Sustainability-Linked Bonds: The current State if the Market & What Needs to Change

We recently shared insights from our Investor Roundtable on the Future of Sustainability-Linked Bonds (SLBs) – a conversation that highlighted the need to address the challenges preventing SLBs from realising their potential to mobilise private capital for climate and nature-positive outcomes.   If you missed it, visit the link in the first comment below.  Today, we’re sharing some research that adds a layer of analysis to our roundtable findings. Our ‘SLB Research Deck’, produced in partnership with International Institute for Environment and Development (IIED) under the Systemic Climate Action Collaborative, digs deeper into market performance, issuer behaviour, KPI quality, and emerging opportunities, with a particular focus on nature and biodiversity. Four findings stand out: 1. SLBs surged, then stalled. After explosive growth from 2019–2021, SLB issuances dropped sharply, reflecting investor caution and recalibration. The primary cause for the cooling off appears to be credibility concerns rather than market influences such as higher interest rates. 2. Corporates still dominate, but sovereigns are setting new benchmarks. While corporates accounted for most issuances in recent years, sovereign pioneers such as Chile, Uruguay, and Thailand are demonstrating how to embed national climate and nature commitments directly into the cost of capital. 3. Nature and biodiversity KPIs are emerging – slowly, but meaningfully. Only a handful of SLBs currently include nature-based KPIs, but momentum is building. Uruguay’s forest preservation KPI and the Brazilian municipality of Suzano’s habitat restoration targets show what this can look like. 4. Strengthening market integrity will unlock broader confidence in SLBs. Enhancing KPI ambitions, data quality, and target timelines, as well as tightening up performance penalties, will rebuild trust and give investors the clarity they require to support SLB issuances. The overarching message from our research and discussions with investors  is clear: SLBs have the potential to be a transformative tool for achieving tangible sustainability outcomes. However, for this potential to be realised, underlying frameworks must evolve to deliver improved credibility and confidence. BwB is working with a range of nature finance actors to transform SLBs into instruments that genuinely reward climate and nature performance. What enhancements do you think would increase the attractiveness and uptake of SLBs for driving high-impact sustainability outcomes? Share your thoughts below.