Sustainability-Linked Bonds and Credit Enhancement: New Approaches for PDB Financing

Jean-Baptiste Jacouton, Djedjiga Kachenoura, Jonas David and Ulf Erlandsson

Working Paper from Agence française de développement

Abstract: The investments needed to achieve the Sustainable Development Goals, particularly in emerging markets and developing economies, require the mobilization of more available capital. Public development banks (PDBs) can play a key role in scaling up sustainable finance and driving transformative investments but need access to affordable, long-term funding.In this context, we assess the suitability of performance-linked debt structures, specifically sustainability-linked bonds, as a source of funding. Combining such bonds with credit enhancements, like guarantees, has the potential to reduce the cost of capital and crowd in investors – both would help to achieve sustainability goals.As an innovative solution, we propose Contingent Resilience-Linked (CORL) bonds with a partial credit enhancement that is activated if performance targets are reached. This novel concept makes it possible to address fundamental issues relating to sustainable bond markets, in particular reconciling lender/borrower incentives. Finally, CORL bonds could help mobilizing additional private capital through development banks.

JEL-codes: Q (search for similar items in EconPapers)
Pages: 50
Date: 2025-05-22
References: Add references at CitEc
Citations:

Published in Research Papers

Downloads: (external link)
https://www.afd.fr/sites/afd/files/2025-05-12-38-29/PR_347_VA.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:avg:wpaper:en18149

Access Statistics for this paper

More papers in Working Paper from Agence française de développement Contact information at EDIRC.
Bibliographic data for series maintained by AFD ().