The Republic of Slovenia announced its inaugural sustainability-linked bond (SLB) offering, raising €1 billion from the issuance of a new 10-year benchmark issuance, with interest tied to the country’s performance towards its 2030 greenhouse gas emissions targets.

The offering is the first-ever sustainability-linked bond from a European Sovereign, marking a significant milestone for SLBs. After significant early growth, the volume of sustainability-linked bond offerings have declined significantly over the past several quarters on investor concerns over the credibility and robustness of the bonds’ linked sustainability targets.

Despite the recent softness in the SLB market, demand for the bond was strong, with the offering more than 6x oversubscribed.

The new bond utilizes a step-up/step-down mechanism, with its final coupon payment tied to Slovenia’s 2030 climate goal under its National Energy and Climate Plan (NECP), with a target to reduce GHG emissions by 35%-45% by 2030. According to the terms of the bond, the interest rate payable will increase by 50 basis points if Slovenia does not achieve the lower end 35% reduction, and will decrease by 50 basis points if it does achieve the higher end 45% goal.

In a statement released announcing the results of the offering, Slovenia’s Ministry of Finance said:

“The issuance of this SLB highlights the Republic’s commitment to advancing the sustainable instruments market, providing a complementary financial instrument that aligns with global sustainability objectives. By launching this SLB, Slovenia not only expanded its investor base but also reinforced its dedication to achieving substantial reductions in greenhouse gas emissions, thereby contributing to global efforts to combat climate change.”