Partner insight: What are sustainability-linked bonds and why do they matter?

These bonds allow investors to take a holistic view of a company’s sustainability performance, says Samuel Mary

clock • 1 min read
Samuel Mary, ESG research analyst at PIMCO
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Samuel Mary, ESG research analyst at PIMCO

The $1trn milestone hit by the sustainable bond market last year, both in issuance and total volume, indicates a broader appetite and momentum that has heralded new innovations and trends.

One key recent innovation has been the increased use of sustainability-linked bonds.

Unlike traditional green, social or sustainability use-of-proceeds bonds, which fund certain projects with dedicated environmental or social benefits, sustainability-linked bonds typically don't finance particular projects. Instead, they fund the general functioning of an issuer, explicitly linking sustainability objectives with financial targets.

"We have seen a growing number of sectors and issuers embracing this concept," says Samuel Mary, ESG research analyst at PIMCO.

"We believe this is a particularly interesting innovation because it enables us to take a more holistic approach to ESG performance and fixed income.

"When they are well structured, it's a very strong signal from issuers that they are committed to ESG and sustainability."

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