Name: Sustainability-linked bonds: How to drive change through finance
Uploaded: 2023-12-13T12:41:01.251Z
Duration: 199.64

MIMS Sustainability-linked bonds V3_FINAL.mp4

Sustainability-linked bonds.vtt

English

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Hi, I'm Dan Winters, Senior Director at GRESB.

{{00:00:07}}
GRESB is the ESG framework and benchmark used by the
global institutional real estate and infrastructure

{{00:00:13}}
industries to develop and advance their ESG programs.

{{00:00:17}}
A Sustainability-linked bond is a, a dead instrument, right?

{{00:00:21}}
So let's start with what is a bond.

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A bond is an agreement between a company and a
lender to take debt and put that debt to work

{{00:00:32}}
for whatever the company's business is, and then
pay an interest rate back to the capital provider

{{00:00:40}}
in exchange for being able to use that capital.

{{00:00:43}}
So with that as the basis, a sustainability-linked
bond has outcomes tied to some of those contractual

{{00:00:50}}
elements, the most common being the interest rate.

{{00:00:53}}
To the extent that a company lays some forward
looking aspirations, perhaps with a carbon reduction

{{00:01:00}}
or projects that have outcomes beyond financials.

{{00:01:04}}
The contract is tied to certain KPIs.

{{00:01:07}}
KPI is a key performance indicator.

{{00:01:09}}
Typically three, four, or five of these will be
agreed upon between the lender and the borrower

{{00:01:14}}
that will result in a sustainability-linked loan.

{{00:01:19}}
If the borrower hits those KPIs,
their interest rate is one rate.

{{00:01:24}}
If they fail to hit those KPIs, the interest rate
can change, causing perhaps additional interest to

{{00:01:31}}
go to the lender or a benefit to go to the borrower.

{{00:01:35}}
It just depends on how the contract is structured.

{{00:01:42}}
So a green bond is looking at the
collateral that underlies the bond.

{{00:01:47}}
And that, Is then has a litmus test is the collateral,
you know, meaning some type of definition of green in

{{00:01:54}}
the real estate industry we might consider a portfolio
of lead buildings where all of those are certified

{{00:02:00}}
to a leading standard of green building and that can
make up the collateral that underlies a green bond A

{{00:02:08}}
sustainability-linked loan is much more forward looking and
it's intentional as to what the Company is about to do with

{{00:02:14}}
the capital not necessarily what it's done with the capital.

{{00:02:17}}
So the big distinction is a sustainability-linked
loan is forward looking and the capital that's

{{00:02:23}}
being put to work is going to lead to you know
returns that help pay the interest as well as

{{00:02:31}}
impacts and outcomes that are agreed upon up front.

{{00:02:39}}
The future of sustainability-linked
bonds is, is very, very bright.

{{00:02:43}}
So the industry is, is small but growing fast.

{{00:02:47}}
And the idea is that a lender ties that interest
rate payment to some future outcomes that are

{{00:02:55}}
impactful besides just delivering on the financials.

Hi, I'm Dan Winters, Senior Director at GRESB.

GRESB is the ESG framework and benchmark used by the
global institutional real estate and infrastructure

industries to develop and advance their ESG programs.

A Sustainability-linked bond is a, a dead instrument, right?

A bond is an agreement between a company and a
lender to take debt and put that debt to work

for whatever the company's business is, and then
pay an interest rate back to the capital provider

in exchange for being able to use that capital.

So with that as the basis, a sustainability-linked
bond has outcomes tied to some of those contractual

elements, the most common being the interest rate.

To the extent that a company lays some forward
looking aspirations, perhaps with a carbon reduction

or projects that have outcomes beyond financials.

Typically three, four, or five of these will be
agreed upon between the lender and the borrower

that will result in a sustainability-linked loan.

If the borrower hits those KPIs,
their interest rate is one rate.

If they fail to hit those KPIs, the interest rate
can change, causing perhaps additional interest to

go to the lender or a benefit to go to the borrower.

It just depends on how the contract is structured.

So a green bond is looking at the
collateral that underlies the bond.

And that, Is then has a litmus test is the collateral,
you know, meaning some type of definition of green in

the real estate industry we might consider a portfolio
of lead buildings where all of those are certified

to a leading standard of green building and that can
make up the collateral that underlies a green bond A

sustainability-linked loan is much more forward looking and
it's intentional as to what the Company is about to do with

the capital not necessarily what it's done with the capital.

So the big distinction is a sustainability-linked
loan is forward looking and the capital that's

being put to work is going to lead to you know
returns that help pay the interest as well as

impacts and outcomes that are agreed upon up front.

The future of sustainability-linked
bonds is, is very, very bright.

So the industry is, is small but growing fast.

And the idea is that a lender ties that interest
rate payment to some future outcomes that are

impactful besides just delivering on the financials.

Make it Make Sense

Explainer

Want your investments to drive real-world impact through impact investing? Sustainability-linked bonds help make that vision a reality, but confusion persists around how these emerging assets operate.
In this episode of Make it make sense, Dan Winters eliminates confusion around sustainability-linked bonds, explaining how company financing links to meeting designated ESG KPI targets. See how these tools differ from standard green bonds and offer transparency around goal-setting and capital allocation.