Sustainability-linked bonds
Also called: SLB · Topic: Environment and Sustainable Development · NCERT: Beyond NCERT
Meaning
A sustainability-linked bond (SLB) is a bond whose coupon (the interest paid to investors) depends on whether the issuer meets sustainability targets it has set in advance. If the company misses its targets, the coupon usually goes up. If it meets them, the coupon can go down. The money raised can be used for any purpose. The pressure to act comes from the targets, not from limits on how the money is spent.
Example
A steel company issues an SLB with a promise to cut its emissions per tonne of steel by a set date. It can spend the money on anything. If it misses the target, it must pay investors a higher coupon.
Don't confuse with
- Green bond: here the money must be spent only on eligible green projects, as with India's sovereign green bonds (first issue January 2023). With an SLB, the money is free to use but the interest cost is tied to targets.
Related concepts
- Linear economy
- Circular economy
- Recycling
- E-waste
- Extended producer responsibility
- Urban mining
- Right to repair
- Porter hypothesis
- Sustainable infrastructure
- Sustainable consumption and production