KWEE The SLB format applies to all sectors because it is not only about green or project finance. Issuers can tie social targets and KPIs into bond financing. Some sustainability-linked loans (SLLs) already have these included as targets and the format could suit governments, supranational issuers and other parts of the capital market as well.

DIXON The main challenge is to set really ambitious targets. Distinguishing the purpose of the bond as opposed to the ordinary course of business could be difficult for a government. For example, it is the job of government to run hospitals and we would not want to have an SLB associated with these goals. Targets should be more of a stretch.

I think keeping the targets reasonably concentrated – meaning one or two rather than a laundry list – helps with pricing. The more complicated it gets, the harder it is to figure out what will pay off. This would also be a challenge for governments in choosing which targets to include.

GIFFORD We think the SLB space is very exciting for financial institutions (FIs) and ANZ group treasury is looking closely at it. On the other hand, there are a couple of technical points we will need to work through.

The first is consequences for bank capital. Last year we were able to do a UOP tier-two bond but the coupon change involved in an SLB is something the EBA [European Banking Authority] has commented on. It is not allowing European bank SLB issuance for capital purposes and we think APRA [Australian Prudential Regulation Authority] may understandably view this in a similar way.

At the moment, this limits issuance to senior bonds – and the impediment there is excess liquidity and a lack of funding need.

We think there is room for structural innovation in the use of SLBs for bank capital, perhaps not with a coupon chain but with other mechanisms. This is being worked on in Europe and we are watching developments closely.

DANN We have had conversations with all types of borrowers. For some issuers, including governments, an SLB is a more complex proposition than it is for a corporate. The most challenging aspects are stakeholder endorsement of targets and agreement to a potential increase in cost of capital as a result of failure.

Sustainability coordinators try to incorporate the views of investors, who are pushing for ambition in sustainability-linked transactions. I agree that the key goal is discerning what the issuer can reasonably commit to that is ambitious but also achievable.

MOTTOLINI We have been approached by various potential issuers since our SLB, including one government-sector issuer. It wanted to understand the complexities of pulling together an SLB and expressed similar thoughts about the complications for state treasury teams. Wesfarmers is a pretty diverse company, but the state treasuries are much more diverse.

Also, it would be difficult to convince the appropriate hierarchy to set targets that might incur a penalty. There is obviously appetite but also a lot of complexity.