Mindy Hauman

IntroductionCarbon credit linked bonds (CCLBs) are an emerging category of debt security that ties some or all of an investor's return to a carbon-credit-related outcome, rather than to a fixed coupon alone. For debt capital markets (DCM) lawyers, CCLBs matter because, although they remain a small and largely bespoke asset class, they represent a structural innovation that channels capital markets funding into nature-based and decarbonisation projects that would not otherwise access such funding. They also raise a distinct set of drafting, disclosure and negotiation issues that do not arise on a conventional bond, or on other labelled sustainable instruments such as green bonds and sustainability-linked bonds (SLBs).This note explains what a CCLB is and how it differs from those other instruments, how the structure works in practice, the market context in which CCLBs are used, the principal structural variants seen to date, the regulatory considerations that arise, the additional overlays relevant to cross-border offerings, the disclosure considerations that arise, and the points most commonly negotiated between issuers and investors.Definition

What are debt-for-nature and debt-for-climate transactions?A debt-for-nature swap is, at its core, an arrangement under which a sovereign debtor's external debt is reduced, refinanced or restructured on improved terms in exchange for a commitment by that sovereign to direct a defined stream of funding to nature conservation, climate resilience or another public interest objective. The label 'debt-for-nature swap' or DFNS is used generically to cover a range of structures, and the same technique has been adapted under names such as 'debt-for-climate swap', 'debt-for-education swap', 'debt-for-health swap' and, most recently, 'debt-for-energy swap'—collectively sometimes referred to as 'debt-for-X' transactions.At a high level, four broad categories of transactions fall within this umbrella:•Third-party (commercial) swaps, in which a third party (typically a non-governmental organisation ('NGO')) purchases the sovereign's debt at a discount and cancels it in exchange for a domestic conservation commitment;•Bilateral (official) swaps, in which a creditor government forgives bilateral debt in exchange for the debtor sovereign's commitment to fund agreed programmes;•Endowment swaps, a newer generation of transactions