Mechanisms to Prevent Carbon Lock-in in Transition Finance

Annex A. Glossary

• Carbon lock-in Carbon lock-in occurs when fossil fuel infrastructure or assets (existing or new) continue to be used, despite the possibility of substituting them with low-emission alternatives, delaying or preventing the transition to near-zero or zero-emission alternatives (OECD, 2022[1]).

• Green bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible green projects and which are aligned with the four core components of the Green Bond Principles (ICMA, 2021[2]).

• Key Performance Indicators (KPIs) are quantifiable metrics used to measure the performance of selected indicators.

• Sustainability-linked bonds (SLBs) are any type of bond instrument for which the financial and/or structural characteristics can vary depending on whether the issuer achieves predefined sustainability or ESG objectives (ICMA, 2020[3]).

• Sustainability-linked loans (SLLs) are any types of loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) which incentivise the borrower’s achievement of ambitious, predetermined sustainability performance objectives. The borrower’s sustainability performance is measured using sustainability performance targets (SPTs), which include key performance indicators, external ratings and/or equivalent metrics and which measure improvements in the borrower’s sustainability profile (LMA, 2019[4]).

• Sustainability bonds are any type of bond instrument where the proceeds or an equivalent amount will be exclusively applied to finance or re-finance a combination of both green and social projects (ICMA, 2021[5]).

• Sustainability Performance Targets (SPTs) are measurable improvements in key performance indicators on to which issuers commit to a predefined timeline. SPTs will be ambitious, material and where possible benchmarked and consistent with an issuer’s overall sustainability/ESG strategy (ICMA, 2020[3]).