So-called sustainability-linked bonds make up only a small fraction of the sustainable bond market but they’ve grown fast, soaring to more than $170 billion since an Italian energy company, Enel SpA, introduced the instrument in September 2019. SLBs make it easier for companies to tap the flood of money from ethically minded investors. But they’re also facing increased criticism from those who say many of the bonds come uncomfortably close to greenwashing, doing more for a company’s reputation and borrowing costs than for its purported goal.
It’s debt that can carry the benefits of green bonds -- the so-called greenium, meaning lower interest rates compared with conventional bonds -- without the restrictions that come with green bonds, whose funds must be spent on specific environmental projects. Instead, the notes hinge on companies pledging to do more general kinds of good and agreeing to pay penalties if they fall short of expectations.