The issuer wants to lead the transformation to climate-smart healthcare, and the bond contributes to achieving their longer-term sustainability goals

Executive Summary

With the increased interest in green, sustainable, social, and blue (“labeled”) bonds, concerns over greenwashing have also increased. Labeled bonds are typical “plain vanilla” fixed income issues in the capital markets whose use of proceeds is addressed to environmental and social projects. However, a common criticism of labeled bonds is that they do not require the issuer to make enforceable achievements beyond the outcome expectations expressed in the use-of-proceeds framework.
Sustainability-Linked Bonds (SLBs) address this concern by shifting the focus from reporting on the use of proceeds to achieving pre-specified results from which tangible consequences follow. In short, an SLB is a bond whose structural characteristics (typically, the coupon rate) change if the issuer fails to achieve a pre-specified environmental or social performance target.
Netcare, a leading South African private healthcare provider, launched Africa’s first sustainability-linked bond in March 2021, with the target to reduce energy consumption (a reduction of 22% on the energy intensity per bed by 2023) and increase water efficiency. If the company achieves its mitigation and water efficiency targets, it will benefit from a step down in the coupon rate – that is, it will become less expensive for the issuer. The bond received a great deal of interest by institutional and private investors as demonstrated by the fact that it was oversubscribed. Standard Bank acted as arranger and sustainability agent.