The market for bonds that are linked to companies meeting certain environmental goals could grow 20-fold this year to between US$120 billion and US$150 billion, a senior JP Morgan banker said, as businesses look to tap into booming demand.
But sustainability-linked bonds allow firms to raise money for general corporate purposes while promising investors that if they do not meet the sustainability targets set - such as cutting carbon emissions - they will pay investors extra. SLBs are relatively new and investors are less familiar with them than with green bonds. The process of companies paying penalties for failing to meet sustainability targets they have set themselves is also largely untested.Global green bond issuance could reach US$400-US$450 billion this year from almost US$270 billion last year, the Climate Bonds Initiative estimates.
The growth in sustainable bonds is also being fuelled by clearer rules around what they are. The European Central Bank said in September it would accept as collateral green bonds with payouts linked to sustainability targets from 2021. She said that the first two months of 2021 had seen eight sustainability linked loans in the European leveraged loan market versus about seven throughout 2019 and 2020.