Sustainability-linked bonds include financial incentives (e.g., interest rate rebate/penalty scheme) linked to the achievement of pre-specified sustainability targets. In the context of coal transition financing, the targets typically would include a reduction of carbon emissions or an increase in renewable generation capacity.

Case study

Tauron Polska Energía bond

Key elements

Size of issue: Five-year bond of PLN 1 billion ($250 million).

Use of proceeds: To increase renewable energy capacity and undertake grid upgrades allowing for the integration of higher volumes of intermittent renewable energy sources. Proceeds cannot be used for new or existing coal-fired power plants.

• Santander Bank Polska is coordinator, lead arranger and bookrunner of this bond, while the EBRD subscribed for 24% of the bond (PLN 240 million).

• Two key sustainability targets (interest rate is increased if these indicators are not met):

• Annual reduction of CO2 emissions per MWh of at least 2%.
• Annual increase of renewable generation capacity of at least 8%.

Benefits of this structure

• Provides a clear financial incentive to reduce emissions and increase renewables capacity.

• Maintains flexibility on how the sustainability targets can be achieved. 

• Funds are raised from a diversified pool of investors, including a development bank cornerstone investor, which helps spread risk and lower the cost of financing.

Enabling conditions 

• Ability to measure emissions accurately and reliably.

• Ability to verify that company has not spent funds on new or existing coal plants.

• The issuer developed a programme to address the impact of its intended business transformation on its workforce; for example, identifying opportunities for reskilling, and implementing certified retraining.