This chapter explores why investors may allocate their capital to sustainable bonds and the factors that may drive issuers to issue sustainable bonds rather than conventional bonds with similar characteristics, including the existence of a premium for sustainable bonds. It also discusses trends in the oversubscription of sustainable bonds and the liquidity of sustainable bond markets, as well as market features that may affect the protection of sustainable bond investors.
Sustainable Bonds
Trends and Policy Recommendations
Abstract
Sustainable bonds present the same rights and risks to their holders as conventional bonds, but they also create a commitment. In the case of GSS bonds, the issuer ordinarily commits to having developed or to plan to invest in eligible sustainable projects with a value that is equal to or higher than the outstanding value of the GSS bonds it has issued. In the case of SLBs, the issuer commits to reaching sustainability performance targets, such as reducing its greenhouse gas emissions. The potential for these commitments to effectively change the investment decisions of companies and the official sector, as well as whether investors assign any value to such commitments, are central to determining the presence of incentives for issuers and investors.
Investors may have at least three main reasons for acquiring a sustainable bond instead of a conventional bond with similar characteristics. First, individual investors and clients of institutional investors may be concerned about the social and environmental impact of their investments, or face pressure from other relevant stakeholders to demonstrate such concern. Second, investors with well-diversified portfolios may consider how the externalities of the companies they invest in might affect their long-term financial return. Third, there may be a public policy that incentivises investments in sustainable bonds.
3.1.1. Sustainability-conscious investors and stakeholders
Individual investors can buy a bond through a brokerage firm. Arguably, in most cases, they will have neither the sophistication nor the time to assess the bond’s legal documentation and the issuer’s business in detail. In the same way that one of these investors may consult the credit rating of the issuance to assess the credit risk profile of the bond, a sustainability-conscious investor might prefer to invest in a bond labelled as “sustainable”, trusting that it will have a better social and environmental impact than a conventional bond.
Individual investors may often prefer to invest in capital markets through a professional investor, such as an asset manager or a pension fund. In this case, the individual investor will ordinarily choose among several investment vehicles that allow managers different levels of discretion on how to select assets to invest in. The mandates in these vehicles can restrict, for instance, the asset classes managers can acquire and, more recently, some of them promise to consider environmental and social matters in the investment-making‑ process. In January 2024, investment funds self-labelled as “sustainable” accounted for USD 1.3 trillion, or 2.8% of the total assets under management of investment funds globally (OECD, 2024[11]).
The precise obligations of asset managers and other professional investors when selecting bonds to invest in will largely depend on their contracts with their investors. In some cases, managers may need to simply follow an index composed of sustainable bonds and, therefore, they would not be able to buy conventional bonds. In most other cases, however, a mandate to consider both financial returns and the sustainability-related impact of investments may not mean that asset managers can only acquire sustainable bonds for their fixed-income portfolio. For instance, investing in the conventional bonds issued by a company with a positive social and environmental impact may be well-aligned with the sustainability-related goals of the asset managers. Nevertheless, it is undeniable that the label of “sustainable” may be attractive for some asset managers with sustainability-related goals merely from a compliance perspective.
In a less direct way, insurance companies, banks and governments may decide to invest in sustainable bonds to improve their reputation as “sustainable” as a response to external pressure. For instance, an insurance company may invest part of their reserves in sustainable bonds to advertise that it is a “sustainability conscious” institution and, subsequently, attract more clients, even if the insurer does not offer any product labelled as “sustainable”. As another example, banks may face pressure from civil society organisations if their credit portfolio is concentrated in high-polluting companies, which can arguably harm their reputation with some environmentally-conscious clients and employees.
Sovereign Wealth Funds and central banks may also face relevant pressure from civil society organisations to consider sustainability-related matters in their asset allocation decisions because citizens are de facto the final beneficiaries of the government’s holdings. Central banks, which are typically the main holder of securities in the official sector, acquire (especially sovereign) bonds for two main reasons: (i) due to central banks’ asset purchase programmes (i.e. quantitative easing), and (ii) to establish foreign-currency reserves. In that regard, there is evidence that governments’ holdings of conventional and sustainable bonds differ (OECD, 2024[11]). Additionally, a few central banks have sustainability objectives in their mandates (Dikau and Ulrich, 2021[12]), including the European Central Bank (European Central Bank, 2022[13]). A decision to set a sustainability objective for central banks may consider not only the environmental and social impact of its portfolio, but also the example it wishes to set for institutional investors in terms of good sustainability-related policies and practices.
Most G7 central banks have not bought sustainable bonds as part of their asset purchase programmes, (OECD, 2024[11]). As central banks’ asset holdings are substantial (USD 23 trillion in G7 countries alone), the absence of some major central banks from the sustainable bond market greatly affects the investor base compared to conventional bonds. Among G7 countries, the only central bank that holds a significant amount of sustainable bonds is the European Central Bank (ECB), which between 2018 and 2022 purchased an increasing amount of corporate and government sustainable bonds (Elderson and Schnabel, 2023[14]). Nevertheless, most central banks have discontinued their asset purchase programmes and are unwinding their balance sheets since the beginning of the monetary policy tightening cycle in 2021.
Concerning foreign reserve holdings, central banks held roughly USD 12 trillion in different asset types as of September 2023 (IMF, 2023[15]), representing approximately 20% of the global sovereign bond market. The main objectives for keeping reserves are to work as a buffer to finance required imports, provide assurances to the market that the government can honour its foreign exchange debt obligations, intervene in the foreign exchange markets, and provide some space to maintain price and financial stability in the face of large exchange rate swings (Schanz, 2019[16]). To meet these goals, central banks often choose liquid and safe securities that still provide some return, which can include conventional and sustainable bonds.
Sustainable bonds provide the same rights and present the same risks to their holders as conventional bonds. For instance, a sustainable bond and a conventional bond issued by the same entity with similar characteristics can have the same credit risk. Sustainable bonds tend not to have differences in price due to their sustainability-related commitments and have only a slightly lower liquidity (Figure 3.6). The more limited liquidity of sustainable bonds may explain why central banks do not often acquire them, because being able to sell an asset quickly is essential to their activity. The relatively small importance of sovereign sustainable bonds in the market for all sovereign bonds (Figure 2.13) might be another important explanatory factor.
3.1.2. Portfolio management
Even for investors who are not concerned with the social and environmental impact of their investee companies, a decision to invest in sustainable bonds may still maximise their financial return for a given level of risk. This would be true in two circumstances. First, where the investor wants the company to adopt a new business strategy that better accounts for long-term environmental and social trends such as climate change, and, therefore, a strategy that would maximise the company’s value.
Second, where the investor wishes the company to reduce its negative externalities (or increase its positive ones) despite a possible reduction of the company’s value, but with the view that the benefit for the investor’s other investee companies would more than compensate the loss in value for the first company. An example of the second circumstance would be the reduction in GHG emissions by an investee major energy company that would facilitate the transition to a low carbon economy, which would be financially positive for investee companies in the tourism sector with assets in tropical regions.
In either of the above circumstances, it is important to highlight that, at least potentially, the commitments in a sustainable bond contract can alter the decision making process of a company more efficiently than, for instance, buying equity shares in the same company. For example, an SLB with ambitious targets for a company to reduce GHG emissions and a meaningful potential coupon increase in case the target is not met could be more effective in changing corporate behaviour than a minority equity stake, where the investor would not be in a position to alter the company’s strategy.
3.1.3. Public policies
Some jurisdictions offer favourable regulation and financial incentives to encourage investments in sustainable bonds, including tax credit bonds, direct subsidy bonds, and tax-exempt bonds (CBI, 2022[17]). Tax credit bonds offer investors the opportunity to receive tax credits in lieu of traditional interest payments. Direct subsidy bonds are another option that provide government cash rebates to offset net interest payments. Tax-exempt bonds, for instance municipal bonds in the U.S. and wind projects in Brazil, allow investors to avoid income tax on interest.
Some central banks are also supporting sustainable investments to meet climate targets, often through favourable policies for sustainable bonds (European Central Bank, 2022[13]). These measures may include lower capital requirements or preferential treatment in risk-weighting assessments, making such bonds potentially more attractive to financial institutions.
Banks hold bonds, among other reasons, to meet liquid asset requirements and manage their short-term liquidity. To achieve these two objectives, banks use bonds as collateral for repurchase agreements (repo) transactions with other institutions, namely the central bank or the country’s debt management office (DMO). Therefore, the eligibility of an asset for meeting liquid asset requirements and to be used for repo transactions is a major incentive for banks to hold a security. An analysis of the repo eligibility of sustainable bonds issued by governments and corporates reveals that, as of 2023, sustainable bonds were mostly eligible in Europe, which helps explain why European banks held 84% of all banks’ holdings in sustainable bonds. More specifically, of the 41 sovereign sustainable bonds that are repo eligible with central banks, 38 were eligible in European countries (32 eligible with the ECB, 4 in the United Kingdom and 2 in Hungary); of the 823 corporate sustainable bonds that are repo eligible with central banks, 750 are eligible with the ECB; and of the 501 agency and supranational sustainable bonds that are repo eligible with central banks, 463 are eligible in European countries (457 with the ECB, 4 in Sweden and 2 in Switzerland) (OECD, 2024[11]).
3.1.4. Stewardship codes
The G20/OECD Principles of Corporate Governance recognise stewardship codes as a mechanism that may complement regulatory requirements to encourage institutional investors’ engagement with their investee companies (Principle III.A). As a matter of fact, stewardship codes increasingly recommend integrating sustainability considerations into the engagement and voting policies of institutional investors.
Japan’s Stewardship Code provides that institutional investors are responsible for enhancing their investee companies’ corporate value and sustainable growth, taking into consideration ESG factors (Financial Services Agency, 2020[18]). Similarly, the Brazilian Stewardship Code states in its third principle that institutional investors should integrate ESG factors in their investment processes and scrutinise their impact on the sustainable development of the securities’ issuers (Associação de Investidores no Mercado de Capitais, 2016[19]).
According to the UK Stewardship Code, stewardship allows the creation of long-term sustainable value creation for clients and beneficiaries. The code also recognises the significant increase in investments other than listed equity. In this respect, it includes reporting expectations for fixed income investments such as the review of prospectus and transaction documents (Financial Reporting Council, 2025[20]).
The growth of the sustainable bond market might reflect investors’ increasing focus on sustainable and responsible business issues as an incentive to invest in these assets. Nevertheless, it is not clear whether these assets provide economic incentives to issuers by trading at a premium, which is defined, for sustainable bonds, as a “greenium”. At the same time, the oversubscription of sustainable bonds may also indicate that the market positively prizes sustainability, which could lower financing costs, attract investors and strengthen issuers’ sustainability strategies. An analysis of these two components follows.
It is worth noting that, beyond economic incentives, issuers of sustainable bonds may also benefit from other advantages, such as reputational and strategic benefits, which can help attract a more diversified investor base.
3.2.1. The “greenium” in the bond markets
Essentially, a greenium infers that the yield an investor accepts to invest in a green asset is less than the yield the same investor would be willing to accept to invest in an equivalent conventional asset. This means that the issuer of the bond can obtain financing at lower cost when issuing a green security. This differentiation manifests itself in the primary market as a higher price for the green bond compared to a conventional bond at issuance. The existence of a greenium in secondary markets would imply that a green bond is being traded at a superior price – or a lower yield – compared to a conventional bond with similar traits. This indicates that an environmentally conscious investor is willing to receive a reduced yield in return for the chance to contribute to a greener alternative.
Several methodologies and key variables have been used for the potential identification of a greenium, with different, and not always consistent, results. The literature indicates varied outcomes concerning the presence of a green premium in the primary market, while showing a more consistent outcome on the secondary market (MacAskill et al., 2021[21]). The mixed findings suggest that if the greenium does exist as an incentive for issuers of sustainable bonds, it is generally minimal – with possible exceptions for some countries that are greatly vulnerable to the effects of climate change, transition and physical risks (Bolton et al., 2022[22]).
The results from an empirical OECD analysis are consistent with the studies on this topic. The premium for a bond being labelled as sustainable is not statistically significant and may depend on several variables that are not entirely related to the nature of sustainable or conventional bonds per se. Using a data sample consisting of 234 820 corporate bonds and 274 269 official sector bonds, and following the methodology in Bolton et al. (2022[22]), it has been possible to obtain two sets of quasi‑exact matched bonds for both categories: 7 556 matched bonds for corporate bonds and 1 686 matched bonds for official sector bonds. Further restrictions were then applied to combine bonds with the shortest distance in terms of maturity and issue date, reaching a final sample of 2 954 matched corporate bonds and 384 matched official sector bonds.
In these two sets, each sustainable bond perfectly matches one conventional bond by issuer, domicile, currency, coupon type (fixed vs. floating coupon), and seniority. Constraints of similar issue date, maturity date and amount issued were also applied. Matching sustainable and conventional bonds issued by the same entity is essential because differences between issuers can affect the characteristics of sustainable bonds in ways that are not immediately observable.
There is no statistically significant yield premium for sustainable bonds
Note: Only pairs of matched bonds are considered. Matching procedures are based on an exact matching methodology based on issuer, domicile, currency, coupon type, and seniority, and the nearest matching for issue date, maturity year, and amount issued. The dotted lines in the figure show the yield spreads for the corporate and official sectors, respectively. The yield spread is calculated as the difference between the average yield to maturity of conventional bonds and that of sustainable bonds in the sample. A positive value, therefore, indicates a lower yield for sustainable bonds.
Source: OECD Corporate Sustainability dataset, LSEG.
The empirical work’s main result, consisting of applying a t‑test and a basic linear regression model, found no statistically significant evidence of a premium, here expressed as the impact of being labelled as sustainable on the yield to maturity. When looking at the difference in the yield to maturity between sustainable bonds and their matched conventional bonds, the trends do not show any particular and constant differences (Figure 3.1). Furthermore, when looking at the average premium calculated by currency and issuer’s domicile, not only is the constant absence of a premium for “sustainability” confirmed, but a potential common trend is also missing. Examining the averages for the official sector during the 2018‑2024 period, the sustainable premium of 17 basis points indicates that sustainable bonds had a slightly lower yield than conventional bonds. Conversely, in the corporate sector, the yield spread had the opposite side, with a difference of +18 basis points between the yield of sustainable and conventional bonds. However, in both cases, the model shows no evidence of a systematic difference in the yields.
Neither currency nor domicile seem to affect the yield spread between green and conventional bonds
Note: Only pairs of matched bonds are considered. Matching procedures are based on an exact matching methodology based on issuer, domicile, currency, coupon type, and seniority, and the nearest matching for issue date, maturity year, and amount issued. The average yield difference by currency and country (domicile) is calculated on the entire dataset of sustainable bonds, from both the corporate and official sectors.
Source: OECD Corporate Sustainability dataset; LSEG.
Yield spread varies across conventional and sustainable bonds, with no systematic evidence of a greenium
Note: Only pairs of matched bonds are considered. Matching procedures are based on an exact matching methodology based on issuer, domicile, currency, coupon type, and seniority, and the nearest matching for issue date, maturity year, and amount issued.
Source: OECD Corporate Sustainability dataset, LSEG.
3.2.2. Trends in oversubscription
Large issuances of green bonds in EUR and USD in recent years consistently showed slightly higher average oversubscription ratios (orders received over the value of the issuance) than conventional ones. The oversubscription ratios for USD-denominated bonds ranged from 2.6 to 5.2 for green bonds and from 2.3 to 3.3 for conventional bonds (Figure 3.4).
Investor demand for green bonds consistently exceeded the amount offered in the recent years
Source: Climate Bond Initiative.
3.2.3. Liquidity
Although the sustainable bond markets can benefit from the legal and regulatory environment for conventional bonds as well as the expertise of issuers and intermediaries, they can support the development of the sustainable bond markets only up to a certain point. Ultimately, a market is functional only to the extent that issuers and investors can find a counterpart to trade their security – that is if markets are liquid. Market liquidity refers to the degree to which trading an asset impacts its value. The wider and deeper the issuer and investor base for an asset, the more likely it is for investors to buy and sell assets without meaningfully affecting the current price, which reduces the costs associated with entering or exiting from a position in the market. Everything else held constant, there is a reinforcing loop in which the more issuers and investors are active in the market of an asset, the more attractive this market becomes for other investors and issuers due to the benefits of a liquid market. In that way, a diversified investor and issuer base is crucial for the development of markets.
This section assesses the liquidity of sustainable bond markets by comparing the bid-ask spread between a set of matched sustainable and conventional bonds in the corporate sector. The set of bonds is the same as in the analysis of the greenium, and the matching controls for, among other variables, the issuer, currency, issue date, and maturity year (see Annex A for details). The bid-ask spread refers to the difference between the price at which participants offer to buy and sell a security. It is the most used proxy for market liquidity and the one that conveys the most information in bond markets (Fleming, 2002[23]).
Figure 3.5 compares the weekly average bid-ask spread since issuance between sustainable and conventional bonds from the official sector. It shows that, out of the 202 matched bonds, in 136 of them the average bid-ask spread is higher for the sustainable bond than for their conventional counterpart. This pattern was observed in multiple countries – namely France, Germany, Hungary, Lithuania, the Netherlands, Spain, Sweden, and the United Kingdom. Exceptions are found in a minority of cases, such as in Poland and Serbia. The trend persists across the maturity spectrum, with bonds maturing from 2025 to 2051.
On average, the spread is 3.2 basis points higher for sustainable bonds. It is worth noting that this difference in the average for the bid-ask spread over time for paired bonds reflects a moderate but persistent liquidity gap, i.e. the tendency for the bid-ask spread to be modestly higher for sustainable bonds (see Annex A for bond-specific time series data).
Sustainable bonds in the official sector tend to be less liquid than their conventional counterparts
Source: OECD Corporate Sustainability dataset, LSEG, OECD calculations.
For corporate bonds, there is also a small tendency for conventional bonds to have a lower bid-ask spread compared to the corresponding sustainable bond pair. Figure 3.6 shows the distribution of the average differences in the bid-ask spread between 9 320 pairs of sustainable and conventional corporate bonds. This set of pairs covers companies from various continents and sectors, and securities with varying maturities. Although the distribution of these differences is centred around zero, meaning that finding a negligible difference in the bid-ask spread between the two types of instruments is more likely, a larger size of the distribution is on the right, which represents the cases in which the bid-ask spread is larger for sustainable bonds. A difference greater than 0.10 in the bid-ask spread occurs more frequently for sustainable bonds (25.2%) than for conventional ones (14.4%). On average, the bid-ask spread is approximately 10.6% wider for sustainable bonds than conventional ones. Additionally, the volatility of the spread confirms no consistent dominance in relative dispersion across bond types.
Liquidity tends to be slightly higher for corporate conventional bonds than for sustainable ones
Source: OECD Corporate Sustainability dataset, LSEG, OECD calculations.
3.3.1. Second party opinion providers
The market practice of providing a second party opinion on whether the bond contract is aligned with a specific sustainable bond standard and/or a taxonomy for sustainable activities imposes an extra cost for the issuance of sustainable bonds in comparison to that of conventional bonds. Nevertheless, second-party opinions can enhance investor protection. An independent assessment can improve investors’ ability to compare the bonds’ sustainability-related information and assess their investments’ potential sustainable impact. This can bring further transparency and credibility to the market. The ICMA Principles recommend but do not require a second party opinion for issuers to claim alignment with the standard.
These service providers have increasingly assured sustainable corporate bonds globally, reaching 81% of corporate bonds and 69% of official sector bonds in 2024.
Second party opinions are playing a growing role in assuring sustainable bonds
Source: OECD Corporate Sustainability dataset, LSEG.
3.3.2. Contracts
An analysis of a sample of 145 sustainable bonds issued between 2017 and 2024 can provide useful information on market practices for designing contracts. The sample is composed of the 72 largest issuances and 73 randomly selected issuances that have their prospectuses and legal documentation easily accessible in LSEG, Bloomberg or FactSet in English. These issuances belong to the following categories: GSS bonds issued by financial corporations (30); GSS bonds issued by non‑financial corporations (28); SLBs issued by financial corporations (20); SLBs issued by non‑financial corporations (31); GSS bonds issued by official sector entities (30); SLBs issued by official sector entities (6). The sample includes issuers from Australia, Bermuda, Brazil, Canada, Chile, China, Croatia, Estonia, France, Germany, Hong Kong (China), Israel, Italy, Japan, Jersey, Luxembourg, Mexico, New Zealand, Philippines, South Africa, Sweden, Thailand, Türkiye, the United Arab Emirates, the United States and Uruguay. The sample also includes multilateral institutions such as the African Development Bank and the European Union.
With respect to the “use of proceeds” of GSS bonds in the sample, three issues are worth noting: the possibility of refinancing; the existence of contractual penalties; and the commitment to provide annual assurance.
As allowed by the ICMA Use‑of-proceeds Principles, three‑fourths of the GSS bonds’ legal documentation mention that the refinancing of existing eligible projects with the proceeds is allowed. Nevertheless, the documentation does not estimate the share of financing versus re‑financing, differently from what the mentioned principles recommend. Notably, no prospectus in the sample specifically mentions that the proceeds would not be used for refinancing. The possibility of refinancing an eligible asset may incentivise the issuer not to sell it, but, evidently, no new investment will be made because the asset already exists. Actually, in some circumstances, it may even be negative for society to incentivise a company with access to the sustainable bond markets to keep an asset instead of selling it to another company that may be able to operate the asset more efficiently but which does not have easy access to public capital markets (for instance, if the former is a listed company and the latter is not).
No GSS bond prospectus in the sample refers to a contractual penalty if the issuer does not use all proceeds to finance or refinance eligible projects. As a matter of fact, the prospectus of a major non-financial corporate issuance defines that 70% of the proceeds would be invested in eligible green projects but the remaining would be used as working capital of the issuer. More than half of the legal documentation notes that non-compliance with the commitment to use proceeds for eligible projects would not be considered an event for the default of the GSS bond. Of course, this does not mean that issuers can simply disregard their obligation to use the proceeds according to what is defined in the bond contract. Moreover, while symptomatic of their lack of importance for market participants, some prospectuses may not have included penalties that are indeed established in the bond contract. However, leaving as the only recourse to investors filing a lawsuit for a damages award may not offer them enough safety in some jurisdictions, especially because the effective damage may be difficult to assess in such a case.
Still in relation to the GSS bonds in the sample, two‑thirds of the bonds’ documentation (64%) establishes that the issuer will provide an annual assurance of the use of proceeds (“allocation report”). In two cases, the assurance of the allocation reports will be published quarterly. This is a good practice and, if the chosen assurance provider is highly qualified and effectively independent from the issuer, the information will be valuable for investors. One‑third of the prospectuses (33%) establish that the issuer will provide an annual assurance – and, in two cases, a quarterly assurance – of the impact of the projects financed by the bond’s proceeds.
With regards to the sustainability-linked bonds in the sample, two issues are worth noting: the consequence of not reaching their sustainability performance targets; and the commitment to provide a report on the performance against the KPIs relevant to the targets.
All but three issuers in the sample face the same consequence if they do not meet the sustainability performance target(s) set in their SLB contract: an increase in the annual coupon rate after the predetermined date to reach the target (Figure 3.8). Increases range from 5 basis points (i.e. 0.05% per annum) to 85 basis points (i.e. 0.85% per annum). In 54% of the cases, the increase amounts to 25 basis points. Only in the case of three non‑financial corporate issuances, the “penalty” for not reaching the target was a one‑off payment of 10, 20, or 25 basis points. The money was to be donated either to eligible environmental organisations or local governments, or to be used to buy carbon credits and to fund green projects (and not paid to the bondholder as in all the other SLBs).
Interestingly, 39% of SLBs in the sample have only one Sustainability Performance Target (SPT), one‑third have two SPTs, and the remaining bonds have three SPTs.
Half of the SLBs foresee a 25‑basis points coupon increase if the sustainability performance target(s) are not met
Source: Bond legal documentation, OECD analysis and calculations.
Two-thirds (68%) of the SLBs’ prospectuses in the sample, including four SLBs from the official sector, commit to annually provide a report on the performance against the SPTs and relevant KPIs. For the other SLBs in the sample, such a report would be provided only after the targets were supposed to be met, or the prospectus did not mention a commitment to issue a performance report. For two sovereign SLBs in the sample, the reporting frequency is not annual for all KPIs because, as explained in the prospectuses, the assessments depend on costly data collection (e.g. satellite images).
The annual disclosure of the performance is a requirement by the ICMA Sustainability-Linked Bond Principles In some cases, it was also promised that an assurance provider would be hired to ensure the quality of the reports mentioned. While accounting and reporting on the issuer’s performance against relevant KPIs may be costly, in some cases the annual disclosure of this information – and not only when the target is supposed to be reached – may be material for investors. Particularly, this will be the case if targets are ambitious and the established penalties are relevant in relation to the yield of the issuance, because investors may incorporate the possibility of receiving a higher coupon in the future when pricing the SLB.
In any sovereign bond issuance, investors must be aware that it may be difficult for them to obtain or enforce judgements of foreign courts against a sovereign government. Specifically, in the case of SLBs, it may even be challenging for investors to enforce the payment of the due coupon increase in the national judiciary of the sovereign issuer if a sustainability performance target has not been met. The existence of a bond contract may not be considered sufficient reason to limit the power of newly elected officials to legislate and to establish public policies that are different from the ones envisaged at the time of the bond issuance. Of course, a change in a SLB contract or the decision of not paying the coupon increase contractually due would probably harm the reputation of the sovereign issuer with investors, and this may be enough to deter any incompliance.