Publication
26 Aug 2025 ·
Netherlands
Impacts on the characteristics of the financing
CMS study of the KPIs used in SLBs – December 2024
4 min read
Calculation method: number of SLBs with at least one of the following impacts on bond characteristics out of the 215 SLBs comprised in our study, showing the proportion of issuers that have chosen such specific impact1.
1 Some SLBs proving for several types of impacts, the sum of the number of SLBs in each category is superior to the total number of the SLBs comprised in our study.
2 e.g. step-down in the guarantee fee rate.
The bond’s financial and/or structural characteristics shall vary depending on the reaching or not of the SPT defined for each KPI, and such variation must be proportionate and material to ensure that the issuer/borrower has an incentive to meet the SPT. In the SLBs covered by our analysis, we observe that in the majority of SLBs, the financial impact of not meeting SPTs ranges from 10 to 50 basis points (on a cumulative basis for SLBs that include more than one KPI). We observe that the financial impact is more important in SLBs than on the SLL market.
If issuers and investors have a lot of flexibility to define in the terms and conditions of the bonds the impact of a missed SPT on the characteristics of the bonds, we note that almost all the SLBs in our study provided for either:
- an increase of the interest rate (step-up) – almost half
- a payment to a third party (for instance an NGO) – almost a quarter
- the purchase of carbon credits – more than a tenth, especially in Japan
- a premium to the investors – over a fifth.
A limited number of SLBs included both a step-up and a payment to a third party or of a premium, which explains why the sum of the percentages is above 100%. Interestingly, it is also common that the interest rate may decrease (step-down) if the issuer achieves its target in the SLL market and the private SLB market, but there are no step-downs in the “public” SLB market.
For many financings, the documentation includes several KPIs, so the impacts can be cumulative.
Ambitious nature of SPTs
To avoid being seen as greenwashing, SPTs should be ambitious (but realistic), meaning that they must represent a material improvement in the relevant KPIs and go beyond a “business as usual” trajectory.
For instance, a company with a 51:49 male:female employee ratio will not be able to target a 50% gender parity KPI, as this could not be considered an ambitious target given the company’s advancement on this matter and the small improvement required to achieve the target.
The level of ambition shall be assessed in the second party opinion. In this respect, more than three-quarters of the SPTs of the SLBs in our analysis were evaluated by the ESG external reviewer as “Ambitious” or “Very Ambitious”.
The terms of the financing may include recalculation clauses to amend the SPTs should specific events occur (e.g. change in the methodology or in the data sources for the calculations, change in perimeters (M&A operation: acquisition, merger, demerger, etc), change in law, etc). In case of such recalculations, the amended SPTs must remain ambitious.
More than half of the SLBs in our study (a growing proportion) include fallback measures: the potential interest rate step-up (or other adjustment) of the bonds if the SPT is missed also applies if the issuer fails to assess the KPI or publish the relevant report, or if there are qualifications in the external reviewer’s report.
Current market practice is that failure to meet an SPT does not trigger an event of default.
