The International Capital Market Association (ICMA) has published a new registry of 300 key performance indicators (KPIs) for sustainability-linked bonds (SLBs) which is the fastest growing segment of the sustainable bond market.
The registry is a response to issuers looking to use SLBs to help reduce their CO2 emissions and align with net zero goals.
The market has taken off since the ICMA issued its Sustainability-Linked Bond Principles in June 2020.
SLBs garnered $118.8 billion last year, with year on year growth of 941%, according to a recent report by the NGO Climate Bonds Initiative.
Growth continued into the first quarter with SLB themes volumes accounting for 11.9% or $24 billion of total sustainable debt issuance.
SLBs are committed to a mix of social and green impact projects which may also be aligned with the UN Sustainable Development Goals (SDG). They can have specific targets and KPIs, unlike green bonds where proceeds are committed to environmental or climate projects, such as investing in renewable energy.
KPIs selected by an SLB issuer should be relevant, measurable, externally verifiable, and able to be benchmarked, according to the ICMA’s SLB working group said.
The working group identified sector-specific KPIs and labelled them as either core – material and able to be applied in isolation – or secondary – more limited in scope and best used in addition to core KPIs.
ICMA has encouraged issuers to select at least one core KPI for an SLB. However, in the event a core KPI is “not feasible” or applicable on a given sustainability theme, related secondary KPIs can be used, so long as they “effectively add up to the equivalent of a core KPI”.
As well as the registry, ICMA updated its Green Bond Principles (GBP) and Social Bond Principles (SBP).
These include new definitions for green securitisation, a climate transition finance methodologies registry, new metrics for impact reporting, updated high-level mapping to the SDGs, and pre-issuance checklists for green bonds.
Nicholas Pfaff, ICMA’s Deputy CEO and Head of Sustainable Finance, said, “Sustainability now permeates all areas of the capital markets. The [Bond] Principles provide market participants and stakeholders with an essential reference for product standards, agreed terminology and technical consistency, as well as a resource to benchmark ambition.”
©Markets Media Europe 2022
