measured through p

6、redefined key performance indicators(KPIs).ii.Assessed against predefined,time-bound sustainability performance targets(SPTs,or simply targets).Issuers are thereby committing explicitly to future improvements in sustainability outcomes within a predefined timeline,making SLBs a forward-looking perfo

7、rmance-based instrument.By contrast,the sustainability credentials of Use-of-Proceeds(UoP)instruments,which finance specific projects,are typically evaluated at a point in time.2Objectives and backgroundGiven the immense potential of SLBs to improve sustainability performance across regions and sect

8、ors,the core aim of this paper is to facilitate the growth of SLB issuance while ensuring credibility and ambition.This paper forms part of the Climate Bonds post-issuance reporting series,which until now only covered green bonds(a green,social,and sustainability GSS bond reporting study will be rel

9、eased later this year).3 However,the scope of this report extends to profiling SLB issuance and structural features known with pre-issuance disclosure,as well as identifying issues and recommendations linked to post-issuance reporting.This helps to highlight the obstacles that seem to be impeding ma

10、rket scale.SLBs are a relatively new innovation in sustainable finance and have seen limited research.The analytical findings and recommendations generated support a range of market participants in different ways,all of which support the growth of a credible market.For example,issuers can use this i

11、nformation to identify best practice,structure high-quality deals,amplify conversations with investors,and strengthen institutional capacities.Investors can gain clarity on market practices,improve deal screening capabilities,and enhance their stewardship role to promote best practices.Regulators an

12、d other standard-setters can identify and address gaps in guidance/rules while ensuring clarity of requirements for issuers and deal structurers.Other market participants,including development finance institutions(DFIs),can equally use this knowledge to provide more targeted technical assistance and

13、 in all market development activities.The insights can also inform the development of sustainability-linked loans(SLLs)which are not assessed due to limited public disclosure.Report structureThe report consists of five core sections.Market profile and Structural features analyse SLB issuance based o

14、n pre-issuance disclosure.KPI performance assessment and Transition plan assessment evaluate the performance of KPIs and broader transition plans based on post-issuance disclosure.Discussion and recommendations is targeted at the development of a credible market.Definitions and acronyms are included

15、 in the appendix along with other material.Methodology summaryThe analysis is based on the Climate Bonds SLB Database(SLBDB),which was launched in January 2024 and classifies deals using a methodology aligned with the Paris Agreement(well below 2C).4 Investors and other market participants can acces

16、s this data to identify credible and ambitious SLBs that use greenhouse gas(GHG)targets.Deals classified as not aligned with the SLBDB are still included in the database as well as this report.The first two sections include the total SLB market up to the end of November 2023,excluding bonds that had

17、 matured and a few that had not been screened at the time of analysis(full-year figures will be available in the Climate Bonds Global State of the Market report).Sections 3 and 4 were new research used for this paper based on post-issuance reporting.They cover the top 50 issuers by amount issued up

18、to the end of 2022(excluding sovereigns),providing nearly a year for the most recent bonds to report.The bulk of the analysis was conducted during the last quarter of 2023.Pre-issuance sources mainly include SLB frameworks and bond prospectuses/official terms.Post-issuance reporting is based solely

19、on issuer disclosure from websites,reports,assurance/external review documents,and presentations.Only part of issuers disclosure is externally reviewed or assured.Most of the analysis is expressed in terms of amount issued and number of bonds,with number of issuers occasionally included.Amount issue

20、d is typically used in research by Climate Bonds and others,but is more useful as a sustainable finance metric among UoP instruments which finance specific projects/assets.Climate Bonds InitiativeThe Climate Bonds Initiative(Climate Bonds)is an international investor-focused not-for-profit organisat

21、ion working to mobilise the USD100tn bond market for climate change solutions.Climate Bonds promotes investment in projects and assets needed for a rapid transition to a low-carbon and climate-resilient economy.The mission is to help drive down the cost of capital for large-scale climate and infrast

22、ructure projects and to support governments seeking increased access to capital markets to meet climate goals.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 32.Report summarySustainability-linked finance:a powerful toolThe sustainability-linked model provides a p

23、owerful bridge between financial and sustainability performance,with the potential to make more sustainability impacts financially material.This can be a highly effective mechanism to correct for externalities of economic activities,accelerating the transition to a sustainable system that is so urge

24、nt.SLBs have,however,faced considerable criticism since their 2021 boom,which as this report shows is largely valid.But the problems lie in inadequate structural and calibration features,and weak underlying transition plans not with the sustainability-linked concept.SLBs present several benefits for

25、 issuers and the broader market.They offer a complementary funding model to UoP instruments and can be accessed by a broader range of issuers and sectors,including hard-to-abate sectors where it can be harder to identify eligible projects to be financed by green or other UoP bonds.SLBs encourage hol

26、istic entity-level transitions,transparency and disclosure,and communication between investors and issuers.SLBs may also provide pricing benefits for issuers,partly due to the possibility of paying out penalties to bondholders.5 In the case of a coupon step-up and targets being met,issuers are expec

27、ted to benefit from a lower coupon versus vanilla bonds throughout the bonds term.The current SLB market contains a high share of low-quality deals that lack ambition,credibility,and adequate disclosure,issues which are likely even more pronounced among SLLs.Resolving this is a key objective of this

28、 paper and a prerequisite to enable the growth of sustainability-linked finance.Several issues are linked to weaknesses in entities underlying transition plans,which is a critical dimension strong SLBs start with strong transition plans.Building a high-quality market:guidance and rules create the fo

29、undationMandatory rules do not yet exist and most of the voluntary guidance available is limited and generic.The only monitoring of deals that appears to take place is by investors,who often do not have the capacity,resources,or bond supply to screen out low-quality SLBs.Assessments are made using p

30、roprietary methodologies,which reduces transparency and comparability in the market.The more established green bond market demonstrates the importance of using commonly accepted standards(voluntary or mandatory),which is a priority for Climate Bonds.This was the main purpose behind both the SLB Data

31、base(SLBDB)and the Climate Bonds Standard(CBS)V4.0 released in 2023.CBS V4.0 and the accompanying sector criteria complement but go beyond other existing market standards and initiatives,enabling the Certification of entities and general-purpose debt instruments against 1.5C(along with UoP instrumen

32、ts which were already included in previous versions).6To add credibility and unlock further scale and diversity,the core recommendation is the development and use of more guidance/rules for SLB structuring and disclosures.This can facilitate issuance while creating clear,higher,and more consistent s

33、tandards to assess deal quality.The best practice checklist in the final section highlights recommendations for issuance related to the following SLB elements:Overall disclosure:Provide adequate and timely public disclosure.GHG targets and alignment with SLBDB Methodology:Meet SLBDB alignment requir

34、ements.Targets should be ambitious(science-based)and feasible.Target and trigger dates:Allow enough time between target/trigger date(s)and bond maturity.Aim to set three-yearly targets during the SLB term.Set trigger date as soon as possible after the target date.KPI selection:Link KPIs to relevant

35、reporting standards/regulations and refer to ICMAs KPI Registry for consistency.Do not use ESG ratings/scores or other opaque KPIs.Use at least one KPI related to climate mitigation.GHG scope 3 should be included if material.Use absolute metrics and production intensities;do not use economic intensi

36、ties.Clearly disclose methodologies to assess KPIs.Multiple KPIs/targets:Use multiple KPIs linked to the entitys material impacts.Use multiple targets to reflect different time horizons or levels of ambition.Call options and legal clauses:Do not usecallable structures and legal clauses in bad faith.

37、If there is a call date,set it after at least the first target and trigger dates;if it is before,the call price should reflect the target not being met.Post-issuance SLB reporting:Clearly disclose reasons for changes in performance(quantitatively where possible),data restatements,and consistent info

38、rmation,and confirm methodologies to calculate KPIs.Transition plan and link with SLBs:Use transition guidance from Climate Bonds and others.Provide all relevant disclosure in a clearly labelled document or in a dedicated section of annual reports.Articulate the link between SLB issuance and transit

39、ion plans,ensuring consistency.Assurance:Obtain assurance covering annualKPI performance at least,and ideally as many elements of sustainability reporting as possible.Reasonable assurance can add reliability.While applying higher standards to an already struggling market may arguably stifle growth e

40、ven more,these recommendations aim to increase confidence among market participants and resolve the obstacles preventing a larger and higher-quality market.Complementing the guidance for issuance,other mechanisms and topics are explored to enable further market development:Supportive and coherent po

41、licy SLB Facility to manage penalties and ensure standards Green Bond Transparency Platform:facilitating and standardising disclosure Financial mechanisms reinforce credibility Accounting for exogenous factors adds value SLLs can benefit from similar approachesThe recommendations largely follow from

42、 the quantitative research findings,a summary of which is included on the next page.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 4Key quantitative findings 1.Market profile:nascent and diversifyingWith the first SLB issued in December 2018,the market is relativ

43、ely young and characterised by a growing and increasingly diversified pool of issuers.A cumulative USD279bn has been issued across 768 bonds from 469 issuers(as of Nov.2023).Volumes surged in 2021 as markets recovered post-COVID and interest in SLBs spiked,but issuance has dropped slightly since.Adv

44、erse global market conditions in 2022 impacted capital markets in general,and heightened concerns around the credibility of the SLB market have hampered volumes since.Non-financial corporates dominate heavily(84%of cumulative amount)but different types of public sector entities have started to acces

45、s the market.An important milestone was reached in 2022 when two countries issued sovereign SLBs for the first time:Chile and Uruguay.The top issuer domiciles by amount issued are Italy(USD49.5bn,63%from Enel),France(USD28.7bn),and Germany(USD23.0bn).China is fourth(USD21.7bn)but first by bond count

46、(127)and number of issuers(86).The top three sectors combined have issued 41%of the amount:utilities(USD51.1bn,61%from Enel),industrials(USD39.6bn),and agriculture&food(USD24.2bn).Industrials ranks first by bond and issuer count(162 and 106 respectively).2.Structural features:more guidance neededSLB

47、s most commonly have one KPI(59%of bonds and 54%of the amount)although there may be up to four.Climate Bonds encourages issuers to use multiple KPIs(not necessarily in a single instrument)covering different material impacts to demonstrate a more holistic approach to sustainability,which can increase

48、 credibility.Given that GHG emissions are material to almost all entities,at least one KPI should be related to climate mitigation.While reporting standards and regulations(e.g.,ISSB/SASB,GRI,ESRS)can also inform KPI selection,ICMAs KPI Registry provides a useful tool which encourages issuers to sel

49、ect at least one core KPI in their respective sector.KPIs related to climate mitigation dominate heavily,yet many sectors demonstrate little or no use of some material KPIs,and several show little or no use of at least one highly material KPI.While the selection of KPIs among SLBs broadly reflects t

50、he materiality of themes in different sectors,improved guidance,active monitoring,and possibly regulation would ensure the most relevant KPIs are being selected and to an appropriate degree.Only 14%of total SLBs representing 17%of the amount issued are aligned with the Climate Bonds SLBDB Methodolog

51、y requirements.7,8 However,the proportion is growing:35%by amount in 2023(up to November).As the market is still nascent,a relatively low share of alignment is expected but should increase as the market develops.Lack of GHG targets and partial GHG scope coverage are the top two reasons for non-align

52、ment.The third reason is that targets are not in line with relevant science-based decarbonisation pathways,followed by use of economic intensity KPIs/targets.Coupon step-ups dominate financial mechanisms,featuring in 58%of SLBs representing 77%of the amount issued.Step-ups can facilitate a premium a

53、nd lower coupon at issuance,reflecting the potential penalty paid to investors.Redemption premiums are the second most popular mechanism.Pure step-downs are rare,but hybrid step-down/step-up structures are more common and used to reflect different levels of ambition in targets.The average step-up(pe

54、r target)is 24.8 bps.The mode is 25bps looking at both amount issued and bond count.Holcim used the highest step-up for a single target(150bps).However,the value of penalties is determined both by the step-up size and the number of coupons affected.Misuse of call options is not currently a big issue

55、 but should be monitored(especially when interest rates fall).This includes monitoring the proportion of call options among SLBs,and especially the extent to which they are exercised.Other legal clauses should also be monitored to ensure issuers act in good faith,such as those which enable issuers t

56、o avoid penalties due to certain exogenous factors or which exclude M&A and other investments.4.Transition plans:decent quality butwide range observedThere is a clear and strong positive correlation between SLB issuance and the quality of a companys environmental disclosure,with 67%of the issuers sa

57、mpled achieving high scores(A or A-)in CDPs latest climate questionnaire.This contrasts heavily with CDPs overall climate scores,where almost half of companies(4,749 out of 10,994)scored F.In Climate Bonds assessment of transition plans,the top 50 issuers achieved an average of 17.4 out of 35 points

58、(17.9 weighted by amount)but the range is wide:0 to 27 points.Earlier issuers are more likely to be sustainability or transition leaders.Earlier issuers scored higher than later ones,but the downward trend appears to be stabilising.Latin American issuers score well.With seven issuers sampled(three f

59、rom Mexico),Latin America achieved the highest average score(18.65)and the narrowest range of 11 to 23 points,also reflected in a relatively low standard deviation.Europe achieved almost the same average(18.56)and the highest maximum,but displays the widest range with almost two-thirds of the issuer

60、s in the sample(31/50).No low scores among aligned SLBs.No issuers of SLBs aligned with Climate Bonds SLBDB Methodology scored below 12 points.Disclosure of implementation and finance plans frequently lacks quality.Most issuers do not quantify the backward-and forward-looking GHG reduction of implem

61、ented measures,and the extent this will help them achieve their targets this is true for all scopes but affects scope 3 most of all.Very few issuers have detailed disclosure of finance plans.3.KPI performance:almost all issuersreport but quality variesOf the 50 issuers sampled,48 report KPI performa

62、nce publicly,but this often lacks quality.Three aspects linked to poor reporting are highlighted:failure to explain reasons for changes in performance,lack of clarity around data restatements(especially GHG emissions),and inconsistencies in issuer disclosure.KPI performance was assessed against issu

63、er targets in a linear fashion,with four main outcomes defined:Target already met On trackThe market shows heterogeneous performance,with a relatively even split of outcomes.Within the sample,31%of SLBs and 34%of the amount issued have all KPIs off track,although only 16%of issuers fall into this gr

64、oup(Enel is one).Of the SLBs sampled,12%have targets currently met,almost all of which with observation dates up to 2025.Within these,the later the observation date,the less ambitious the targets are likely to be.As well as target ambition,target feasibility varies widely.Some issuers have targets t

65、hat are only a slight improvement versus the baseline or have even already been met at issuance(i.e.,highly feasible).If these targets also lack ambition(below 2C in the case of GHG targets),they are clear examples of greenwashing.Off track N/A(cannot calculate)Sustainability-Linked Bonds:Building a

66、 High-Quality Market:Climate Bonds Initiative 53.Market profileNascent and diversifyingWith just over half a decade since the first SLB was issued in December 2018,the SLB market is relatively young and characterised by a growing and increasingly diversified pool of issuers,with more currencies,coun

67、tries and sectors added each year.Volumes saw a large boost in 2021 as markets recovered post-COVID and interest in SLBs spiked,but issuance has dropped mildly since.Adverse global market conditions in 2022 impacted capital markets in general,and heightened concerns around the credibility of the SLB

68、 market have hampered volumes since.Many investors appear to prefer the UoP model of labelled debt instruments,namely green,social,and sustainability(GSS)bonds.9The number of bonds grew considerably more than the number of issuers in 2021,with repeat issuance becoming much more frequent.The average

69、amount and bonds per issuer remained stable in 2022 and dropped slightly in 2023.The top three issuer domiciles by amount issued are Italy(USD49.5bn,63%of which from Enel),France(USD28.7bn),and Germany(USD23.0bn).China is fourth(USD21.7bn)but first by bond count(127)and number of issuers(86),and is

70、where the first SLB originated from(2018,Beijing Infrastructure Investment Co.).Despite being naturally dominated by non-financial corporates(84%of cumulative amount),different types of public sector issuers including government-backed entities have started to access the market.2022 marked an import

71、ant milestone as Chile(six deals totalling USD9.2bn,one in 2022 and five in 2023)and Uruguay(one USD1.5bn deal,2022)priced sovereign deals.The Sustainability-Linked Bond Principles(SLBP)published by ICMA are voluntary process guidelines that outline best practices for financial instruments to incorp

72、orate forward-looking ESG outcomes and promote integrity in the development of the SLB market,by clarifying the approach for issuance of an SLB.10The SLBP recommend a clear process and transparent commitments for issuers,which investors,banks,underwriters,placement agents and others may use to under

73、stand the financial and/or structural characteristics of any given SLB.The SLBP emphasise the importance of transparency,accuracy,and integrity of information disclosed by issuers.The SLBP have five core components:1.Selection of key performance indicators(KPIs)2.Calibration of sustainability perfor

74、mance targets(SPTs)3.Bond characteristics 4.Reporting 5.VerificationSustainability-Linked Bond Principles(SLBP)Volumes stagnant since 2021 boomUSD Billions/number bonds/number of issuers50250150Amount issued(USDbn)Number of issuersNumber of bonds200202120222023(Jan-Nov)20180NB:Some deals

75、from 2023 are pending screening for inclusion in the database.Full-year 2023 figures are likely to be slightly higher than shown and will be covered in Climate Bonds annual Global State of the Market report.SLB market profile(cumulative)Amount issued:USD279bnAverage tenor:6.9 years*Number of bonds:7

76、68Number of currencies:25Number of issuers:469Number of issuer countries:56Average bond size:USD364mNumber of sectors:22Average amount per issuer:USD596mFirst SLB:2018(Beijing Infrastructure Investment Co.)Average bonds per issuer:1.6NB:Climate Bonds Initiative data(SLBDB)as of 30/11/2023,including

77、deals aligned and non-aligned with SLBDB.*Excludes 20 perpetual bonds from 18 issuers worth USD2.8bn.SLBP SLBPSLBPSustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 65-10Y tenor is the most commonAmount(USDbn)Number of bondsUp to 5Y5-10Y10-20Y20YPerpetual25%50%75%100

78、%833333675 currencies used so far;EUR covers 50%of amount issuedAmount(USDbn)Number of bondsEURUSDCNYJPYMXN25%50%75%100%27419 80Other6353129157NB:EUR covers 50%of amount.JPY 4th,MXN 5th,and GBP 8th(amount),11th(bonds),9th(issuers).2023:CLP,KRW,RWF saw first SLB issuances,and JP

79、Y,MXN,PLN,TWD were the only others with increase.Substantial and growing share of EM bonds and issuersAmount(USDbn)Amount(USDbn)Amount(USDbn)Number of bondsNumber of bondsNumber of bondsNumber of issuersNumber of issuersNumber of issuersDMEMFMSupranational25%50%75%100%28002892126111Europe

80、 accounts for 57%of amount,45%of bonds,and 46%of issuersAfricaAsia-PacificEuropeLatin AmericaNorth America25%50%75%100%3433953159380Supranational1022428NB:North America excludes Mexico.Latin America includes South America,Central America and the Caribbean,and Mexico.11791Non-financial cor

81、porates dominate heavilyAmount(USDbn)Number of bondsNumber of issuersDevelopment BankFinancial CorporateGovernment-Backed EntityLocal GovernmentNon-Financial Corporate25%50%75%100%3463549359813 190Sovereign372235272820.21Only sovereigns and local governments increased volumes in 2023Latin America wa

82、s the only region to grow in 2023,driven by sovereign issuance and Mexico11No review(pre-issuance)Review(pre-issuance)Almost 90%of SLBs obtain review(pre-issuance)25%50%75%100%75044USD Billions200222023(Jan-Nov)2018USD Billions200Development BankFinancial CorporateGo

83、vernment-Backed EntityLocal GovernmentNon-Financial CorporateSovereign0202120222023(Jan-Nov)2080204AfricaAsia-PacificEuropeLatin AmericaNorth AmericaSupranationalSustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 7Industrial sector accounts for

84、the most bonds and issuersSectorAmount issued(USDbn)Number of bondsNumber of issuersSectorAmount issued(USDbn)Number of bondsNumber of issuersUtilities51.1 9442Technology8.6 2621Industrials39.6 162106Consumer Staples8.2 2016Agri&Food24.2 6232Real Estate8.1 4529Consumer Discretionary19.8 5640Cement5.

85、5 178Oil&Gas19.7 3017Pulp&Paper3.8 62Materials14.6 3928Energy2.8 106Healthcare14.4 2613Airlines2.6 97Government14.1 3318Steel2.2 86Communications13.1 2919Shipping1.9 118Financials12.7 4731Automotive1.0 62Chemicals10.7 3123Renewable Energy0.5 11Total279.3 768469NB:Sectors according to Climate Bonds S

86、LBDB classification some sectors are disaggregated more than other data providers.Energy refers to mixed(fossil fuel and renewable)energy companies.Government includes several sub-national entities but 75%of amount and all the largest bonds are from the two sovereign issuers.Enel dominates top ten i

87、ssuersIssuer nameCountrySectorAmount issued(USDbn)Number of bondsFirst SLBEnel S.p.A.ItalyUtilities31.1302019Republic of ChileChileGovernment9.262022Teva Pharmaceutical IndustriesIsraelHealthcare7.582021Eni S.p.A.ItalyOil&Gas5.242021Enbridge Inc.CanadaOil&Gas5.152021Carrefour S.A.FranceAgri&Food3.55

88、2022ASTM S.p.A.ItalyIndustrials3.432021Telus CorporationCanadaCommunications3.352021JBS S.A.BrazilAgri&Food3.252021Faurecia SEFranceConsumer Discretionary3.04202125%50%75%100%28%of bonds are benchmarks(USD500m+)Amount(USDbn)Number of bonds0-100m100-500m500m-1bn1bn or more2685127110Sustain

89、ability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 8Uruguay targets emission reduction and increase in forest coverUruguays SLB was issued with support from the Inter-American Development Bank(IDB).It uses multiple 2025 targets and financial mechanisms for each KPI to refle

90、ct different levels of ambition.For example,a 15bps step-up applies if the minimum target is not reached,while a 15bps step-down applies if the more ambitious target is achieved.Such a structure encourages performance improvements beyond a minimum level and is encouraged by Climate Bonds(see page 28

91、).Also noteworthy are the innovative use of satellite imagery to track forest cover(the second KPI,along with GHG emissions reduction)and detailed disclosure around methodologies for KPI assessment.Chile extends sustainable finance leadershipChile is a sustainable finance leader,not just in Latin Am

92、erica but globally.It has been a prominent issuer of thematic debt for several years,remaining the only country to have issued all types of GSS bonds along with SLBs.Chile has made bold moves to improve its sustainability profile,but as the ASCOR assessment shows this has not yet been reflected acro

93、ss all areas and policies.This is similar to most countries,where more coherence across the economy and public sector activities is required.Sovereign SLBs scorecardChileUruguayNumber of bondsSixOneAmount issuedUSD9.2bnUSD1.5bnTenors11 to 30.5 years12 yearsCurrenciesUSD,EUR,and CLPUSDKPIsAbsolute GH

94、G emissions,renewable energy installed capacity,women in management(social equality)GHG emissions intensity(per unit of GDP),forest area coverFinancial mechanismsStep-ups and redemption premiumsStep-ups and step-downs(two targets for each KPI)ASCOR highlightsMixed results from first ASCOR assessment

95、:15 Second least ambitious 2030 GHG emission target among 13 high-income countries assessed(-16%versus 2019)16 Net zero 2050 target but no disclosure on use of carbon credits Fossil fuel subsidies represent 0.56%of GDP(relatively high for a country with low fossil fuel reserves)Low carbon price(USD5

96、 per tCO2e),covering only 33%of GHG emission sources Highest solar,geothermal,and hydro capacity plans of the 13 countries,and second-highest wind capacityGenerally positive results:17 Main negative result is 30%increase in emissions by 2030 versus 2019 due to ASCORs exclusion of land use,land use c

97、hange,and forestry(LULUCF)(Uruguays NDCs include emissions from LULUCF)Like Chile,net-zero target set to 2050 yet lacks disclosure on the use of carbon credits Carbon price of USD156 per tCO2e is the highest of the countries assessed but only covers 19%of GHG emissions Highest share of low-carbon el

98、ectricity of countries assessed(94%)and no fossil fuel subsidiesNB:Figures as of November 2023.Public sector issuance growing SLB issuance has been dominated by corporates,but public sector issuers are becoming more common.Although much of the focus has been on sovereigns,government-backed entities

99、recorded strong volumes in 2021 and 2022,driven by Chinese state companies operating mainly in the financial,energy,and transport sectors.In 2022 and 2023,local governments from Sweden,USA,Japan,and China also accessed the market,as did the Development Bank of Rwanda(explored more on the next page).

100、As in the private sector,SLBs offer several benefits for public sector entities.For example,diversifying funding sources and accessing a broader pool of domestic and foreign investors,aligning finance and different institutions with country-level sustainability objectives,and accelerating the transi

101、tion in highly polluting and/or hard-to-abate sectors.Public sector issuance,especially sovereign,can also provide a powerful signal,enabling the development of domestic markets and paving the way for more issuers to emerge.Some public sector institutions are unable to incur additional interest expe

102、nses for debt servicing,making step-downs more common among public sector issuers than corporates.Two sovereign issuers so farChile and Uruguay are the two pioneer sovereign SLB issuers,but other countries are following their lead.Brazil,Thailand,and Vietnam have also signalled their intention to ac

103、cess the market.In the SLBDB,sovereign GHG targets are only assessed against Nationally Determined Contributions(NDCs)for now.NDCs often lack ambition and are usually not aligned with 2C or under,much less 1.5C.The Assessing Sovereign Climate-Related Risks(ASCOR)framework can help to assess country-

104、level climate action(see next page).Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 9The Development Bank of Rwanda(BRD)issued a seven-year RWF30bn(USD24m)SLB in October 2023,setting an important milestone as the first SLB from East Africa and the first globally i

105、ssued by a national development bank.The deal benefited from a partial credit enhancement from the World Bank made to the Government of Rwanda via the Access to Finance for Recovery and Resilience(AFIRR)project.18The SLB aligns with BRDs commitment to Rwandas sustainable development,embodied in the

106、four pillars of its Vision 2050 strategy:human development,agriculture for wealth creation,competitiveness and integration,and urbanisation and agglomeration.The three KPIs selected are related to these objectives and have targets set to be achieved by 2028 at a national level.The first KPI refers t

107、o enhancing ESG systems in licensed financial institutions(targeting 75%of institutions),the second to the share of loans for women-led businesses(targeting an increase from 15%to 30%),and the third to the number of loans for affordable housing(targeting an increase from 544 to 13,000).19 The bond h

108、as a step-down structure depending on the number of KPIs met.If only one KPI is met there is no change,meeting two achieves a 20bps step-down,and meeting all three leads to a 40bps step-down.20 The BRDs initiative Is commendable and emphasises the role of national development banks in advancing the

109、sustainability agenda,including by supporting local financial institutions.21 A recent OECD report about SLBs highlights a number of obstacles and recommendations to grow issuance from developing countries,including from the public sector.Its findings can and should be used along with this paper.In

110、a related move,Germanys Federal Ministry for Economic Affairs and Climate Action(BMWK)approved EUR20m(USD22m)for the IDB in February 2024 to establish a Facility for Greening Public Development Banks and the Financial Sector in Latin America and the Caribbean.22 Its purpose is to help public develop

111、ment banks evaluate their portfolios,integrate climate and socioenvironmental risks into decision-making processes,and align with the Paris Agreement by increasing green lending and facilitating access to sustainable capital markets.Rwanda and potential for other development banksAssessing Sovereign

112、 Climate-Related Risks(ASCOR)ASCOR is a publicly available,independent,and open-source investor framework and database assessing the climate action and alignment of sovereign bond issuers,given the lack of a universally accepted way to assess sovereign debt from a climate change perspective.12 It tr

113、ies to answer similar questions as the assessment of corporate transition plans in section 6.Sovereign issuers can benefit from ASCOR to position themselves as climate leaders and access a broader pool of investors.Key insights from the December 2023 ASCOR report include:131.A growing emission gap d

114、ue to a lack of ambition in countries targets.Nearly all countries assessed have set an emission reduction target,but very few align with a pathway that limits global temperature rise to 1.5C.2.An implementation gap with insufficient policies to meet emission reduction targets.Frequently weak or non

115、-existent commitments to phase out fossil fuels(both subsidies and production)jeopardise a net-zero future.3.An international climate finance gap.Although the USD100bn commitment may finally be met in 2023,most high-income countries assessed need to increase their share of contributions towards inte

116、rnational climate finance.14 Better disclosure of developing countries climate finance needs could help facilitate financial flows.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 10different observation dates.As well as more comprehensively reflecting an issuers m

117、ultiple targets and time horizons in a single instrument,including shorter-and longer-term targets may help to attract investors with different time preferences,and to lower financial risk by spacing out targets.Issuers can also set multiple targets with the same observation date to reflect differen

118、t levels of ambition(see page 14).Recommendations:Climate Bonds encourages issuers to use multiple KPIs covering different material impacts and sustainability dimensions,as this shows a more holistic approach and can increase credibility.24 Using complementary/orthogonal KPIs rather than duplicates

119、related to the same impact(e.g.,renewable energy and GHG emissions)is typically better as it can lead to greater impact and better pricing.With GHG emissions material to almost all entities,at least one KPI should be related to climate mitigation and indeed the analysis on pages 11-12 shows KPIs rel

120、ated to climate mitigation dominate the market.KPIs should reflect material themes of sectorsThe materiality of different sustainability themes varies considerably between sectors(as well as other factors,e.g.,geography).ICMA provides a useful matrix mapping the materiality of sustainability themes

121、in different sectors based on the following reporting standards/methodologies:SASB,TCFD,MSCI,GRI,ICMA.25 The themes are grouped by the three environmental,social,or governance(ESG)pillars and classified as either most material or simply material to each sector(see next page).In the SLB market a wide

122、 range of KPIs is used(including varying terminology for a given KPI).ICMAs Illustrative KPI Registry provides a long list across sectors that issuers and other market participants should refer to.26 KPIs from frameworks and official terms often do not match the KPI Registry but this may improve ove

123、r time.Issuers are encouraged to match their terminology where possible to support standardisation.The KPIs recorded in Climate Bonds SLBDB were mapped against the sustainability themes in ICMAs sector materiality matrix(explained in more detail in the appendix),with the same done for sectors as the

124、 categories differed.Both steps were performed on a best-efforts basis.The shares of each KPI theme are shown by sector in the two charts below:the first based on the simple frequency(reflecting how many times each KPI theme was observed),the second based on a weighted frequency(weighted by the resp

125、ective SLBs size).The themes are grouped into the three ESG pillars via the shaded legend.4.Structural featuresLarger bonds/issuers slightly more likely to use multiple KPIsOneTwo25%50%75%100%80898FourSLBs rely on KPIs with associated baselines and targets,in addition to financ

126、ial mechanisms that are triggered depending on whether the targets are met.These core structural features define SLBs as instruments,but their specificities and calibration vary considerably between issuers,and sometimes between bonds of the same issuer.This information is typically contained in SLB

127、 frameworks,with specifics for each bond in official terms.Approximately 10%of SLBs lack(public)disclosure around some or all the structural elements(KPIs,targets,baselines,and financial mechanisms),especially among smaller deals.Much of the subsequent analysis therefore includes an undisclosed resu

128、lt.KPI selectionMost SLBs have one KPI;maximum fourSLBs have used between one and four KPIs,one being the most common with 59%of bonds and 54%of the amount(excluding undisclosed).According to research from Environmental Finance,the range is much greater in the SLL market,with a maximum of 17 KPIs ob

129、served(Carrefour)however,very few SLLs use more than four.23 In 15%of SLBs,the same KPI(almost always GHG emissions)had multiple targets with Total KPI frequency:product governance(driven by ESG ratings)is most used after climate*KPI/sustainability themeFrequency(number of times used)Weighted(USDbn)

130、KPI/sustainability themeFrequency(number of times used)Weighted(USDbn)Climate change771319.5Diversity,equity,and inclusion5927.2Air qualityNot usedJust transitionNot usedWater3911.7Working conditions40.9Waste3715.0Value chain225.5Circular economy4116.9Business ethics20.1Biodiversity135.0Data protect

131、ion&securityNot usedAccess&affordability3416.0Consumers61.0Community&human rights10.2Product governance9025.0Occupational health&safety40.4Undisclosed6613.7NB:Amount in Weighted column exceeds real total amount issued due to many bonds with multiple KPIs.*ESG ratings/scores are fairly common KPIs an

132、d were classified as product governance since this was the best fit among ICMAs sustainability themes(see appendix for more detail).ThreeAmount(USDbn)Number of bondsNumber of issuersSustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 11Climate mitigation KPIs achieve

133、over 50%share in almost all sectorsKPIs related to climate mitigation are by far the most common and achieved over 50%share in almost every sector.These are typically expressed explicitly in terms of GHG emissions but sometimes refer to other metrics,such as energy consumption,renewable energy capac

134、ity,and EV use.KPIs related to climate adaptation are very rare.The only sector where climate KPIs do not dominate is healthcare,which delivers a basic social good and is the only sector where climate change is not considered a most material theme.Climate KPIs also do not rank first in the automotiv

135、e sector looking at the weighted frequency,but this is due to the very small sample of two issuers:Traton SE,which used a KPI linked to its ESG score,is a considerably larger issuer than Hyundai despite issuing only one bond versus the latters five.The difference between simple and weighted frequenc

136、ies is most apparent in smaller sectors(namely automotive)due to greater variance,with smaller differences in larger sectors.All else equal,a greater difference is also more likely in sectors with large bonds/issuers,as these can distort the results.25%50%75%100%0Climate mitigation KPIs dominate in

137、nearly every sectorNB:n=number of issuers.Sector classification based on ICMA SLB KPI Registry(different from previous and subsequent sections).Utilities Electricity(n=37)Automotive(n=2)Energy(n=24)Healthcare(n=13)Real Estate(including REITs)(n=29)Aviation(n=17)Finance&Finance Companies(n=31)Industr

138、ials&Manufacturing(n=73)Technology(n=21)Utilities Water/Waste(n=12)Construction(n=59)Food&Agri(n=32)Maritime(n=8)Telecom(n=19)Consumer Goods(n=58)Government(n=18)Metals&Mining(n=15)Transportation(n=8)Climate changeCircular economyOccupational health&safetyValue chainProduct governanceAir qualityBiod

139、iversityDiversity,equity,and inclusionBusiness ethicsUndisclosedAccess&affordabilityJust transitionData protection&securityWater WasteCommunity&human rightsWorking conditionsConsumersMateriality matrix:climate change is among the most material themes in all sectors except healthcareClimate change(GH

140、G emissions and energy)Air qualityWater(incl.ocean)WasteRaw material sourcing and recycling(circular economy)Biodiversity(incl.soil/land use)Access&affordability(incl.access to medicine)Community&human rightsOccupational health and safetyDiversity,equity,and inclusionJust transitionWorking condition

141、s(employee engagement,labor practices and labor rights)Value chainBusiness ethicsData protection&security(incl.cybersecurity)Consumers(incl.relation and welfare,responsible marketing and product labelling)Product governance(safety&quality)MaterialMost materialTechnologyRetailReal Estate(including RE

142、ITs)Metals&MiningMaritimeInsuranceIndustrials&ManufacturingHealthcareFood&AgriFinance&Finance CompaniesEnergyConsumer goodsConstructionBanking/Brokerage(Financial institutions)AviationAutomotiveUtilities Water/WasteUtilities ElectricityTransportationTelecomEnvironmentSocialGovernanceICMA,Illustrativ

143、e KPIs Registry.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 12KPI selection broadly reflect sector materiality matrix,but far from perfectlySectorSummary of KPI materiality assessmentOverallWeighted frequency yields mostly similar resultsClimate changeCircular

144、 economyOccupational health&safetyValue chainProduct governanceAir qualityBiodiversityDiversity,equity,and inclusionBusiness ethicsUndisclosedAccess&affordabilityJust transitionData protection&securityWater WasteCommunity&human rightsWorking conditionsConsumers25%50%75%100%0NB:n=number of issuers.Se

145、ctor classification based on ICMA SLB KPI Registry(different to other sections).Weighted by amount issuedFinally,the materiality matrix was compared against SLB KPIs to determine whether these reflected the material themes in their respective sectors.While this is highly recommended(including in the

146、 SLBP),it is possible that issuers are addressing material themes without using them in SLB KPIs.The results vary by sector and are summarised in the table below,focusing on environmental themes which represent the bulk of materiality and KPI use.Automotive(n=2)Telecom(n=19)Aviation(n=17)Constructio

147、n(n=59)Consumer Goods(n=58)Energy(n=24)Finance&Finance Companies(n=31)Food&Agri(n=32)Government(n=18)Healthcare(n=13)Industrials&Manufacturing(n=73)Maritime(n=8)Metals&Mining(n=15)Real Estate(including REITs)(n=29)Technology(n=21)Transportation(n=8)Utilities Electricity(n=37)Utilities Water/Waste(n=

148、12)Many sectors have little or no use of material KPIs,and several have little or no use of at least one highly material KPI.This suggests more work is needed(e.g.,through active monitoring,guidelines and possibly regulation)to ensure the right KPIs are being selected and to an appropriate degree.Cl

149、imate mitigation KPIs dominate heavily reflecting a high degree of materiality in almost every sector;they are even used disproportionately more than their materiality calls for.However,this only considers the theme of KPIs GHG KPIs often do not cover all material GHG scopes,are not always ambitious

150、 enough(i.e.,not in line with science-based pathways),and occasionally use economic intensity.27 KPIs related to climate adaptation are very rare.KPIs related to climate adaptation are very rare.Excluding climate-related KPIs,environmental KPIs are not more common than social and governance ones.Thi

151、s is despite them being highly material more frequently and often easier to assess quantitatively than social impacts.KPIs related to biodiversity are rarely observed overall.They have only been used substantially in the government sector due to the Uruguay sovereign bond and a few other public sect

152、or issuers.Biodiversity KPIs lack even in sectors with highly material biodiversity impacts and high dependencies on nature(such as food&agriculture).Among social themes,KPIs linked to diversity,equity and inclusion(DEI)are the most common with almost twice the frequency as the second(access&afforda

153、bility A&A).DEI is material in all sectors but highly material in none,whereas A&A is most material in about half the sectors and material in a few.Product governance KPIs were used significantly.They are the most common KPI theme after climate,in large part due to including ESG ratings/scores(see a

154、ppendix).28 Three themes were not observed at all:air quality(non-GHG),just transition,and data protection&security.The fact that any themes at all lack representation across hundreds of issuers and SLBs is somewhat surprising.Among the three,just transition is the only one not classified as most ma

155、terial in any sector,but it is material in most.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 13SectorSummary of KPI materiality assessmentAutomotive (n=2)Only two issuers.Only climate and product governance KPIs used,both of which are highly material the latter

156、 refers to ESG score(product governance was the closest match among themes).Air quality(highly material)and several other material themes(mostly social)not observed.Aviation (n=17)KPIs used only cover climate change and product governance,which are most material themes.Several other KPIs are materia

157、l but not observed.Construction(n=59)One of the largest sectors and one of the most diverse in terms of KPI use.Most material KPIs are used but heavily weighted towards those related to climate change.Biodiversity is the only highly material KPI category not used.Very similar results between simple

158、and weighted frequency.Consumer Goods(n=58)Various KPIs used,broadly in line with materiality matrix(especially in environmental group)but all much less frequent than climate-related.Highest number of KPIs undisclosed.Energy (n=24)Climate top and the only highly material theme with KPI use.Air quali

159、ty is most material but not observed,while circular economy is not material but used several times.Within the social dimension,diversity,equity and inclusion(material)is by far the most common theme,while occupational health&safety(most material)does not appear.Finance&Finance Companies(n=31)Climate

160、 is the only most material theme and climate KPIs are most used,followed by diversity,equity and inclusion which is the clear runner-up theme.Other environmental KPIs are not used.Considering financed emissions(scope 3),several other KPIs in materiality matrix should be material,e.g.,just transition

161、(suggest ICMA revisits).Food&Agri(n=32)Sector with most highly material sustainability themes.This is reflected to some extent in KPI selection but not with the necessary range nor scale.Climate KPIs dominate followed by waste and product governance,otherwise very limited or no use in all categories

162、.Biodiversity worryingly low.Government(n=18)Materiality comparison not possible as the public sector does not feature among ICMA sectors.Most issuers are sub-national public entities but 75%of amount and all large bonds are from sovereigns(mainly Chile).KPIs concentrated in climate theme,followed b

163、y diversity,equity and inclusion,and biodiversity.Government is the only sector with a significant share of KPIs relating to biodiversity(Uruguay linked to forest area cover,Arizona Industrial Development Authority linked to forest restoration,and a few other issuers).The public sector often manages

164、 vast amounts of land and policies can be a main determinant of biodiversity preservation,but this should still be an objective for corporates and a much broader range of sectors.The TNFD may help to increase related corporate issuance,supported by coherent policy.SectorSummary of KPI materiality as

165、sessmentHealthcare(n=13)Only sector where climate KPIs are not top,which matches materiality matrix only in healthcare is climate change not considered highly material.Access&affordability ranks first,with climate second looking at simple frequency and third by weighted frequency,behind product gove

166、rnance.Access&affordability is the only most material theme but the distribution of KPIs(among those used)is the most even of any sector,i.e.,climate dominates disproportionately in other sectors.Highest share of KPIs undisclosed(14%simple,10%weighted).Industrials&Manufacturing(n=73)Highest number o

167、f issuers in one sector.Generally the widest and most balanced distribution of KPIs,broadly in line with materiality profile but still heavily concentrated in climate.Product governance,water,waste,and circular economy appear with moderate frequency.Maritime(n=8)Only climate KPIs used(plus one KPI u

168、ndisclosed)despite biodiversity highly material and others,such as air quality,material.Only eight issuers.Metals&Mining(n=15)Another sector with many material themes,including almost all environmental themes considered highly material.Metals&mining issuers clearly favour environmental KPIs,with alm

169、ost all climate-related and circular economy second.Otherwise,water is used as well as some social and governance KPIs,but never more than once.Real Estate(including REITs)(n=29)KPIs used span several categories but climate top by far,broadly in line with materiality matrix where only climate is con

170、sidered highly material.Technology(n=21)Social and governance themes more highly material than environmental.Mismatch in SLB market as KPIs highly concentrated around climate,followed by product governance.Social KPIs particularly under-represented.Telecom(n=19)Telecoms similar to technology in that

171、 multiple themes apart from climate are most material(circular economy,access&affordability,data protection&security)but barely represented in SLB issuance to date.Transportation(n=8)Almost all KPIs climate-related,but few issuers.More diversity clearly needed given many other themes are material,wi

172、th three highly material(air quality,access&affordability,product governance).Utilities Electricity(n=37)Electric utilities also highly concentrated around GHG emissions.Understandable but various other themes are material,including access&affordability which is highly material(waste too although on

173、ly refers to nuclear energy,which has not seen SLB issuance).Utilities Water/Waste(n=12)Water/waste utilities have more material themes than electric utilities.This is reflected to some extent in KPI use despite only counting one third of issuers(12 versus 37),with water and waste KPIs featuring sev

174、eral times.Interestingly,KPIs related to diversity,equity and inclusion also appear several times,which was not observed for electric utilities even though being equally material.NB:n=number of issuers.KPI selection broadly reflect sector materiality matrix,but far from perfectlySustainability-Linke

175、d Bonds:Building a High-Quality Market:Climate Bonds Initiative 1425bps is the average and most common step-upStep-up(per target),basis points*Average24.8Weighted average(by bond size)25.9Minimum1.5Maximum150.0Mode25.0Standard deviation19.1The step-up amounts may differ for each KPI/target.Step-ups

176、for later targets should generally not be lower than earlier ones as the time between trigger and maturity is shorter.Step-up sizes concentrated around 25bpsThe average step-up per target stands at 24.8 basis points(bps).The average weighted by amount issued is 25.9bps,meaning that larger issuers ar

177、e slightly more likely to suffer higher step-ups.The mode is 25bps looking at both amount issued and bond count the 25bps step-up is seen very often(Enel has used it in all its SLBs)and is essentially the same as the average.While these figures have remained similar in the last few years,the range i

178、s considerably wider in years with greater issuance,with the minimum and maximum step-ups both coming in 2021.The minimum is a virtually meaningless 1.5bps(Teva Pharmaceutical Industries),while the maximum of 150bps(Holcim)is 50bps greater than the second highest Holcim is an outlier,with few issuer

179、s having used step-ups above 50bps for one target.Holcim displays several best practice features and ranks first in the analysis of transition plan disclosure(section 6).Holcim set the highest step-up for a single target,yet counting multiple KPIs/targets several other issuers used financial mechani

180、sms of 100bps or more,including the Republic of Chile.Along with Holcim,Wallenius and Klaveness(both shipping companies)have a 150bps mechanism for the*Figures refer to the step-up per target.Some bonds with multiple KPIs/targets carry a total step-up higher than the table shows.overall bond,but in

181、both cases it is a redemption premium which cannot be compared like-for-like(see next page).Although the sample size is much smaller,the magnitude of step-downs tends to be smaller than step-ups,with an average of 12bps.This also typically applies when a bond combines step-ups and step-downs.Step-up

182、s followed by redemption premiums are most used Financial mechanismsAmount(USDbn)BondsIssuersNot disclosed24.210982Conservation success payment0.211Mandatory early redemption1.075Redemption discount0.111Redemption premium19.08261Redemption premium(charity)5.83419Redemption premium(emission permits)0

183、.344Redemption premium (green electricity certificate/carbon credit)0.644Redemption premium (green electricity certificate/carbon offset)1.7184Redemption premium(green investments)0.111Redemption premium(offset purchase)1.365Step-down0.796Step-up214.5447266Step-up(offset purchase)0.421Step-up and/or

184、 step-down9.44333Grand Total279.3768469Financial mechanisms and structuresStep-ups dominate current marketCoupon step-ups are the financial mechanism that dominates the current SLB market,featuring in 58%of SLBs representing 77%of the amount issued.Step-ups provide a reward for bondholders in the fo

185、rm of a higher coupon if the issuer misses its targets.As a result,SLBs with step-ups can therefore be expected to achieve a premium at issuance(i.e.,lower coupon)versus vanilla bonds,as reported by Anthropocene Fixed Income Institute(AFII).30 The size of the premium depends on the amount and durati

186、on of the step-up,and crucially the likelihood of the issuer missing the target(s).31Step-downs are much rarer.They are often problematic for bondholders due to a coupon drop if the targets are met(while for step-ups the coupon either stays constant or increases).32 Only nine bonds from six issuers

187、have pure step-downs,although many more have a hybrid step-up and step-down structure that combines multiple targets to reflect different levels of ambition.While other mechanisms exist,they are rare except for redemption premiums(where the issuer pays a premium if it chooses to redeem the bond earl

188、y,or at maturity).These can take several forms and have shown some growth in the last two years.Due to lack of disclosure,financial mechanisms could not be determined for 14%of bonds representing 9%of the amount issued.What if there are multiple KPIs/targets?In case of multiple KPIs,either a)individ

189、ual financial mechanisms exist and can be triggered for each KPI,or b)an overall mechanism exists.In the latter case,the mechanism can be triggered if either all KPIs or just one are missed(or met,if a step-down is used).While it is up to the issuer to define this,individual mechanisms should be use

190、d if target observation dates differ(or at least if they are substantially apart),since trigger events are recommended to happen soon after target dates.In case of multiple targets for a given KPI,these either reflect different levels of ambition or different time horizons.The first case typically e

191、mploys a hybrid step-up/step-down structure(as mentioned above),while the latter uses individual mechanisms for each target.If the mechanism is a step-up,no trigger occurs if the first target is met(e.g.,2025),but one may occur later if the second target is missed(e.g.,2030).Conversely,if the first

192、target is missed,a trigger occurs but may cease later if the second target is met.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 15Other factors matterAlthough the size of step-ups and step-downs has a bearing,the term they apply for(specifically the number of co

193、upons)is equally important.Redemption premiums circumvent this issue by expressing the penalty as a share of the amount issued,i.e.,independently of the period between trigger and maturity dates;but they only apply once,whereas step-ups/step-downs generally affect several coupon payments.To assess t

194、he materiality of financial penalties or rewards for a given bond/issuer,the size of the coupon also matters for example,a 25bps step-up appears less meaningful if the coupon is 8%versus 3%.Another aspect is the issuers credit rating,as weaker ratings may impede issuers from setting high step-ups in

195、 order to continue being able to service their debt.USD10m average potential step-up penaltyThe total value of financial penalties at stake was only estimated for step-ups given they represent a large share of the market and the figures are directly comparable.Bonds with both step-up and step-down f

196、eatures were not included.Total potential penalties of USD4.2bn were estimated among 425 bonds.This equates to roughly USD10m per bond,although the range is very wide due to differences in deal size and number of coupons post-trigger.Most SLBs have a potential penalty considerably lower than USD10m,

197、while larger bonds may have to pay much more.Step-up penalties for 24 bonds could not be calculated due to different reasons.Several of these were perpetual bonds where the number of affected coupons was unclear.Others lacked enough data to enable a calculation,e.g.,undisclosed step-up amount or tri

198、gger date.Since these figures exclude many bonds with insufficient disclosure and/or financial mechanisms other than step-ups,the real value of potential penalties across the market is higher,likely in the USD68bn range.Legal clauses can affect credibilityOfficial bond terms include legal clauses wh

199、ich can threaten the credibility of deals.Two stand out in particular:1.Clauses allowing issuers not to pay penalties if they have missed their targets as a result of a change in laws,regulations,rules,and policies applicable to them.2.Clauses enabling issuers to exclude post-issuance acquisitions a

200、nd certain investments from the calculation of performance at the target date.Such clauses should be monitored and potentially regulated to ensure SLB issuers act in good faith.Callable SLB structures have been under criticism for some time.The potential issue is that call dates that precede target

201、and/or trigger dates give issuers the option to call the bond if they predict/know the target(s)will not be met,thus avoiding or reducing financial penalties(although they would still have to pay a call/redemption premium).The SLBP lack guidance on this aspect.In the ELFA/ICMA recommendations for hi

202、gh-yield SLBs,it is recommended that issuers set the target and trigger dates before the call date.CBS v4.0 is stricter,requiring call dates to be set after the SLBs first target date.Recommendation:Set the call date after at least the first target date.If the call date occurs before the target date

203、,the call price should reflect an assumption that the target has not been met.33While callable structures can certainly pose a danger,research by AFII has found little evidence to support this,with only minor excess callability among SLBs.AFIIs research found a)no material difference in the proporti

204、on of SLBs that are callable versus comparable vanilla bonds,b)similar first call option dates between SLBs and comparable vanilla bonds,and c)a relatively low value of call options among SLBs given increasing interest rates since most SLBs were issued.34Climate Bonds data confirms that a strong maj

205、ority of SLBs have call options,about 20%of which have call option dates before target observation dates.Within these,a wide range of 14 days to almost five years exists(of the call option preceding target date).The conclusion is that while callability may not be a big issue currently,it could becom

206、e more problematic in the future,especially if interest rates fall as has happened recently.The proportion of call options among SLBs,and especially the extent to which they are exercised,should be monitored.Finally,although the focus has been on call dates preceding target and trigger dates,this is

207、 not the only potential issue.Issuers can still save on penalties when call dates happen after target and trigger dates,as long as there are coupon payments after the call date.The potential savings for issuers and risk of misuse are simply lower all else equal,the later the call date,the weaker the

208、 incentive to misuse.The use of call options should therefore also be monitored among this group.Alignment with SLBDB MethodologyClimate Bonds formally launched the SLBDB in January 2024.Its primary objective is to act as a tool that helps users,particularly investors,to identify deals with targets

209、that are credible and aligned with the well below 2C goal of the Paris Agreement,as well as to highlight best practice and guide issuers.It incorporates some aspects of CBS V4.0,including the Climate Bonds sector criteria where available.Three categories of aligned bonds The SLBDB screens deals unde

210、r a methodology that classifies SLBs as aligned or not aligned based on multiple requirements.Three categories for aligned bonds exist,the difference lying in the degree of alignment of targets with the relevant decarbonisation pathway:Fully aligned:targets are aligned with the sector-specific pathw

211、ay(emissions below required threshold).Strongly aligned:targets are not currently aligned but will be by 2030.Aligning:targets do not meet absolute/intensity threshold but are aligned on a percentage reduction basis.A lack of feasibility to meet science-based emission thresholds in the near term sho

212、uld not deter issuers from setting targets,nor from issuing SLBs.While the optimal outcome is for SLBs to be fully aligned,the latter two categories can support issuers that find it unfeasible to meet the threshold currently but still have relatively ambitious targets.Call options not currently a bi

213、g issue,but should be monitored Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 16Climate Bonds SLB Database Methodology overview NOYESYESYESYESDoes the SLB use GHG emission reduction targets?SLBDo the targets exclude offsets and are not measured in economic inten

214、sity?Do the GHG targets cover the sector specific emission sources?Are the targets aligned with the sector-specific pathway?Fully-aligned SLBStrongly-aligned SLBAligning SLBSLB not alignedNONONONo,but will be aligned by 2030No,but is aligned on a%reduction basis,and has all the key elements of trans

215、tion plansNo,and lacking transition plansThe table opposite summarises the results of the alignment assessment.A large proportion of the market does not meet the SLBDB alignment requirements:of the 14%of SLBs and 17%of the amount that do,the vast majority are fully aligned.A relatively low share of

216、alignment is expected as the market is still nascent,but this should increase over time.Bonds that lack GHG KPIs/targets are considered not aligned because the SLBDB Methodology is based on climate mitigation.Climate Bonds recommends issuers to use at least one GHG-related KPI across their SLBs,but

217、not necessarily in each bond.Several reasons for non-alignment exist.However,due to the funnel approach depicted above,SLBs that do not satisfy a given requirement are classified as not aligned and not considered for the next requirement.The non-aligned figures therefore represent the bonds that fai

218、led to meet the requirements under this funnel approach,rather than those that actually exhibit each feature.This only significantly affects the not in line with pathway reason(including partially not in line).37The tree diagram opposite summarises the process,with a full explanation provided in the

219、 SLBDB Methodology.35 A few best practice case studies for SLBs from different sectors are additionally included on Climate Bonds website.36 The assessment is currently only based on climate mitigation credentials,with other environmental and potentially social dimensions expected to be added in the

220、 future.Climate mitigation KPIs are only considered if expressed in terms of GHG emissions(not other forms such as energy use,renewable energy generation and capacity,and EV shares,which may also be integrated in the future).For clarity,this report is based on all SLB issuance,i.e.,aligned and not a

221、ligned with the SLBDB.Both are included in the database.Partial GHG scope coverage is the top reason for non-alignment (by amount issued)AlignmentCategory/ReasonAmount(USDbn)BondsIssuersAlignedFully aligned40.98758Aligning4.7124Strongly aligned1.664Total aligned47.210564Not alignedLack of GHG target

222、s73.3320206Partial GHG scope coverage in targets110.5200114Lack of target disclosure20.98458Not in line with pathway11.92419Use of economic intensity target9.52013Partially not in line with pathway6.11513Total not aligned232.2663411NB:Alignment is determined for each SLB.Non-aligned figures represen

223、t bonds that failed to meet each requirement under the funnel methodology approach,which particularly affects not in line with pathway figures.41Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 17Reasons for non-alignmentMaterial scope 3 emissions often not covered

224、Lack of GHG targets is the top reason for non-alignment by bond and issuer count,while partial emission coverage is the leading reason by amount.38SLBs lacking GHG KPIs/targets are thus smaller than those with partial coverage of material GHG scopes(2.4x smaller bond size,2.7x smaller issuer size).T

225、his is mainly due to almost all of Enels bonds falling in the latter group,although it also applies to several other large issuers.In fact,seven of the top ten issuers have all or most of their SLBs linked to KPIs/targets that do not include scope 3 emissions,even though these represent the largest

226、source of GHG emissions in their sectors.The analysis suggests partial coverage of GHG scopes in targets is the leading source of greenwashing in the SLB market,although this may not be intentional.39 The difficulty of estimating scope 3 emissions(versus scopes 1 and 2)is a familiar challenge for ma

227、ny organisations and is likely to deter some issuers from including scope 3 in their targets.This should become easier with advances in technology;improved data collection processes and traceability systems;and the increasing availability,quality,and accessibility of reporting,especially since one c

228、ompanys scope 3 emissions are often another companys scope 1.All entities with material scope 3 GHG emissions should set targets accordingly,even if these are only for the medium-to long-term.In the short-term,KPIs related to scope 3 not expressed in terms of GHG(e.g.,share of value chain with susta

229、inability performance assessed,share of renewable energy use in supply chain,etc.)can be useful.35%of volume aligned with SLBDB Methodology in 2023(up to Nov.)USD Billions2012060Fully alignedStrongly alignedAligning8040200222023(Jan-Nov)20181000Not alignedAmbition of targets variesSetting

230、 targets that are not in line with relevant pathways is third on the list of non-alignment reasons and,due to the funnel approach,more common than the table above suggests.Issuers should be setting sufficiently ambitious targets that meet Paris-aligned decarbonisation pathways(or at least meeting th

231、e same percentage reduction,i.e.,considered aligning).Although much less common,the use of economic intensity is fourth on the list of non-alignment reasons.Framing KPIs/targets in terms of economic intensity detracts from the science,and can potentially be manipulated by issuers(e.g.,changing price

232、s).The ranking of non-alignment reasons has remained similar since 2020,except for lack of GHG targets whose share dropped markedly in 2023.40 Alignment is improvingDespite the low level of alignment with the SLBDB Methodology,the proportion is growing.This is driven by more issuers using GHG target

233、s,in addition to repeat issuance being more common among issuers that already had aligned SLBs(especially relevant for amount issued).Some repeat issuers are also becoming more aligned,e.g.,Enels only aligned SLB was one of the two it issued in 2023.Another factor is the 202223 sovereign issuance fr

234、om Chile(USD9.2bn)being aligned.More recent SLBs may also be making increased use of sector-specific guidance,including from Climate Bonds.In the agriculture&food sector,which has benefited from increased attention and guidance in the last few years,between 202123:1.The aligned volume grew from zero

235、 to USD3.8bn(all fully aligned).2.The non-aligned volume with partial GHG scope coverage fell from USD7.3bn to zero.3.The non-aligned volume lacking GHG targets dropped from USD2.5bn to USD671m.While this is remarkable,it only refers to GHG KPIs.For example,KPIs related to biodiversity are very rare

236、 across the market,including in the agriculture&food sector where they are highly material.Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 185.KPI performance assessmentThis section provides an assessment of performance against targets to determine whether the iss

237、uer is on or off track to meet them(although this is of course no guarantee of the performance at the observation date).This exercise can help both issuers and investors assess the likelihood that the targets will be met and whether financial penalties will kick in and by extension whether more or d

238、ifferent action is needed from the issuer to meet them.At overall market level,it can provide a rough assessment of the feasibility of targets from the perspective of issuers(i.e.,are issuers setting achievable targets?).However,the assessment says nothing of the ambition of targets(see below).The a

239、ssessment in this section and the following one is based on analysis of post-issuance reports(annual,sustainability,climate,transition,SLB,etc.).The analysis in both sections covers the top 50 issuers up to the end of 2022.These represent 53%of the amount issued and 28%of bonds up to the end of 2022

240、,and 41%of the amount and 20%of bonds of the total market up to the end of November 2023.Almost all top 50 issuers are corporates,along with a few government-backed entities.The two sovereign issuers(Chile and Uruguay)would have made the list but were excluded as Climate Bonds does not yet have a fr

241、amework to assess country-level transition plans.A summary of their deals and country-level assessments under the ASCOR framework is included on page 8.MethodologyFour outcomes were defined assuming a linear improvement path:1.SPT met:the target is currently met(this does not guarantee it will be me

242、t at the observation date).2.On track:the target is on track to be met,i.e.,the CAGR of the latest performance versus the baseline equals or exceeds the CAGR between the baseline and the target(e.g.,7%annual GHG emission reduction achieved while meeting the target requires 5%).3.Off track:the target

243、 is not on track to be met,i.e.,the CAGR of the latest performance versus the baseline is lower than the CAGR between the baseline and the target(e.g.,3%annual GHG emission reduction achieved while meeting the target requires 5%).4.N/A:assessment not possible due to lack of baseline and/or target an

244、d/or performance one way or another,this effectively means poor SLB disclosure.The assessment was conducted for each combination of KPI,baseline and target,since Visualising KPI performance(example)KPI performance (e.g.,GHG emissions,tCO2e)Baseline year (2018)SLB issued (2020)Latest performance(2022

245、)Target/SPT observation date(2025)TimeBaselineTarget/SPTOff trackOn trackSPT metissuers can use the same KPI with different target dates(either within the same SLB or across multiple SLBs)and the outcomes can therefore differ.42LimitationsThis is a crude assessment.To simplify the analysis,only the

246、latest performance(usually 2022 data)was assessed a)against the target,b)in a linear fashion.Targets often lack ambition,while a linear assumption may not represent the real nor planned decarbonisation path.For instance,improvements in performance often depend on infrastructure investments which del

247、iver irregular emission reductions.The assessment is only based on quantitative data,and would ideally account for qualitative reasons for performance changes.43 Exogenous factors also affect performance,which raises the issue of attribution:some issuers may be on track to meet their targets support

248、ed by such factors,while others may be trying harder but hampered by exogenous events and failing to perform in line with their targets.On track does not mean better than off trackBeing on track(or having already met the target)is not necessarily better than being off track.The reality is that:a.The

249、 targets set by issuers vary greatly in terms of alignment with the science.b.The baselines and starting points at the time of SLB issuance also vary widely between issuers.Some issuers therefore have targets that are much more easily achieved than those of others,sometimes being only a slight impro

250、vement versus the baseline or even already being met when the SLB is issued.If they are not aligned with the science(Paris Agreement or well below 2C),they represent clear examples of greenwashing.This paper refers to KPI performance only against the targets set by issuers.Theres seems to be a moder

251、ate inverse relationship between setting science-based targets and being on track to meet them.Page 20 assesses KPI performance against alignment with Climate Bonds SLBDB Methodology,a core part of which is the level of ambition of climate targets.The SLBP recommend the following post-issuance SLB d

252、isclosure:48Regular&easily accessible disclosure,annually,and in any case for any date/period relevant for assessing SPT performance leading to a potential adjustment of SLB financial and/or structural characteristic(s)of the bond:Up-to-date information on the performance of the selected KPI(s),incl

253、uding baselines where relevant.Any information enabling investors to monitor the level of ambition of the SPTs(e.g.any update in the issuers sustainability strategy or on the related KPI/ESG governance,or in the national strategy and sustainable development policies and more generally any informatio

254、n relevant to the analysis of the KPIs and SPTs).When feasible and possible:Qualitative or quantitative explanation of the contribution of the main factors,including M&A activities,behind the evolution of the performance/KPI on an annual basis.Illustration of the positive sustainability impacts of t

255、he performance improvement.Any re-assessments of KPIs and/or restatement of the SPT and/or pro-forma adjustments of baselines or KPI scope.SLBP SLBPSLBPSLBP disclosure recommendationsSustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 19ResultsMarket performance is sp

256、litThe analysis shows a market with heterogeneous KPI performance relative to targets.This is consistent with assessments done by others(e.g.,Barclays and SEB),which despite covering smaller samples also pointed toward varying levels of performance across bonds and issuers.44,45This is neither surpr

257、ising nor a bad thing,at least in a relatively nascent market.While it is true that many targets lack ambition,many issuers are stepping out of their comfort zone and setting ambitious targets that they may not reach.Nevertheless,the ultimate objective is for issuers to reach their science-based tar

258、gets,and looking at amount issued and bond count the most common outcome is for all KPIs to be off track.Part of this appears to be due to adverse exogenous factors in the last few years which are beyond the control of individual entities e.g.Enel has all KPIs off track,attributing much of this to g

259、eopolitical reasons including the Ukraine war(pricing dynamics indicate investors also expect Enels targets to be missed).46 Several targets have already been met,most of them being observed after the analysis was conducted(see next page).Only a few outstanding SLBs had already passed their target o

260、bservation date,most being met.The mixed result refers to multiple performance outcomes for a given bond.The most common reason for N/A are undisclosed baselines,followed by undisclosed targets(more prevalent among non-GHG KPIs),and finally a lack of publicly available post-issuance reporting.The di

261、sclosure from State Grid Corporation of China sits behind a paywall,while Picard Groupe SAS(France)only makes it available to investors.Among SLBs with mixed performance,all possible combinations exist.The most common case is having one or more KPIs on track and one or more off track.One issuer(Teva

262、 Pharmaceutical Industries)has a target already met as well as KPIs on and off track:scope 1 and 2 GHG emissions target met,number of regulatory submissions on High share of amount and bonds with all KPIs off track10304020All on trackAll off trackMixedN/AAll SPTs met500NB:Mixed refers to bonds with

263、multiple KPIs/targets and multiple performance results(e.g.,some off track,some on track).Disaggregated issuer count figures are higher than the real total(50)as bonds from the same issuer can have different results.track,medicine product output for middle/lower income countries off track.While mixe

264、d results are usually due to different KPIs used within the same SLB,some SLBs use the same KPI with multiple targets and achieve mixed results.For example,Vestas Wind Systems issued two bonds using a material efficiency KPI(non-recycled waste from per MW of wind turbines produced and shipped)with 2

265、025 and 2030 targets:it is on track to meet the 2025 target but not the 2030 one.The mixed category is shown combined throughout this section as it is relatively small and not feasible to disaggregate all its combinations in charts.Almost all issuers report publicly,but quality variesOf the 50 issue

266、rs sampled,48 publicly report KPI performance(post-issuance),but the quality of reporting varies widely.A similar conclusion was reached in Climate Bonds last assessment of reporting in the green bond market.Reporting platforms,such as the IDBs Green Bond Transparency Platform(GBTP),can improve,stan

267、dardise,and facilitate disclosure while providing centralised access to data users.Three aspects linked to poor reporting are explored next:reasons for changes in performance,restatements of data(especially GHG emissions),and inconsistencies in issuer disclosure.Explaining the evolution of performan

268、ceMost issuers provide reasons for changes in performance,but with varying detail and often lacking magnitudes.A few do not provide this at all.Providing reasons for the evolution of performance is important.For example,it is one thing to state GHG emissions dropped 2%,another to explain the underly

269、ing reasons for the change and what measures the issuer has taken to decarbonise.The magnitude of each reason should be disclosed alongside(ideally quantitatively)to assess the issuers(real)transition.Some reasons do not lead to real emission reductions,e.g.,purchasing carbon offsets/credits,divestm

270、ents of high-carbon assets.In the case of GHG KPIs,this can be described as a backward-looking explanation of implementation plans,which is a transition plan element of CBS V4.0(see appendix 2).An explanation of expected(future)measures and what they will accomplish is equivalent to the forward-look

271、ing component.The granularity of disclosure from SLB issuers around reasons/measures ranges from very generic to detailed.It is relatively uncommon for issuers to provide quantitative data on the outcomes of measures undertaken(Orbia does this very well see page 25).Finally,exogenous factors beyond

272、issuers control affect performance,sometimes to a great extent.Some issuers have clauses to avoid penalties if certain exogenous factors materialise.Only a system that estimates or otherwise enables an assessment of performance attribution can fully solve this issue(see page 30),which is likely to b

273、ecome more important as the sustainability-linked model grows in use.Snam reports like-for-like(accounting for exogenous factors)versus actual figures.Restatements often not clearRestatements of data affect SLBs because KPI performance is assessed over time.Almost all cases refer to restatements of

274、GHG emissions,the top reasons being changes in GHG accounting methodology(which may occur to improve the accuracy of GHG estimates,among other reasons)and M&A activities(which alter the GHG inventory and emissions profile of the company).Some issuers have clauses excluding M&A and other investments

275、from the calculation of performance,but providing clear restatements is a more transparent way of addressing this.USD Billions/number bonds/number of issuersAmount issued(USDbn)Number of issuersNumber of bondsAll possible combinations exist in the mixed categoryAmount(USDbn)Number of bondsNumber of

276、issuersMet,On trackMet,Off trackMet,On track,Off trackOn track,Off track100%18%16%27%29%025%41%14%18%41%21%7%43%Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 20Restating data is standard practice but the disclosure around it should improve,especially among SLB i

277、ssuers due to the impact on outstanding deals.Data restatements almost invariably mean the baselines and targets in SLBs also need to be restated to maintain the same level of ambition.47 This applies regardless of whether targets are expressed in absolute,intensity,or percentage reduction terms.The

278、 guidance available on restatements in the context of SLBs is very limited.The SLBP only includes one line in the disclosure template on this:when feasible and possible,report any re-assessments of KPIs and/or restatement of the target and/or pro-forma adjustments of baselines or KPI scope.Climate B

279、onds suggests more prescriptive guidance.Entity-level reports should include the scope and extent of restatements,as well as when and why they happened.SLB documents should clarify the impact on outstanding bonds,e.g.,following a divestment,the baseline was adjusted downwards from 8 to 7 ktonnes CO2

280、e,the target from 4 to 3.3 ktonnes CO2e.When updating SLB frameworks,issuers should clarify which version applies to each outstanding SLB(or clarify that the new framework applies to all outstanding bonds).Overall recommendation:data restatements related to SLB KPIs should lead to updated targets an

281、d SLB frameworks that match entity-level disclosures and apply to all outstanding and new bonds.Targets should remain at least as ambitious as they were.This standard approach should be included in the SLBP and other guidance.Restatements were accounted for in the assessment of KPI performance when

282、the impacts on structural SLB features were clear,but they are often not.Several issuers fail to explain the impact on the targets of outstanding SLBs.A couple of issuers in the sample seem to have restated GHG emissions but do not state this in their entity-level reports,which represents particular

283、ly bad practice.Inconsistencies in issuer disclosure Targets in SLB documents(framework and official terms)sometimes differ from those in corporate-level webpages and documents(annual,sustainability,climate,transition,SLB,etc.reports),e.g.,A2A,Braskem.This can extend to baselines,but target mismatch

284、es are more common.Inconsistencies generally do not seem to be intentional(the differences do not seem to present benefits for issuers),but rather a result of error or simply poor disclosure.To ensure clarity and coherence,it is important that issuers take care to ensure the consistency of their ove

285、rall reporting,including between entity-level reports and SLB documents.Targets observed earlier more likely to be off track Many targets of outstanding SLBs have observation dates at the end of 2025.Some issuers have many or all of their targets,bonds,and potential penalties hanging in the balance

286、that year.Targets observing in 2025 show a relatively even performance profile.Several targets are already met,almost all of them with observation dates up to 2025 among these,the later the observation date is,the less ambitious the targets are likely to be.Snam has one target tied to scope 1 and 2

287、emissions which observes in 2030 but is already met,pointing to a lack of ambition.It also failed to include scope 3(highly material for oil&gas companies)until its latest SLB in February 2024,although transported gas emissions are excluded.Since the analysis was conducted in late 2023,no observatio

288、ns in 2021/22 are classified as on track,as that would mean the target being met.Either the target is met,missed(classified as off track),or N/A.Targets with observation dates sooner(2023/24)are off track more than later ones(post-2025),although the difference is not large.Due to the compounding eff

289、ect,targets further away can involve smaller annual percentage improvements than earlier ones and,all else being equal,the closer to the observation date,the harder it is to hide being off track.However,assuming a constant improvement rate may be unrealistic.In the case of decarbonisation,initial GH

290、G emission reductions can be easier to achieve than later ones(diminishing marginal abatement costs),potentially even if improvements in technology enable further decarbonisation.If A few targets already met only observe after 2025USD Billions2060On trackSPT met80402021Off trackN/A202220232024202520

291、26202720282030203220400so,this means that targets post-2030 are more likely to be missed than this analysis suggests;and more broadly that many net-zero pathways,often based on linear or occasionally even accelerated decarbonisation trajectories,are too optimistic.SLBDB alignment:higher share off tr

292、ack among aligned bondsBonds must meet several criteria to be aligned with Climate Bonds SLBDB Methodology,one of which is alignment with relevant science-based pathways.With more ambitious targets likely to be harder to achieve(all else equal),an inverse relationship between SLBDB alignment and KPI

293、 performance might be hypothesised.The data seems to support this,to a degree.A higher share of aligned bonds is off track versus non-aligned bonds.It was also found that all bonds with all targets met were not aligned,which further supports the idea that less ambitious SLBs,or those that do not use

294、 GHG KPIs/targets,are more likely to be closer to reaching targets(in this case having already met them).Bonds with no GHG KPIs/targets are part of the non-aligned group but were analysed separately to test the hypothesis more precisely,since it does not apply to them.This group had the highest shar

295、e of bonds with either all targets met or all KPIs on track,a finding which is explored in more detail on the next page.While these findings make sense,the sample size of aligned bonds is relatively small.Starting in 2024,post-issuance performance data for all bonds aligned with the SLBDB Methodolog

296、y will be tracked by Climate Bonds.Only bonds not aligned with SLBDB Methodology have met all targetsUSD Billions2060All on trackAll SPTs met8040All off trackMixedN/AAligningFully-alignedNot aligned (excl.no GHG)No GHG KPIs/targetTarget year0Sustainability-Linked Bonds:Building a High-Quality Market

297、:Climate Bonds Initiative 21KPIs:GHG-related KPIs more off track than othersA higher share of GHG-related KPIs was found to be off track versus other KPI categories.Perhaps targets linked to GHG emissions are relatively more ambitious and harder to achieve,in part due to the availability of definiti

298、ons,guidance and benchmarking related to climate change(for other KPI categories there is little or no guidance on pathways,nor a 1.5/2C benchmark).Another important factor,however,is the impact of exogenous events for example,the Ukraine war has led to a greater reliance on fossil fuels that negati

299、vely impacted climate-related KPIs more than others(especially in Europe).102030400USD BillionsGHG-related KPIs more off track than othersNB:Due to the high frequency of KPIs related to GHG emissions,these are shown individually,while others are grouped according to sustainability themes from ICMAs

300、KPI Registry.*Product governance mostly consists of KPIs related to ESG ratings/scores.GHG Emissions(Scope 1)Diversity,equity,and inclusionGHG Emissions(Scope 1,2,3)GHG Emissions(Scope 3)GHG Emissions Intensity(Scope 1,2,3)GHG Emission Intensity(Scope 1,2,selected 3)GHG Emissions Intensity(Scope 3)O

301、ther climate change(mostly energy-related)Water(incl.ocean)WasteRaw material sourcing and recycling(circular economy)Access&affordability(incl.access to medicine)Value chainProduct governance(safety&quality)*On trackSPT metOff trackN/ANo visible difference in performance was observed between GHG sco

302、pes but between absolute-and intensity-based emissions,the latter has a greater share of KPIs off track as well as a lower share of targets already met.Intensity-based metrics can be based on production/output(e.g.,per kilogram or unit of product),economic(most commonly per unit of sales revenue),or

303、 occasionally other metrics(e.g.,per employee).Because these involve an additional dimension to assess performance compared to absolute emissions,they can be more sensitive to exogenous factors such as macroeconomics,politics and social unrest,especially in the case of economic intensity which can a

304、dditionally be manipulated by companies,e.g.,changing prices along with economic performance not being grounded in science,this is part of the reason the use of economic intensities is considered not aligned in the SLBDB Methodology.The pronounced impact of exogenous factors in the last few years ma

305、y be behind the relatively weaker performance of intensity-based GHG emission KPIs versus absolute ones.However,production-/output-based intensities are the most common type of intensity observed.Since this is the most legitimate way to measure decarbonisation,it is likely that issuers selecting it

306、demonstrate higher standards and a higher level of ambition in their targets,making these relatively harder to achieve.Apart from GHG KPIs,only access&affordability had off track as the most common result.In all others including climate KPIs not expressed in terms of GHG emissions(e.g.,renewable ene

307、rgy use and capacity)the most common result was on track.Most themes not observed in sampleMany sustainability themes were not observed among KPIs selected by the top 50 issuer sample,most of them related to social impacts and to a lesser extent governance:Air quality Biodiversity Community&human ri

308、ghts Occupational health&safety Just transition Working conditions(employee engagement,labour practices,and labour rights)Business ethics Data protection&security(including cybersecurity)Consumers(including relation and welfare,responsible marketing,and product labelling)The list is extensive.None o

309、f the top 50 issuers up to the end of 2022(excluding sovereigns)used biodiversity-related KPIs,which mirrors the findings on pages 10-13.Climate Bonds expects advances in nature-related disclosures,such as through the TNFD and EU regulations,will encourage more issuers to incorporate biodiversity an

310、d broader nature-related KPIs in their SLBs.Some themes,including biodiversity,are also likely to be deployed with increasing frequency as issuers become more comfortable translating them into tangible targets and as more themes become financially material to more entities.GHG Emissions Intensity(Sc

311、ope 1,2)GHG Emissions(Scope 1,2)GHG Emissions Intensity(Scope 1)Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 226.Transition plan assessmentSLBs are vehicles through which entity-level transition plans can be showcased and used to raise sustainable finance.Only

312、part of a companys full transition plan is typically used to structure an SLB,with SLB-specific disclosure revolving around the selected KPIs(and their post-issuance performance),baselines,targets,and financial mechanisms.SLB frameworks along with official bond prospectuses provide this information

313、pre-issuance(although these documents are not always found,either because they do not exist or are not public).Since SLBs are general-purpose instruments,relevant post-issuance disclosure is inextricably linked to entity-level annual or sustainability reports,unlike reporting for UoP bonds which is

314、generally provided via standalone reports.To make the analysis more robust,and since the source of information was usually the same as that needed to assess KPI performance,an assessment of issuers entity-level transition plan disclosure was included based on the Climate Bonds Standard(CBS)V4.0.49Cl

315、imate Bonds Standard V4.0 and other guidanceLaunched in 2023,the expanded CBS V4.0 and accompanying sector criteria are designed to enable the Certification of non-financial corporates,assets,and sustainability-linked debt instruments,along with UoP instruments which were already included in previou

316、s versions(assessment of financial institutions and countries is planned in future versions).CBS V4.0 reflects the Five Hallmarks of a credibly transitioning company:501.Paris-aligned targets 2.Robust plans 3.Implementation action 4.Internal monitoring 5.External reportingOther useful Climate Bonds

317、resources exist,such as the Financing the Corporate Climate Transition with Bonds:A Practical Guide and Scaling Credible Transition Finance ASEAN reports.51,Climate Bonds is also developing a Transition Plan Monitor(TPM)to assess and track the transition plans of non-financial corporate entities glo

318、bally,leveraging the science-based Climate Bonds sector criteria.52Several other initiatives also provide transition plan guidance which can extend to SLB issuance,with different merits,areas of focus,and levels of detail.For example,CDP,International Sustainability Standards Board(ISSB),Glasgow Fin

319、ancial Alliance for Net Zero(GFANZ),UK Transition Plan Taskforce(TPT),Institutional Investors Group on Climate Change(IIGCC),Climate Policy Initiative(CPI),Assessing low-Carbon Transition(ACT)Initiative,Science Based Targets Initiative(SBTi),Transition Pathway Initiative(TPI),ICMAs Transition Financ

320、e Handbook,etc.53 ICMA published a paper in February 2024 summarising the state of transition finance.54 Climate Bonds is releasing a mapping of corporate transition frameworks to demystify the current landscape,with the first phase finding broad commonality in the principles underpinning credible t

321、argets,delivery strategies,and accountability mechanisms.55Regional regulatory-led transition finance initiatives have also started appearing,e.g.,EU,UK,USA,Japan,Singapore-Asia Taxonomy.In China,transition pathways were published at the end of 2023 for Shanghai and Hebeis iron and steel industry(He

322、bei produces 12%of the worlds total).All these efforts complement broader reporting standards such as ISSB and GRI.Scoring methodologyThe assessment of transition plans only considers climate-related disclosure,as this is the remit of the CBS and most SLB activity is linked to climate performance.It

323、 is an indicative assessment based on a scoring system developed specifically for this paper,which includes most of the requirements used to determine entity-level eligibility in CBS V4.0(see pages 2745 of the CBS,especially the summary checklist starting on page 39).A single score between 0 and 35

324、points is calculated for each issuer.The assessment is entirely based on the issuers disclosure,on a best-efforts basis.Some aspects of the scoring require a qualitative assessment given that issuer disclosure does not come neatly packaged against the scoring elements and is often vague.56 Softer fa

325、ctors,such as clarity,presentation,and ease of finding information,were not considered in the scoring.57Although less granular than CDPs methodology,the approach is similar.The scoring assesses whether specific information is disclosed by issuers and,to a lesser degree,the content of that informatio

326、n;but it only focuses on transition plans,whereas CDP assesses overall environmental disclosure and to some extent performance.A more detailed explanation of the scoring system and results is included in the appendix.ResultsWide range of scoresScores ranging from 0 to 27 points were observed,with th

327、e average of 17.4 almost exactly half of the total 35 points possible.The weighted average(by amount issued)of 17.9 indicates that larger issuers are slightly more likely to score higher.The average is closer to the maximum,reflecting a distribution skewed towards the top of the range.Holcim,a produ

328、cer of construction materials including cement,has issued USD2.4bn across seven SLBs and was the only issuer to achieve 27 points.It has also used the highest step-up ever observed for a single target(150bps),a commendable move.Overall these are respectable results,suggesting the largest SLB issuers

329、 generally have fairly good transition plan disclosure.This corroborates the comparison against CDPs climate disclosure score,which showed a strong positive relationship between SLB issuance and broader climate-related disclosures.58 A comparison of our scores versus CDPs yields a positive correlati

330、on of 0.55.59However,the analysis also points to much improvement needed.As the largest SLB issuers,many of these can be expected to be sustainability and climate leaders,but none scored in the top 20%of points possible(28+),and half scored in the bottom 50%(17 and under).Two issuers scored zero due

331、 to lack of public disclosure:State Grid Corporation of China and Picard Groupe SAS(France).Results summary(out of 35 points)AverageWeighted averageMedianMinimumMaximumStandard deviation17.417.9180276.3 CLIMATE BONDS STANDARDGlobally recognised,Paris-aligned Certification of Debt Instruments,Entitie

332、s and Assets using robust,science-based methodologiesUpdated February 2024Version 4.1Sustainability-Linked Bonds:Building a High-Quality Market:Climate Bonds Initiative 23NB:Scoring system ranges from 0 to 35 points.28-35 not shown on chart as no issuers scored in that range.Distribution skewed towa

333、rds top of rangeNumber of issuers105Amount issued(right)Issuers(left)730Score(points) 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27462Amount issued(USDbn)52535150203010The fact that larger issuers are more likely to score higher can also be seen in the chart,as the ratio of amount issued to number of issuers is higher in the top half of the range.The most extreme example of this is