Johnson Controls treasurer pushes investors to tie coupons to climate ambition | IFR – International Financing Review

Johnson Controls treasurer pushes investors to tie coupons to climate ambition | IFR – International Financing Review

The treasurer of building product and safety conglomerate Johnson Controls is calling for investors in the sustainability-linked bond market to differentiate between companies that are setting aggressive environmental goals and those that are aiming for easier targets as they tap into demand for ESG related investments.

A sustainability-linked bond ties a company's borrowing costs to its performance on certain environmental targets, such as reducing greenhouse gas emissions or water usage. The interest cost on the bond increases if the company fails to meet those key performance indicators by a certain date. But in almost every deal brought to the market since 2019, the coupon "step-up" penalty has been largely the same, regardless of how ambitious or achievable the target is. In most cases the company pays an extra 25bp if it fails to meet its target.

Marc Vandiepenbeeck, vice president and treasurer at Johnson Controls, said it is time the market started to differentiate.