Climate Bonds (LINGO Incentives)

Governments and their national fossil fuel companies could leverage Green, Transition or Sustainability-linked Bonds by committing to a harvest-mode approach, reducing fossil fuel extraction by around 8% per year. This strategy would require them to refrain from starting new projects, aligning their debt obligations with climate goals without needing to undertake costly new initiatives. By meeting these targets, companies could benefit from lower borrowing costs and unlock additional funding, effectively incentivizing them to leave fossil fuels in the ground while enhancing their financial performance.

Uruguay, with the help of the Inter-American Development Bank (IDB), issued its first sustainability-linked bond (SLB) on October 20, tying its bond’s pricing to environmental goals from its Paris Agreement commitments. If Uruguay meets these targets, the bond’s yield will decrease. The bond attracted strong demand, with $3.96 billion in orders against $1.5 billion issued. Last week, the Japanese credit rating agency R&I raised Uruguay’s sovereign debt rating to BBB+ with a stable outlook, the highest in the country’s history.

Resources :

• CBI (2024) Sustainability-Linked Bonds: Building a High-Quality Market, Report, March 2024
• IDB (2022) Uruguay Issues Global Sustainability-Linked Bond, with IDB Support, Press Release, October 2022
• Leping Huang & al. (2023), Examining the interplay of green bonds and fossil fuel markets, Paper, October 2023
• OECD (2024), Sustainability-linked bonds : How to make them work in developing countries, and how donors can help, Report, March 2024