What are the main ESG bond structures, and how do they price versus conventional bonds?

• Green bond: Proceeds are earmarked for eligible environmental projects such as renewables, energy efficiency, clean transport, or green buildings.
• Social bond: Proceeds finance social projects, such as healthcare access, education, or affordable housing.
• Sustainability bond: Combines green and social use-of-proceeds categories.
• Sustainability-linked bond (SLB): Proceeds are not restricted, but coupon economics are linked to issuer-level ESG KPIs, such as CO2 reduction. If targets are missed, coupon step-up is common, often around 25 bps.

Green bonds can trade slightly tighter than conventional bonds from the same issuer, often called a 'greenium.' The benefit may be small, for example 1-8 bps, but it can broaden the investor base and improve execution. SLBs often receive less greenium because proceeds are general corporate purposes and credibility depends on KPI quality.

A 5 bps pricing benefit on a large multi-year bond can be meaningful, but the larger value is investor access, ESG signaling, and strategic financing alignment.