An Overview of Sustainability-Linked Derivatives
Warren Buffett, the billionaire investor and CEO of Berkshire Hathaway, famously referred to derivatives as "financial weapons of mass destruction". Over 20 years since that famous remark, far from being perceived as a destructive force, derivatives are being put forward by some as an important tool to drive the transition to a sustainable economy. One component of the derivatives market's contribution to that transition is the development of sustainability-linked derivatives.
This briefing examines what sustainability-linked derivatives are, how they are used and sets out key legal considerations for market participants. The briefing also expresses support for cross-product coordination in relation to the development of legal principles and documentation and for markets to learn from the lessons of the transition from interbank offered rates (IBORs) to near risk-free rates (RFRs).
