• Company starts investor calls for sustainability-linked bonds
• SLBs have been criticized for weak targets, small penalties

Air France-KLM is turning to a much-debated part of the ethical bond market to repay state aid that helped it weather the coronavirus pandemic.

The airline is presenting its sustainability-linked financing framework to investors from Wednesday, and will then offer at least €300 million ($317 million) of sustainability-linked bonds, according to a person familiar with the matter, who asked not to be identified because they’re not authorized to speak about it. The proceeds will be used to partially repay a senior bank loan granted by France in May 2020, the person said.

Sustainability-linked bonds, or SLBs, are a relatively new part of a $5.6 trillion ethical debt market that grew rapidly for a decade before slowing amid the market turmoil of 2022. The ESG bond market has also faced increasing scrutiny about how much meaningful impact it has on tackling climate change.

SLBs — which saw a tenfold growth in global issuance over 2020-2021 — have become particularly controversial, criticized for weak targets and small penalties and even being eschewed completely by some of the world’s largest ESG bond investors. Unlike green or social bonds that can only be used to fund specific projects, SLB proceeds can be used for just about anything, with companies including Tesco Plc and Carrefour SA coming under fire for the soft targets tied to theirs.

See related article: TotalEnergies and Air France Team to Supply Sustainable Aviation Fuel for 10 Years

Air France-KLM has a sustainability plan that includes a reduction of direct and indirect emissions as it works toward a goal of achieving net zero by 2050, according to corporate documents seen by Bloomberg. To achieve this, it plans to renew its fleet and use sustainable aviation fuels.

The state aid package Air France-KLM is repaying consists of €4 billion of bank loans guaranteed by France, of which €500 million was reimbursed in 2021, and a €3 billion French state loan, according to the company’s public debt profile. The company has already paid back part of the syndicated loan with banks.

Air France-KLM didn’t immediately respond to an emailed request for comment. Natixis SA, Deutsche Bank AG, HSBC Holdings Plc, Societe Generale SA and Credit Agricole SA are the banks working with Air France-KLM, the person familiar said.  

Source: Bloomberg