Sustainability-linked bonds (SLB)

Sustainability-linked bonds, known by their acronym SLB, are debt instruments whose financial or structural characteristics change if the issuer fails to meet predefined sustainability targets. The most common mechanism is a coupon step-up: if the company misses the committed target, the interest it pays to investors rises.

These targets are called Sustainability Performance Targets, or SPTs, and are measured through key performance indicators (KPIs). The logic is to align the cost of financing with the issuer's actual delivery on its environmental or social commitments.

How they differ from green bonds

The essential difference from green bonds lies in the use of proceeds. In a green bond, the capital raised is earmarked for specific, traceable green projects. In an SLB, by contrast, the proceeds are for general corporate purposes and are not tied to a particular project. What is incentivised is the issuer's overall sustainability performance, not where the money goes. This makes SLBs an outcome-oriented green finance instrument.

The ICMA principles

SLBs are governed by the Sustainability-Linked Bond Principles (SLBP) of the International Capital Market Association (ICMA). These are voluntary guidelines that bring transparency and credibility to the market, built on five core components:

1. Selection of the key performance indicators (KPIs).
2. Calibration of the Sustainability Performance Targets (SPTs).
3. Bond characteristics, that is, the financial adjustment tied to delivery.
4. Periodic reporting on progress against the KPIs.
5. Independent external verification of performance against the SPTs.

The SLBP were last updated in June 2024. In June 2025, ICMA enriched its illustrative KPI registry, adding indicators specific to sovereign issuers and aligned with the Sustainable Development Goals.

Market context

The SLB market has cooled in recent years. Issuance in 2024 fell to around USD 38 billion, a year-on-year drop of roughly 41%, amid doubts over the ambition of targets and concerns about greenwashing. Issuers have included large companies such as ENEL, the pioneer of this instrument, and SNAM, as well as sovereigns such as Thailand. The credibility of the instrument depends on KPIs being material and SPTs genuinely demanding.

Good practice for your company

• Choose KPIs that are relevant and material to your activity, not peripheral indicators.
• Calibrate ambitious SPTs, ideally consistent with trajectories such as science-based targets.
• Ensure robust external verification and transparent reporting of progress.
• Connect the instrument with your climate strategy and your overall climate finance.

How Manglai helps you

A credible SLB rests on reliable, well-measured sustainability data. Manglai helps you calculate and structure your environmental information so you can define robust KPIs and demonstrate your progress rigorously. Talk to our team and get your sustainability metrics ready.