From the Collaborative Bond and Money Market Data Portal
The Transition Linker is a sovereign bond where the coupon level adjusts in several steps if the issuer under- or outperforms vis-à-vis externally committed transition decarbonisation targets.
A Transition Linker can be useful in asset allocation with the investment hypothesis that risky asset returns will be lower and/or more volatile in case of an unsuccessful transition. At the same time, the linker provides cost-of-capital incentives for the issuer (the government) to generate policies that increase the transition likelihood.
The linker can be used to derive implied probabilities of reaching transition targets, providing investors, the general public and the issuers themselves important real-time information on transition progress.
