Ch05. Green and Sustainable Finance: Markets and Instruments
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Questions and Answers

What was the total volume of Sustainability-Linked Loans (SLL) in 2019?

  • USD 270 billion
  • USD 150 billion
  • USD 50 billion
  • USD 90 billion (correct)
  • According to Moody's, what is the forecasted issuance of green bonds in 2021?

  • USD 375 billion (correct)
  • USD 400 billion
  • USD 250 billion
  • USD 300 billion
  • What was the total issuance of green bonds in 2020?

  • USD 250 billion
  • USD 200 billion
  • USD 150 billion
  • USD 270 billion (correct)
  • Which type of bond has seen a significant upsurge in issuance due to the COVID-19 pandemic?

    <p>Social bonds</p> Signup and view all the answers

    What is the main difference between Sustainability-Linked Bonds and Green Bonds?

    <p>Sustainability-Linked Bonds focus on social projects, while Green Bonds focus on environmental projects.</p> Signup and view all the answers

    What is the main driver of the growth of sustainable bonds, according to the text?

    <p>COVID-19 pandemic and its impact on the economy</p> Signup and view all the answers

    What is a key characteristic of Sustainability-Linked Bonds (SLBs)?

    <p>Their financial and/or structural characteristics can vary depending on the issuer's performance.</p> Signup and view all the answers

    What is the primary goal of Sustainability-Linked Bonds in terms of the issuer's performance?

    <p>To improve the issuer's sustainability profile by aligning loan terms to their performance.</p> Signup and view all the answers

    What is a key aspect of ESG objectives in the context of Sustainability-Linked Bonds?

    <p>They must be aligned with the issuer's overall strategic sustainability strategy.</p> Signup and view all the answers

    What is a characteristic of green bond funds?

    <p>They consist specifically of labeled sustainable financial instruments.</p> Signup and view all the answers

    What is the significance of Key Performance Indicators (KPIs) in the context of Sustainability-Linked Bonds?

    <p>They are used to measure the issuer's sustainability performance against predefined objectives.</p> Signup and view all the answers

    What is the approximate value of assets in sustainable ETFs as of April 2021?

    <p>USD 38.3 billion</p> Signup and view all the answers

    What is a key feature of the EUR 1 billion loan taken by DSM in 2018?

    <p>The interest rate was linked to greenhouse gas emissions and energy efficiency indicators</p> Signup and view all the answers

    What is the primary goal of Chanel's EUR 600 million sustainability-linked bond issued in 2020?

    <p>To cut its corporate greenhouse gas emissions in half by 2030</p> Signup and view all the answers

    What is the purpose of a sustainability-linked loan, as exemplified by DSM's loan in 2018?

    <p>To incentivize companies to achieve specific ESG objectives</p> Signup and view all the answers

    What is a key difference between a sustainability-linked bond and a green bond?

    <p>The use of proceeds from the bond</p> Signup and view all the answers

    What is the role of the banking syndicate in Volution's GBP 150 million loan facility?

    <p>To structure the sustainability-linked loan</p> Signup and view all the answers

    What is the benefit of sustainability-linked bonds and loans for companies?

    <p>Enhanced reputation and brand value</p> Signup and view all the answers

    What is the primary driver behind the growth of sustainability bonds in the market?

    <p>Rise in climate-related risks and awareness</p> Signup and view all the answers

    What is the projected total issuance of green bonds, social bonds, and sustainability bonds in 2021 according to Moody's forecast?

    <p>USD 375 billion, USD 150 billion, and USD 125 billion respectively</p> Signup and view all the answers

    Which type of bond has seen a more mature growth compared to Sustainability-Linked Bonds?

    <p>Green bonds</p> Signup and view all the answers

    What is the approximate total issuance of green bonds in 2020?

    <p>USD 270 billion</p> Signup and view all the answers

    What is the significance of the year 2019 in the context of Sustainability-Linked Loans (SLL)?

    <p>The year SLL was launched</p> Signup and view all the answers

    Which of the following factors contributed to the growth of social and sustainability bonds in 2020?

    <p>The COVID-19 pandemic</p> Signup and view all the answers

    What is the primary purpose of aligning loan terms to a borrower's performance against predefined sustainability/ESG objectives?

    <p>To incentivize the borrower to improve its sustainability profile</p> Signup and view all the answers

    What is a characteristic of sustainable ETFs that consist of shares of companies that engage in sustainable activities?

    <p>They are invested in companies with a sustainable focus</p> Signup and view all the answers

    What is the primary goal of Sustainability-Linked Bonds in terms of the issuer's Key Performance Indicators (KPIs)?

    <p>To represent a material improvement in the respective KPIs</p> Signup and view all the answers

    What is the main difference between green bonds and Sustainability-Linked Bonds?

    <p>Green bonds are not tied to the issuer's sustainability performance, while Sustainability-Linked Bonds are</p> Signup and view all the answers

    What is the primary benefit of Sustainability-Linked Bonds for companies?

    <p>They incentivize companies to improve their sustainability profile</p> Signup and view all the answers

    What is the significance of a predefined timeline in the context of Sustainability-Linked Bonds?

    <p>It is used to determine when the borrower's sustainability performance will be measured</p> Signup and view all the answers

    What is the primary focus of sustainability-linked loans in terms of achieving sustainability outcomes?

    <p>Incentivizing a borrower's achievement of predetermined sustainability performance objectives</p> Signup and view all the answers

    What is the common thread among the Bond Principles, Green Bond Principles, and Sustainability-Linked Loan Principles?

    <p>Industry-led development and guidelines</p> Signup and view all the answers

    What is the main distinction between sustainability-linked bonds and green bonds?

    <p>Sustainability-linked bonds are tied to a borrower's sustainability performance</p> Signup and view all the answers

    What is the primary goal of the coordination efforts among the Sustainability-Linked Loan Principles, Bond Principles, and Green Bond Principles?

    <p>To align the sustainability-linked market across bonds and loans</p> Signup and view all the answers

    What is the primary benefit of sustainability-linked bonds and loans for borrowers?

    <p>Enhanced reputation and brand value</p> Signup and view all the answers

    What is the core component of the Sustainability-Linked Bond Principles (SLBP) that relates to the borrower's sustainability performance?

    <p>Ambitious, predetermined sustainability performance objectives</p> Signup and view all the answers

    Study Notes

    Sustainability-Linked Bonds and Loans

    • The Sustainability-Linked Bond Principles were launched in 2019 and set guidelines for the market, with USD 90 billion in volume that year.
    • Green bond issuance has grown significantly, reaching USD 270 billion in 2020.
    • Social and sustainability bonds have also grown quickly in issuance, although with a later start and from a lower baseline.

    Growth of Sustainable Bonds

    • In 2020, the world was hit with the COVID-19 pandemic, and many institutions wanted to raise money to help address its impacts, leading to a particularly large upsurge in social and sustainability bond issuance.
    • According to Moody's, this trend is set to continue in 2021, with forecast issuance of USD 375 billion in green bonds, USD 150 billion in social bonds, and USD 125 billion of sustainability bonds.

    Examples of Sustainability-Linked Deals

    • DSM, a Dutch health, nutrition, and materials company, took out a EUR 1 billion revolving credit facility with a group of 15 banks linked to its greenhouse gas (GHG) emissions.
    • Chanel, the famous French fashion company, issued a sustainability-linked bond in 2020 in two parts, tied to cutting its corporate GHG emissions in half by 2030 and reducing supply chain emissions by 10%.
    • Volution, a British ventilation systems manufacturer, agreed a GBP 150 million sustainability-linked revolving credit facility.

    Sustainability-Linked Bond Principles

    • Sustainability-Linked Bonds (“SLBs”) are any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined Sustainability/ESG objectives.
    • The Bond Principles have five core components:
      • The issuer commits explicitly to future sustainability/ESG objectives.
      • The bond's financial and/or structural characteristics vary depending on whether the issuer achieves the objectives.
      • The objectives are relevant, core, and material to the issuer's overall business.
      • The objectives are consistent with the issuer's overall strategic sustainability/ESG strategy.
      • The objectives are determined on a predefined timeline.

    Sustainability-Linked Loans

    • Sustainability-linked loans incentivize the borrower's achievement of ambitious, predetermined sustainability performance objectives.
    • The SLBP have five core components:
      • The borrower commits to future sustainability/ESG objectives.
      • The loan's financial and/or structural characteristics vary depending on whether the borrower achieves the objectives.
      • The objectives are relevant, core, and material to the borrower's overall business.
      • The objectives are consistent with the borrower's overall strategic sustainability/ESG strategy.
      • The objectives are determined on a predefined timeline.

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