What is a sustainability-linked bond? KPIs and SPTs

A sustainability-linked bond is the one ESG debt instrument where the money is not the point. A green bond or a social bond promises that the proceeds will fund a defined list of projects. A sustainability-linked bond makes no such promise. Instead the bond's own terms, its coupon or its structure, move with whether the issuer hits sustainability targets it set in advance. India got an operational framework for these on 5 June 2025. This guide covers what a sustainability-linked bond is, how KPIs and SPTs work, and what has to be disclosed. It is not investment advice.

What is a sustainability-linked bond under Indian rules?

The instrument entered Indian securities law through the umbrella definition. A SEBI amendment notification dated 11 December 2024 inserted Regulation 2(1)(oa) into the NCS Regulations, 2021, defining Environment, Social and Governance Debt Securities to include sustainability-linked bonds. The operational framework followed by circular dated 5 June 2025, now Chapter IX-C of the Master Circular for issue and listing of non-convertible securities, securitised debt instruments, security receipts, municipal debt securities and commercial paper dated 15 October 2025.

The same standards gate applies as for the other ESG labels: a security may carry the label only where it aligns with the International Capital Market Association principles, the Climate Bonds Standard, ASEAN Standards, European Union Standards, or a framework specified by an Indian financial sector regulator.

What separates this instrument from the rest is the absence of a use-of-proceeds test. There is no list of eligible project categories to satisfy, because the commitment is not about where the money goes. It is about what the issuer's numbers look like on a stated future date.

How do KPIs and SPTs work?

SEBI defines both terms in footnotes to the chapter, and the distinction is the mechanism.

A Key Performance Indicator is a quantifiable metric used to measure the performance of a selected indicator. A Sustainability Performance Target is a measurable improvement in a key performance indicator, to which the issuer commits on a predefined timeline. The footnote adds that SPTs should be ambitious, material, and where possible benchmarked and consistent with the issuer's overall sustainability or ESG strategies or sustainable development policies.

The offer document has to explain both, and the required disclosures go further than naming them. The issuer discloses the definition of each KPI, the calculation methodology and the benchmarks referenced; the rationale and the process by which those KPIs were selected, and how each fits the issuer's sustainability strategy and addresses the relevant environmental, social or governance challenge; then the definition, calculation methodology and benchmarks for each SPT linked to those KPIs.

That footnote sets out three benchmarking approaches to be used in combination: the issuer's own performance over time, with the three-year track record recommended and forward-looking guidance on the KPI where possible; the issuer's peers, positioned against average or best-in-class performance or against current industry or sector standards; and reference to science, meaning science-based scenarios, absolute levels such as carbon budgets, or official country, regional or international targets including the Paris Agreement and net zero goals, the Sustainable Development Goals, and the Kunming-Montreal Global biodiversity framework.

What else goes in the offer document?

Beyond the KPIs and the targets, Annexure IX-C-B Part I requires the issuer to disclose the rationale for issuing a sustainability-linked bond and its consistency with the issuer's overall sustainability and business strategy, the taxonomies and standards referenced, and the system for tracking target achievement, for which the issuer may form a sustainability or ESG committee.

Then the parts that describe the payoff. The issuer discloses the timelines for target achievement, including target observation dates or periods, the trigger events, and the frequency of SPTs. It discloses how it intends to reach the targets, describing the ESG strategy, governance, investments and operating levers, quantified where possible. It discloses the financial or structural characteristics of the bond that will vary with the level of accomplishment of the selected KPIs, and the events that would trigger that variation. It discloses any fallback mechanism if an SPT cannot be calculated or observed satisfactorily, and any potential exceptional or extreme events, including drastic regulatory or technical changes, that could substantially affect KPI calculation or force an SPT restatement. It discloses the mitigation plan for risks that could significantly affect target achievement, and any other key factors beyond its direct control. Where the issue refinances existing debt, it discloses that debt and the amount outstanding.

What continues after listing?

Two things go with the annual report and financial results. Up-to-date information on the performance of the selected KPIs, including baselines where relevant. And a verification report by an independent third-party reviewer covering performance against the SPTs, the related impact, and the timing of that impact on the bond's financial or structural characteristics.

That second item is the whole instrument in one line. Whether the coupon steps up or the structure changes is a factual question about a verified number, disclosed annually.

The reviewer's mandate is correspondingly wider than on a use-of-proceeds bond. Under Annexure IX-C-B Part III the issuer appoints an independent reviewer to assess and certify the relevance, robustness and reliability of the selected KPIs; that the KPIs are materially linked to the issuer's core sustainability and business strategy; the rationale and level of ambition of the proposed SPTs; the relevance and reliability of the benchmarks and baselines; the credibility of the strategy to achieve the SPTs, based on scenario analyses where relevant; any material change to KPI methodology or SPT calibration; and the annual report on performance against the SPTs. The reviewer must be independent of the issuer and its key managerial personnel, remunerated so as to prevent conflicts of interest, and expert in assessing ESG debt securities. A SEBI-registered ESG rating provider is also eligible.

A sustainability-linked bond turns a sustainability claim into a term of the security itself, which is why its disclosure package is built around targets, trigger events and an annual verified number rather than a project list. The use-of-proceeds alternatives are covered in what are green debt securities and what are social bonds, and the two approaches are set side by side in green bonds vs sustainability-linked bonds. Flock reports public regulatory filings with every claim sourced and dated. What any of it means for your money is your call to make.