Fixed Income Pulse: Sustainability-Linked Bonds now eligible on Sustainable Bond Market
- London Stock Exchange welcomes the launch of the Sustainability-Linked Bond Principles, administered by ICMA
- Sustainable Bond Market eligibility criteria updated to allow Sustainability-Linked Bonds to be admitted under the dedicated Issuer-Level Segment
- Allows for differentiation between Use-of-Proceeds and General-Purpose Bonds that are Sustainability-Linked, strengthening transparency for issuers and investors
- Announces extension of fee waiver for social and sustainability bonds that aim to mitigate the impact of COVID-19 with relevant use-of-proceeds until 1 October 2020
London Stock Exchange continues to support companies and investors seeking to raise capital and manage risk associated with the transition to a low carbon economy. It was with this commitment that we consulted on market developments in 2019 and in response launched the Sustainable Bond Market (SBM), building upon our existing Green Bond segments launched in 2015.
Sustainable Bond Market (SBM) was developed to be a vibrant and dynamic space for sustainable debt financing, catering for the deepening market for sustainable investment. New segments for social and sustainability bonds were introduced by London Stock Exchange, as well as a new Issuer-Level Classification Segment, which allows investors to distinguish between use-of-proceeds bonds (with identified eligible projects) and general corporate purpose bonds by sustainable businesses, the first exchange to do so. At launch, Green Economy Issuers on London Stock Exchange are eligible to display bonds on the Issuer-Level segment, based on a Green Revenues exceeding 90%. We are now expanding the criteria to allow for Sustainability-Linked Bonds to be also admitted under this segment.
Update of SBM Eligibility Criteria to allow for Sustainability-Linked Bonds
London Stock Exchange welcomes the new Sustainability-Linked Bonds Principles (SLBPs) published by the International Capital Market Association (ICMA) at the recent GBP/SBP Annual General Meeting, which we were delighted to host on Spark Live, our dedicated platform for livestreaming digital presentations and capital market days.
The SLBPs are new voluntary guidelines that provide market participants best practice when preparing to issue Sustainability-Linked Bonds (SLBs). The development of these principles will support the growth of a new area of sustainable debt financing and help issuers to move towards incorporating sustainable investment as part of their holistic strategy as a company in a more transparent way.
SLBs are defined as forward-looking performance-based bond instruments where the issuer is committing to future improvements in sustainability outcomes within a predefined timeline. The nature of SLBs are that they are intended to be used for general purposes, thus the use of proceeds is not a primary determinant of how they are categorised, unlike tradition use of proceeds green, social or sustainability bonds.
In response to this development, London Stock Exchange has introduced the ability for issuers to display SLBs on the Issuer-Level Classification segment on SBM, providing they are issued in accordance with the SLBPs. This enables those businesses that meet the eligibility criteria to be able to admit bonds to SBM and benefit from enhanced visibility. The distinction between bonds on the Issuer-Level Segment and Use-of-Proceeds Segment is crucial for investors and issuers seeking to provide transparency, as we see more businesses make sustainability central to their operations.
The new SBM structure is outlined below:
You can find a link to our updated SBM Factsheet here, detailing the requirements for Sustainability-Linked Bonds to be displayed on SBM.
Extension of Fee Waiver for social and sustainability bonds that aim to mitigate the impact of COVID-19 with relevant use-of-proceeds to 1 October 2020
London Stock Exchange also announces a three-month extension of the fee waiver, introduced in April 2020, for social and sustainability bonds that aim to mitigate the impact of COVID-19 with relevant use-of-proceeds. The fee waiver will now run until 1 October 2020. This applies to bonds meet the eligibility criteria for the Sustainable Bond Market’s social or sustainability segments and clearly reference mitigation of COVID-19 impacts or relevant Sustainable Development Goals in use of proceeds language.
Social bonds continue to be a key funding tool for issuers looking to mitigate the impacts of COVID-19. A vibrant set of COVID-19 response bonds have been issued, addressing both the short and long-term funding needs that companies and countries now face. London Stock Exchange remains committed to our responsibility to ensure the orderly functioning of markets and continuity of services for its customers and other stakeholders during this period of exceptional market volatility and global uncertainty due to the ongoing pandemic.
For more information on eligibility criteria for this waiver, please refer to our update published on 3 April 2020, found here.
If you would like to discuss these changes or find out more about Sustainable Bond Market please contact the team at email@example.com or contact us on +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.