Scaling the market for sovereign sustainability-linked instruments

Produced by the Sustainable Sovereign Debt Hub in partnership with the Inter-American Development Bank, this report draws on a survey of institutional investors managing an estimated US$11.5 trillion in assets to understand what is needed to scale the market for sovereign sustainability-linked instruments.

Although the sovereign sustainability-linked debt market has grown quickly, it still represents only around 0.7% of the roughly US$99 trillion global sovereign debt market. The survey asked institutional investors about the main barriers to further growth.

Key findings

Investors are ready to invest, but pricing remains the biggest obstacle.
All survey respondents said they are able to invest in sovereign sustainability-linked bonds (SSLBs), and three-quarters have already done so. Even so, difficulty pricing SSLBs was the most frequently cited constraint, followed by limited index inclusion and information gaps between issuers and investors.

Investors trust credible targets, not vague ones.
Every respondent ranked the ambition and credibility of sustainability performance targets (SPTs), and the strength of their verification, among the most important factors when evaluating an SSLB. Yet 58% said existing guidance requires further improvement, with the biggest gaps relating to KPI selection, SPT calibration and reporting standards.

Credit enhancement and debt conversions are underused, not undervalued.
Three-quarters of respondents said they would consider SSLBs with credit enhancement, and all of those respondents would accept a partial credit guarantee from a multilateral development bank. However, complexity and limited familiarity with these instruments remain significant barriers to uptake.

Why this matters

Structural and informational gaps, rather than limited investor appetite, are constraining the SSLD market. Standardised guidance, stronger issuer engagement and greater transparency could materially improve how confidently and efficiently investors price and evaluate these instruments.

Together, these measures could reduce complexity, strengthen credibility and support broader investor participation, unlocking more capital for countries pursuing sustainability-linked financing.

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