Green finance: Sustainable Fitch finds some sustainability-linked bonds’ ESG benefits fall short of investors’ expectations

Issuers of sustainability-linked bonds – a fast-growing tool for financing decarbonisation projects and meeting climate goals – have fallen short on setting performance benchmarks, according to a study.

After reviewing deals concluded between 2019 and mid-2020 by the world’s first 30 sustainability-linked bond issuers and their bonds’ key performance indicators (KPIs), analysts at data and ratings provider Sustainable Fitch found that only 47 per cent included a KPI considered core to their business under the International Capital Market Association (ICMA)’s KPI registry. Some 20 per cent had a KPI deemed secondary.

Another 18 per cent had a core KPI that was only partially fulfilled, such as reducing only greenhouse gas emissions from sources owned or controlled by the issuers, while the recommendation is to also include emissions from activities not under their control, such as consumption of their products.

“The data indicates that while some issuers have ensured relevance in their KPI selection, many others still need clarification,” said Nneka Chike-Obi, head of Asia-Pacific ESG research at Sustainable Fitch. “This is especially important for non-emissions targets in cases where companies are looking into the effect of other environmental and social factors on their business.”

The study’s findings are significant because the issuance of global sustainability-linked bonds jumped more than tenfold to US$91.2 billion via 154 deals last year from US$8.3 billion through 16 transactions in 2020, according to financial data provider Refinitiv. So far this year – up to last Friday – issuances worth about US$52.9 billion were recorded.