Created by the International Capital Markets Association, the Sustainability-Linked Bond Principles (SLBP) are voluntary process guidelines that outline best practice for financial instruments that incorporate forward-looking ESG outcomes. The SLBP promote integrity in the development of the sustainability-linked bond (SLB) market by clarifying the approach for issuance of SLBs. The SLBP recommends a clear process and transparent commitment for all issuers, which investors, banks and other market participants can use to understand the financial and or structural characteristics of any SLB.

The report is structured around the five core components of the SLBP, which are:

• Selection of key performance indicators
• Calibration of sustainability performance targets
• Bond characteristics
• Reporting
• Verification

Key performance indicators (KPIs) are integral in the sustainability-linked bond market as they provide credibility. An issuer’s sustainability performance is measured using KPIs that can be internal or external, and it is important to avoid the proliferation of KPIs that are not credible. KPIs should be relevant, core and material, measurable, externally verifiable and able to be benchmarked. The guide looks at how KPIs should be selected, and highlights the importance of communicating clearly to investors the rationale and selection process.

In conjunction with the use of KPI’s is the calibration process of one or more sustainability performance targets (SPTs). These SPTs are key to the structure of the SLB as they express the level of ambition the issuer is ready to commit to and considers realistic. They must be in good faith and the issuer should disclose strategic information that may decisively impact the achievement of the SPTs. In pre-issuance and construction of the KPIs and SPTs, the guide recommends issuers seek external review providers to confirm the alignment of their bond with the five core components of the SLBP.

The report provides a discussion of SPTs, including:

• How ambitious SPT’s should be;
• Benchmark approaches used to set targets; and
• What should be clearly disclosed in relation to the targets.

In regards to reporting, the guide recommends that issuers of SLBs should publish: up to date information on performance; a verification assurance report; and any information enabling investors to monitor the level of ambition of the SPTs. This reporting should be readily available, easy accessible, and published regularly, at least annually.

Finally, for verification the guide notes issuers should seek independent or external verification of the performance level against each SPT, for each KPI. This could be done by an external auditor and the verification of the performance should be made publicly available.

1. The Sustainability-Linked Bond Principles (SLBP) aim to further develop the market for sustainability-linked bonds (SLBs) by providing integrity and structure. The SLBP are intended for market participants to use and are designed to drive the provision of information needed to increase capital allocation of such financial products.
2. Issuance aligned with the SLBP should provide an investment opportunity with transparent sustainability credentials.
3. The credibility of the SLB market lie on well-selected KPIs that are material to the issuer’s core sustainability and business strategy, that address relevant environmental, social and/or governance challenges of the industry sector and be under management’s control.
4. The structure of SLBs are formed by the allocation of one or more sustainability performance target to each KPI, that highlights the issuers realistic level of commitment.
5. The cornerstone of a SLB is that the bond’s financial and/or structural characteristics can vary depending on whether the selected KPIs reach the predefined sustainability performance targets (SPTs).
6. During the pre- and post-issuance phases of the bond it is recommended that issuers seek out external reviews to not only assess the relevance, robustness and reliability of the KPIs, but also assess their performance against the accompanying SPTs.
7. The appendix of this report provides a non-exhaustive checklist of recommendations and disclosure requirements for the issuance of SLBs. It provides guidance for issuers of SLBs to align their disclosure around comparable language and data points, to ensure the appropriate degree of transparency and harmonisation, sought by investors and other players in the marketplace.