Publication:
Structural Loopholes in Sustainability-Linked Bonds

dc.contributor.authorUl Haq, Imtiaz
dc.contributor.authorDoumbia, Djeneba
dc.date.accessioned2022-10-11T18:39:08Z
dc.date.available2022-10-11T18:39:08Z
dc.date.issued2022-10
dc.description.abstractSustainability-Linked Bonds—an innovative debt product that incorporates incentivized sustainability targets—are becoming increasingly popular to encourage issuers to improve their sustainability performance. However, existing Sustainability-Linked Bond structures allow issuers to weaken the link between sustainability and financial outcomes, rendering Sustainability-Linked Bonds less effective. This paper examines two potential structural loopholes on this front: late target dates and call options. The results show that Sustainability-Linked Bonds with coupon step-up penalties, which constitute the majority and benefit most from such features, are more likely to have later target dates and call options embedded. Larger penalties are associated with a greater likelihood of late target dates but not call options, which instead tend to be favored primarily by speculative grade issuers. The paper also provides evidence that issuers with high carbon dioxide emissions are more likely to resort to such structural loopholes. These findings suggest that Sustainability-Linked Bonds, despite incentivized targets, may be prone to greenwashing.en
dc.identifierhttp://documents.worldbank.org/curated/en/099237410062223046/IDU0e099a50307f86045a80b33201d0b7057cedf
dc.identifier.doi10.1596/1813-9450-10200
dc.identifier.urihttps://hdl.handle.net/10986/38131
dc.languageEnglish
dc.language.isoen
dc.publisherWorld Bank, Washington, DC
dc.relation.ispartofseriesPolicy Research Working Papers;20200
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.subjectSUSTAINABILITY-LINKED BONDS
dc.subjectSUSTAINABILITY PERFORMANCE TARGETS
dc.subjectLATE DATE PENALTY
dc.subjectBOND GRADE ISSUERS
dc.subjectGREENWASHING
dc.subjectBONDS
dc.subjectPRIVATE SECTOR SUSTAINABILITY
dc.titleStructural Loopholes in Sustainability-Linked Bondsen
dc.typeWorking Paperen
dc.typeDocument de travailfr
dc.typeDocumento de trabajoes
dspace.entity.typePublication
okr.crossref.titleStructural Loopholes in Sustainability-Linked Bonds
okr.date.disclosure2022-10-06
okr.date.doiregistration2025-04-10T11:12:13.460244Z
okr.date.lastmodified2022-10-06T00:00:00Zen
okr.doctypePolicy Research Working Paper
okr.doctypePublications & Research
okr.docurlhttp://documents.worldbank.org/curated/en/099237410062223046/IDU0e099a50307f86045a80b33201d0b7057cedf
okr.guid099237410062223046
okr.identifier.doi10.1596/1813-9450-10200
okr.identifier.externaldocumentumIDU-e099a503-7f86-45a8-b332-1d0b7057cedf
okr.identifier.internaldocumentum33913142
okr.identifier.reportWPS10200
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/099237410062223046/pdf/IDU0e099a50307f86045a80b33201d0b7057cedf.pdfen
okr.topicFinance and Financial Sector Development::Debt Markets
okr.topicFinance and Financial Sector Development::International Financial Markets
okr.topicFinance and Financial Sector Development::Securities Markets Policy & Regulation
okr.topicPrivate Sector Development::Emerging Markets
okr.topicEnvironment::Green Issues
okr.unitCERPC - External Relations
relation.isSeriesOfPublication26e071dc-b0bf-409c-b982-df2970295c87
relation.isSeriesOfPublication.latestForDiscovery26e071dc-b0bf-409c-b982-df2970295c87
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