Sustainability-Linked Bonds (SLBs)

Guidance for sustainability-linked bonds as transition finance instruments

Status: Data used in this analysis references Climate Bond’s Sustainability-Linked Bond Database (SLBDB) as of 09 November 2022. The Database and associated methodology will be released in 2023


Sustainability-Linked Bonds (SLBs) have emerged as important instruments in the sustainable finance market. Entities operating in sectors with well-established transition pathways such as real estate, transportation, and utilities can easily identify projects, assets, and expenditures suitable for green UoP bond financing.

When it comes to entities operating in the hard-to-abate sectors such as cement, steel, and basic chemicals, the pathways are only beginning to be established and the journey to net-zero can still, at least partially, rely on untested technologies. For these entities, the SLB structure, or transition UoP bonds can be more suitable financing vehicles. The activity of issuing a sustainable debt instrument be it a green bond or an SLB, signals to investors that the issuing entity is identifying and addressing climate related business risks and opportunities as well as sustainability impacts.

As of November 2022, Climate Bonds had recorded USD201.7bn of SLBs and transition bonds. However, issuers have been criticised for a lack of ambition and credibility mainly because chosen targets are set against business baselines rather than science-based pathways and are difficult to benchmark and compare to peers and sectoral pathways.

In recognition of the need for market guidance, Climate Bonds published the white paper Transition Finance for Transforming Companies and has now expanded the Climate Bonds Certification programme to include entity-level and SLB certification.

Climate Bonds is also building a Sustainability-Linked Bond Database, recording SLBs that demonstrate alignment and credibility with a sector-specific 1.5°C pathway, in line with its Five Hallmarks.

To reinforce the credibility of SLBs, Climate Bonds encourages issuers to follow the below guidance: