The ASEAN Capital Markets Forum (ACMF) – under the Chairmanship of the Securities and Exchange Regulator of Cambodia – on October 28, 2022 introduced the ASEAN Sustainability-Linked Bond Standards (ASEAN SLB Standards) to facilitate fundraising by companies that contribute to sustainability, as the ACMF continues to place emphasis on the development of sustainable finance in the region.
The ASEAN SLB Standards are the latest addition to the suite of bond standards that include the ASEAN Green Bond Standards, ASEAN Social Bond Standards and the ASEAN Sustainability Bond Standards, which were launched in 2017 and 2018.
As of October 21, 2022, $29.82 billion worth of bonds and sukuk (Islamic bonds) have been issued and labelled collectively under the ASEAN Green, Social and Sustainability Bond Standards, demonstrating how such thematic bonds have gained traction in recent years.
What is a sustainability-linked bond?
Sustainability-linked bonds are any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined sustainability objectives.
For example, a coupon step-up could be activated after a stated period if the objectives set out by the issuer are not met.
Such objectives are measured through Key Performance Indicators (KPIs) and assessed against Sustainability Performance Targets (SPTs).
Unlike green, social and sustainability bonds, where the bonds’ proceeds must be used for green, social and sustainability projects, respectively, the proceeds of sustainability-linked bonds are intended to be used for general purposes.
Sustainability-linked bonds could thus assist companies that are seeking to transition towards sustainability.
The ASEAN Sustainability-Linked Bond Standards
The ASEAN SLB Standards were developed based on the International Capital Market Association’s (ICMA) Sustainability-Linked Bond Principles (SLBP), as they are internationally accepted and widely used.
The SLBP, first launched in June 2020, are a set of voluntary guidelines elaborated by key market participants under coordination of the ICMA as its secretariat.
While the SLBP have provided broad principles on sustainability-linked bonds, the ASEAN SLB Standards aim to provide more specific guidance on how the SLBP are to be applied across ASEAN.
In this regard, issuers who wish to issue and label sustainability-linked bonds as ASEAN Sustainability-Linked Bonds must demonstrate compliance with the ASEAN SLB Standards.
Thus, the ASEAN SLB Standards will provide certainty to investors that sustainability-linked bonds labelled as ASEAN Sustainability-Linked Bonds have met uniform standards, while providing issuers with best market practices for sustainability-linked bonds.
The ASEAN SLB Standards are aligned and guided by the core components of the SLBP, ie Selection of Key Performance Indicators, Calibration of Sustainability Performance Targets, Bond Characteristics, and Reporting and Verification, with key additional features.
Globally, the sustainability-linked bond market has grown rapidly since the introduction of the SLBP.
By the end of the first half of 2022, Climate Bonds Initiative had recorded sustainability-linked bond volumes of $176.6 billion.
For issuers who do not have identifiable sustainable projects for funding, sustainability-linked bonds provide an avenue for issuers to raise financing for general purposes while contributing towards sustainability outcomes.
The ASEAN SLB Standards intend to enhance the transparency, consistency and uniformity of ASEAN Sustainability-Linked Bonds, which will also contribute to the development of a new asset class, reduce due diligence costs and help investors make informed investment decisions.
The ASEAN SLB Standards can be accessed at: www.theacmf.org/initiatives/sustainable-finance/asean-sustainability-linked-bond-standards.