Sustainable bonds come in various forms. The two most common are green bonds and sustainable-linked bonds (SLBs). Green bonds are often self-labelled, and their proceeds are pigeonholed for environmental activities. SLBs are those which include green covenants directly attached to the sustainable credentials of the issuing company.
For SLBs, the covenants are independently verified and easily understood. For example, Enel’s SLB targets direct CO2 emissions and total renewable capacity. By contrast, the definition of what makes a green bond ‘green’ has historically been far vaguer. Here is where the issue of greenwashing raises its head.