Meaning and transaction use
ICMA's June 2024 principles describe performance-linked instruments whose proceeds can support general purposes. Their five components cover selecting indicators, calibrating targets, bond characteristics, reporting and verification. They recommend material, measurable, externally verifiable indicators and ambitious targets with a predefined timetable. [S1]
Proposed review method: trace each proposed indicator from its operational data source through calculation, verification, notification and the paying agent's instructions. Keep a separate schedule for each target and identify who owns the data, who signs the calculation and who confirms the resulting payment change.
Worked example
Illustrative assumptions only: a USD 100 million bond pays 6% annually. Its assumed terms add 25 basis points for each of the final two full years if a specified target is missed. Principal remains constant and there is no redemption, further adjustment or tax effect.
Scroll the table horizontally to view all columns.
| Item | Calculation | Result |
|---|---|---|
| Original annual coupon | 100,000,000 x 6% | USD 6,000,000 |
| Annual increase | 100,000,000 x 0.25% | USD 250,000 |
| Adjusted annual coupon | 6,000,000 + 250,000 | USD 6,250,000 |
| Two-year incremental cash cost | 250,000 x 2 | USD 500,000 |
Under these assumptions, the missed target adds USD 500,000 of undiscounted coupon cost. Assess that exposure alongside the issuer's proposed operating programme, budget and measurement evidence. These figures do not establish environmental impact or likely investor demand.
Proposed transaction review process
Map the measurement
Record the indicator, units, baseline, reporting perimeter and responsible operating team.
Review target support
Assemble the proposed investment plan, milestones and assumptions supporting management's target.
Read the payment mechanism
Trace observation date, evidence deadline, trigger and first affected payment in the documents.
Rehearse reporting
Run a sample calculation and route it through review, verification and notification before closing.
Evidence checklist
Indicator file
Definitions, data owners, source records and a reconciliation of the reporting perimeter.
Target file
Baseline, proposed milestones, budget, dependencies and documented management assumptions.
Bond documentation
Trigger clauses, adjustment amounts, dates and treatment of missing evidence or changed reporting boundaries.
Verification file
Reviewer scope, qualifications, engagement terms, reports and a timetable for delivery.
Decision framework
| Situation | Proposed action |
|---|---|
| Historical data has gaps | List the gaps and assess whether a consistent baseline can be supported before using it in investor materials. |
| An acquisition changes the group perimeter | Check the documented recalculation provisions and prepare a transparent reconciliation. |
| The target appears achievable without the proposed programme | Revisit the ambition assessment and supporting benchmarks. |
| Evidence will arrive after the stated deadline | Escalate the timing issue and identify the contractual consequence with the transaction's advisers. |
Common errors to check
- Using an indicator title without a reproducible calculation.
- Treating management's target as an achieved outcome.
- Omitting the period over which a coupon adjustment applies.
- Assuming a sustainability label establishes credit quality or investor demand.
Prepare the target-to-cash-flow review
Bring the draft framework, baseline data, operating plan and financing terms to a capital-raising discussion. Define the evidence gaps and responsible workstreams before approaching the proposed investor group.
Discuss the transactionPrimary references and editorial scope
- ICMA: Sustainability-Linked Bond Principles, June 2024
Definition, voluntary framework, five components and indicator/target guidance. Reference checked 17 September 2026.
General transaction education. The calculation is illustrative; the review process and checklists are proposed working methods. ICMA guidance is voluntary. Legal obligations and payment outcomes depend on the applicable documents and law.
General business information. Obtain advice appropriate to the legal, tax, accounting and financing facts. No offer, lender commitment or transaction outcome is represented. All worked examples use expressly assumed figures. Editorial draft date: 17 September 2026.
