The Eurosystem has been accepting sustainability-linked bonds as eligible collateral since the start of 2021. These assets are sometimes also referred to as SDG (Sustainable Development Goal) bonds and have coupon structures linked to certain sustainability performance targets (SPTs). The standard arrangement for the issuer of the bond is to commit to paying an additional premium on the coupon, in the event of failure to meet a self-imposed sustainability target. By issuing such bonds, the issuer confirms its willingness to conduct its own business more sustainably in future.
To be considered eligible, the bond must comply with all the relevant requirements for marketable assets (such as minimum rating, listing, custody, etc.). In addition, the issuer’s self-imposed SPTs must be clearly linked to one or more of the United Nations Sustainable Development Goals accepted by the Eurosystem, or one of the objectives set out in Article 9 of Regulation (EU) 2020/852 (EU Taxonomy Regulation). This link must be made not just by the issuer itself (ideally in a publicly available issuance document), but also has to be confirmed by a qualified independent third party. This independent third party also checks the targets and whether they are met. Eligible sustainability-linked bonds are also eligible for purchase under the monetary policy asset purchase programmes, subject to compliance with programme-specific eligibility criteria.
The ECB has published FAQs giving further details on the eligibility of sustainability-linked bonds. The FAQs also cite specific sustainability targets, which the Eurosystem currently considers acceptable in terms of eligibility as collateral and eligibility for purchase. By including these instruments, the Eurosystem is signalling its support for innovation in the area of sustainable finance. “Traditional” green bonds, where the proceeds are earmarked for specific green projects (known as “use of proceeds” bonds), have always been eligible, subject to compliance with all relevant eligibility criteria.