Sustainability-linked finance: a lever for firm-level resilience innovation

Jose L. Resendiz, Nicola Ranger and Olivier Mahul

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Sustainability-linked finance (SLF) offers a promising pathway to close the corporate adaptation finance gap by linking borrowing costs to climate-resilience performance. However, current instruments fall short of their potential. Analysing 701 SLF instruments issued by 395 firms across real estate, electric utilities, and agrifood, we compare embedded key performance indicators (KPIs) with those disclosed in sustainability reports. Across adaptation, resilience, and combined MAR (mitigation–adaptation–resilience) themes, firms report 2,619 relevant KPIs, yet only 511 (19.5%) are embedded in financial contracts—leaving 80.5% unenforced. This fourfold gap highlights a significant opportunity to expand SLF coverage using metrics firms already track. The bottleneck is not data availability but a lack of standardised, verifiable A&R benchmarks. We propose a suite of process-based KPIs and contractual mechanisms to bridge this gap, enabling SLF to evolve into a credible, scalable tool for embedding climate resilience into corporate strategy and unlocking private capital for adaptation.

JEL-codes: G32 O32 Q54 Q56 (search for similar items in EconPapers)
Date: 2025-09
New Economics Papers: this item is included in nep-sbm
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