Insights from Thailand’s issuance of sovereign sustainability-linked bonds

THAILAND’S launch of a 30 billion Thai baht (S$1.2 billion) sustainability-linked bond (SLB) marks a notable advancement in the sovereign-labelled debt market. While some corporate SLBs have faced allegations of greenwashing and investor scepticism about enforceability and impact, if managed appropriately, sovereign SLBs could offer a viable alternative for developing countries to finance national sustainability strategies.

SLBs are distinctive in that they link the bond’s coupon to the achievement of specific environmental, social or governance targets.

This “carrot-and-stick” approach can be an effective way to incentivise sustainable practices. Thailand’s issuance will be the first sovereign SLB in Asia and the first non-South American sovereign SLB to come to market. Additionally, issuing in the Thai currency will bolster local capital-market development, although it may limit participation of certain international investors.