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Global Issuance of Sustainability-Linked Debt Instruments Will Likely Surpass $200 Billion This Year

S&P Global Ratings expects sustainability-linked loans and sustainability-linked bonds issuance to surpass $200 billion this year. Total sustainability-linked debt issuance exceeded $130 billion in 2020, according to Bloomberg, up nearly 300% from 2018 levels.

For example, Anheuser Busch InBev, leading beer producer in the world, got a 5-year sustainability-linked revolving credit facility in amount of $10 billion in May 2021 that is one og the largest issuance of sustainability-linked debt instruments for today.

Sustainability-linked loans are defined by the Loan Market Assn. (LMA) as any type of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines, or letters of credit) which incentivize the borrower's achievement of ambitious, predetermined sustainability performance objectives. Sustainability-linked bonds are defined by the International Capital Markets Assn. (ICMA) as any type of bond instruments for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined sustainability/ESG objectives.

In contrast to other types of sustainable debt instruments, including green, social, or sustainability bonds or loans, sustainability-linked instruments, aren't dependent on dedicating issuance proceeds to defined environmental or social projects. Instead, a borrower can apply the label to any type of loan or bond instrument that directly links funding costs to achieving predetermined sustainability performance targets (SPTs). The use of proceeds, which isn't usually identified when the loan or bond is issued, could be for any general corporate purpose.

Thus, sustainability-linked instruments will broaden the universe of issuers who can obtain sustainable financing to those who may not have sufficient capital expenditures connected to sustainability projects, are at the beginning of their sustainability journeys.