Investor Roundtable: Insights on the Future of Sustainability-Linked Bonds (SLBs)

With COP30 now underway, the global community is once again turning its attention to how to finance the transition to a sustainable and resilient future. Sustainability-linked bonds (SLBs) have emerged as one of several innovative instruments seeking to mobilise private capital while embedding accountability for climate and sustainability outcomes. Strengthening the SLB market is an important step towards unlocking finance at scale and ensuring that climate commitments translate into measurable results. 

During London Climate Action Week 2025, BwB convened a group of institutional investors, public finance experts, and nature finance leaders for an investor roundtable titled ‘Insights on the Future of Sustainability-Linked Bonds (SLBs)’. The session explored potential solutions and practical steps for boosting the credibility and effectiveness of SLBs, sparking a lively,results-oriented discussion. 

Key Challenges: Credibility and Certainty  

Participants identified several challenges currently facing the instrument. 

A key issue is the misalignment between bond maturity and the timeframe required to achieve impact outcomes. According to participants, the majority of issuances do not cover the entire time period needed to realise the targeted sustainability impacts, resulting in uncertainty as to whether the stated KPIs will ultimately be achieved. This uncertainty is compounded by structural features such as the frequent use of ‘callable’ options, which allow issuers to buy back or amend bonds before maturity. 

Another concern raised by participants is the inadequacy of penalties for failing to achieve KPIs. These penalties are typically fairly mild – around 50 basis points on the coupon rate – and generally only apply at maturity. As a result, some issuers have opted to pay the penalty rather than refinance their bonds through conventional means. This behaviour diminishes the ability of SLBs to drive meaningful outcomes and erodes confidence in their credibility as a financial instrument. 

Another topic of discussion was the use of SLBs under various sustainability frameworks. For example, the European Commission has yet to explicitly recognise SLBs in the context of the EU Green Bond Standard, EU Taxonomy, or Climate Resilience Disclosure Standards. This lack of clarity further complicates the situation for investors. 

Untapped Potential 

Despite these challenges, participants remained positive about the strong potential of SLBs. They noted that SLBs could fill gaps left by green bonds in industries such as aviation that are not covered by existing green taxonomies, and thus play a critical role in facilitating the transition to greater sustainability in sectors that would otherwise be left behind. Despite the limited number of issuances to date, sovereign issuers were also identified as being well positioned to benefit from the SLB structure. This is because as large, long-term, policy-driven entities, they have the ability to influence economy-wide outcomes through regulation and investment and can link SLB targets directly to national sustainability commitments. 

Recommendations for Enhancing SLBs 

Several recommendations emerged from the session that could help improve the credibility and impact potential of SLBs. 

• Hybrid structures that combine sustainability-linked objectives and use-of-proceeds within the same bond could enhance both transparency and flexibility. 

• Increasing penalties and introducing them earlier in the bond lifecycle could strengthen issuer incentives to meet their KPIs. 

• More steps should be taken to improve traceability and offer greater clarity on KPI achievement to improve market trust. It was suggested that standardisation of KPIs using existing compendiums from entities such as the International Finance Corporation and the International Capital Market Association (ICMA) would strengthen market confidence and facilitate comparability. 

 Pathways for Innovation 

 The discussion expanded to include the role of risk mitigation and credit enhancement products – particularly the role that insurance solutions such as political risk and parametric products could play. The concept of resilience bonds was also raised, with participants noting that insurance companies are strongly positioned to assess and price resilience risks and invest in assets that gain in value as resilience improves. 

Another interesting concept raised by the group was linking SLBs to debt-for-nature swaps. This could significantly enhance scale and liquidity, particularly when combined with new UNEP-FI and ICMA guidance on biodiversity KPIs and sustainable bonds for nature. 

 Moving from Theory to Practice 

At the end of the session, Heather Matson , Managing Director and Global Head of Nature & Biodiversity and Gender Finance at BwB, summarised the discussion: 

“SLBs have the potential to be powerful tools for driving sustainable transformation, but their success hinges on credibility, transparent metrics, and innovative financial structures. The time has come to shift from theoretical discussions to practical solutions that benefit the environment, investors, and issuers alike.” 

Sincere thanks to all our participants for sharing their views and expertise and advancing the conversation on the use and impact of SLBs. Your insights will help shape our collective path forward.