EUR 1.0bn: Slovenia Issues Its First Sustainability-Linked Bond

• Slovenia commits to reducing GHG emissions with this bond issuance.
• The country ties its financial obligations to environmental performance.
• This is the first sustainability-linked bond issued by a European government that connects public finance with sustainability performance.

The Republic of Slovenia has raised €1 billion from international markets through its first-ever Sustainability-Linked Bond (SLB) issue.

The 10-year bond has a fixed interest rate of 3.125%, will mature on July 2, 2035, and is the first SLB ever issued by a European government linking public finance with sustainability goals.

Structured under Slovenia’s Sustainability-Linked Bond Framework, the bond is tied to the Central European nation's climate goals. This framework aligns with the 2024 guidelines of the International Capital Market Association (ICMA) and was reviewed by S&P Global, which provided a second-party opinion on its alignment with sustainability principles.

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The interest rate is tied to the country's total annual greenhouse gas (GHG) emissions (a Key Performance Indicator), and two Sustainability Performance Targets (SPTs) have been set as follows:

• SPT 1.1: A 35% reduction in GHG emissions by 2030, compared to 2005 levels; and
• SPT 1.2: A 45% reduction in GHG emissions by 2030, also compared to 2005.

The interest rate will go up by 0.5% if Slovenia does not meet SPT 1.1 or is unable to release a progress report starting in the ninth year, 2034.

If it executes SPT 1.2, the interest rate will come down by 0.5% starting in 2034. This approach is pretty much similar to the carrot-and-stick method, with both incentives and penalties.

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Slovenia enlisted BNP Paribas as the ESG Structuring Agent, which helped establish the framework and align it with international sustainability standards.

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Source: Slovenia Govt.