Sustainability Linked Notes
Sustainability-linked notes or bonds are debt securities linked to the financing of the general needs of the company. This means that, unlike a green bond, the funds are not allocated to a "green" project but to the company's current needs. With sustainability linked notes or bonds, the issuer commits to precise and quantified objectives concerning its sustainable development in the medium and long term. It will integrate into its financing structure performance indicators (KPI) measuring its ESG trajectory.
Here are some examples of KPIs:
- waste / million euros of sales;
- MWh / million euros of sales;
- CO2 emission.
The financial and/or structural characteristics of the debt security will vary depending on the nature of the bond and whether or not these KPIs are achieved.
The most classical is the variation of the coupon (decrease of the coupon if the objectives are reached), but one can also consider the variation of other financial and/or structural characteristics, such as the change of the nominal value or the duration. Usually the variation of the financial and/or structural characteristics of the debt security are proportional to the triggering event.