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Sustainability-linked finance: a lever for firm-level resilience innovation

Author

Listed:
  • Resendiz, Jose L.
  • Ranger, Nicola
  • Mahul, Olivier

Abstract

Sustainability-linked finance (SLF) offers a promising pathway to close the corporate adaptation finance gap by linking borrowing costs to climate-resilience performance. However, current instruments fall short of their potential. Analysing 701 SLF instruments issued by 395 firms across real estate, electric utilities, and agrifood, we compare embedded key performance indicators (KPIs) with those disclosed in sustainability reports. Across adaptation, resilience, and combined MAR (mitigation–adaptation–resilience) themes, firms report 2,619 relevant KPIs, yet only 511 (19.5%) are embedded in financial contracts—leaving 80.5% unenforced. This fourfold gap highlights a significant opportunity to expand SLF coverage using metrics firms already track. The bottleneck is not data availability but a lack of standardised, verifiable A&R benchmarks. We propose a suite of process-based KPIs and contractual mechanisms to bridge this gap, enabling SLF to evolve into a credible, scalable tool for embedding climate resilience into corporate strategy and unlocking private capital for adaptation.

Suggested Citation

  • Resendiz, Jose L. & Ranger, Nicola & Mahul, Olivier, 2025. "Sustainability-linked finance: a lever for firm-level resilience innovation," LSE Research Online Documents on Economics 130463, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:130463
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    More about this item

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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