Fixed Income Pulse: Technical Update - Launch of the Sustainable Bond Market
On 11 October, London Stock Exchange announced the launch of its expanded Sustainable Bond Market (SBM), building upon the success of its existing green bond segments launched in 2015.
The SBM introduces new dedicated segments for social and sustainability bonds, in addition to the existing green bond segments, that further enable investors to distinguish between different types of sustainable bonds based on independently verified frameworks and appropriate use of proceeds.
It also introduces a segment for bonds classified at issuer-level, allowing “pure play” businesses in the green economy to make their bonds visible to investors. Green Economy issuers on London Stock Exchange are currently allowed to display bonds on this segment based on their green revenues exceeding 90%.
The SBM requires issuers to commit to mandatory annual post-issuance reporting through the lifetime of the bond. This includes annual allocation reporting for use-of-proceeds instruments such as green, social and sustainability bonds.
Register for Technical Briefing on the Sustainable Bond Market
In order to provide more information on the launch of the SBM and associated changes, we have provided a summary below. We will also be organising a Technical Briefing (in person or via conference call) in the coming weeks.
If you would like to attend this please register here.
Key changes for issuers and advisors:
- Specific recognition of ICMA-aligned international and regional frameworks for green, social and sustainability bonds
Based on feedback from market participants, and with the intention to help develop the market with international and corporate issuers, London Stock Exchange now specifies the international and regional standards that are acceptable for issuers intending to display green, social and sustainability bonds to SBM.
The list includes ICMA Green & Social Bond Principles and Sustainability Bond Guidelines and other international or regional standards aligned with these standard as a minimum: such as Climate Bonds Initiative Certification, the EU Green Bond Standard, People's Bank of China’s Green Bond Guidelines and ASEAN Green Bond Standards have been included. For a full list please check the Sustainable Bond Market Factsheet.
- London Stock Exchange “Green Economy” companies with ≥ 90% green revenues can access the SBM through the Issuer-Level Segment
A new Issuer-Level Segment on the SBM is available for bonds issued by companies whose core business activity are aligned with the green economy. This enables “pure-play” issuers that meet the eligibility criteria to benefit from enhanced visibility.
Issuers are eligible for the Issuer-Level Classified segment if they satisfy the following:
1. they have their equity listed on a market operated by London Stock Exchange and they are classified as Green Economy; and
2. they have a Green Revenue score of greater than or equal to 90% at the time of application.
The eligibility criteria were designed based on specific feedback from dedicated ESG-investors on how they look at sustainability driven investment. Setting the threshold for green revenues at greater than or equal to 90% ensures that only those issuers with a significant proportion of their activities driven by the green economy benefit from the use of this segment, and is consistent with or stronger than the standard used by some investors when investing in non-labelled bonds.
To find out more about Green Economy issuers and FTSE Green Revenue data, please see here.
- Mandatory annual post-issuance reporting requirements introduced
Issuers displaying green, social and sustainability bonds to SBM will be required to commit to producing and publishing annual post-issuance reporting. This requirement is in line with ICMA Green & Social Bond Principles, whereby post-issuance reporting is one of the four pillars. London Stock Exchange will:
1. require issuers to specify where annual reporting is provided (report or web link) so this can be made available on London Stock Exchange’s website
2. conduct regular checks to ensure that issuers are providing annual reports
Issuers that do not meet the above requirements may have their securities potentially moved to a “pending reporting” identification or ultimately they might also be removed from the SBM segment. For securities identified as “pending reporting” or removed from the relevant SBM segment, admission to trading on a London Stock Exchange market, such as Main Market or International Securities Market, will remain unaffected.
London Stock Exchange does not stipulate a format for annual reporting; however, it requires that minimum standards of such reporting must be equivalent to an allocation report.
- Changes to SBM application process
From 1 January 2020, a new SBM Declaration & Application Form, with relevant terms and conditions attached, will be required as part of the application process to the SBM.
This form will be in addition to the Form 1 and is intended to obtain from the applicant information relating to the sustainable securities.
If you would like to discuss these changes or find out more about the SBM please contact the team at firstname.lastname@example.org or call us on +44 (0) 207 797 3921.
Fixed Income team
London Stock Exchange plc
T: +44 (0) 207 797 3921
Disclaimer: The Sustainable Bond Market (SBM) is not a distinct primary market operated by London Stock Exchange. It is a label applied across various segments of London Stock Exchange’s existing primary markets in order to promote visibility of sustainable debt finance instruments