‘Connect To Prosper’ – Sustainability

Lord Mayors have long been promoting sustainability, from the world’s first clean air act in 1953 to Rio and every COP. I too went to COP28 as Lord Mayor in Dubai in December 2023. This document has been guiding 2023/2024 mayoralty work on climate change – https://www.longfinance.net/news/pamphleteers/all-in-finance-against-carbon-initiative/

All-In Finance Against Carbon Initiative25 Jul 2023Michael Mainelli

An early draft was a discussion document for this 23 May 2023 event below:

23 May 2023,
15:00 – 18:30
Catalysing The Green Development Pact Through Financial Architecture ReformDr Steve Waygood, Professor Michael MainelliAviva Investors Plc, Z/Yen GroupAfternoon Tea & Seminar hosted by Ninety One Investment Management

This March 2024 paper published by the Royal Society of Chemistry sets out much of the journey so far – https://pubs.rsc.org/en/content/articlepdf/2024/EA/D3EA00107E. We try to keep this webpage up to date – https://www.zyen.com/research/research/sustainability/policy-performance-bonds/.  

Policy performance bonds are a simple, and somewhat subversive, idea introduced by Z/Yen in 2005 as part of discussions during the London Accord. The basic idea is very similar to an inflation-linked bond.  The government chooses a climate policy and relevant climate target(s), e.g. greenhouse gas emissions, no deforestation, the percentage of renewable energy in the electricity grid.  The interest paid on the bond rises if the government fails to meet its climate targets.  The proceeds raised by the bond can be spent on any government programme, not just against climate change.

Policy performance bonds constitute an alternative to the ‘ESG industry’ in the narrow domain of climate change emissions.  ESG is probably useful in a number of areas, e.g. water or biodiversity, but in the strict sphere of carbon emissions it’s unnecessary with a combination of carbon pricing and policy performance bonds.  Over the years, the idea took hold with the French government, most notably in the run-up to COP 21 in 2015 with this piece in English on the Prime Minister’s blog site https://www.strategie.gouv.fr/english-articles/environmental-policy-performance-bonds.  Afterwards the French government pushed us to publish a book on the subject which we did in 2017 – L’Innovation Financière au Service du Climat: Les Obligations à Impact Environnemental.  This publication, along with a lot of promotion by Z/Yen on the Continent, led in 2018 to a number of continental firms issuing such bonds, e.g. Louis Vuitton, Danone, Enel.  The class of bonds is also called performance incentive loans, positive incentive loans, SDG-linked bonds, ESG-linked bonds, sustainability-linked bonds, index-linked carbon bonds, etc.

While we were certainly pleased to see this reporting on substantial growth since 2018:

“Global sales of sustainability-linked bonds, a subset of ESG debt, hit a record $110 billion last year, compared with $11 billion issued in 2020, according to data compiled by Bloomberg. Moody’s ESG Solutions expects issuance of the debt to hit $150 billion this year.”

Bloomberg (22 February 2022)

… our desired outcome was governments not just corporates.  Thus we were thrilled with this result in March 2022 that came from our and Djellil Bouzidi’s work with France and Chile:

Chile (March 2022) – “Chile issued the world’s first sovereign sustainability linked bond … The $2 billion sustainability-linked bond was issued March 2, carrying a 4.346% rate or 200 basis points above 20-year U.S. Treasury notes. Demand for the bond reached more than $8 billion, or 4.1 times the original placed amount, spread across investors in Europe, Asia and the Americas. Finance Minister Rodrigo Cerda noted this was a sign of confidence in the Chilean economy. The bond adheres to the Paris Agreement on climate change, including that the country emit no more than 95 metric tons of carbon dioxide and equivalent by 2030 and that 60% of electricity production be derived from renewable energy by 2032.” – https://www.spglobal.com/marketintelligence/en/news-insights/blog/insight-weekly-march-22-2022.


Uruguay also issued a sustainability-linked policy performance bond in October 2022 – https://www.iadb.org/en/news/uruguay-issues-global-sustainability-linked-bond-idb-support – and there have been several other issues by Chile and Uruguay since. Since 2022, more policy performance bonds have been issued than voluntary carbon credits.

City of London Corporation & London Accord – Climate Change Timeline


Following the great smog disaster of December 1952, the City of London Corporation (COLC) passes a local Clean Air directive in 1953 leading to the Clean Air Act of 1956.


COLC attends United Nations Conference on Environment and Development (UNCED), also known as the Rio Conference or the Earth Summit, on behalf of UK.


Following COP3 in Kyoto (1997), the City of London Corporation reports during 1998 and 1999 on the opportunity for carbon trading – “Trading Emission Permits – A Business Opportunity For The City?”.  The COLC sets up shadow carbon trading scheme, then works with DTI to expand nationally.  In 2003 the EU comes to London to adopt the UK shadow trading scheme as the framework for the EU Emissions Trading System (ETS).  The ETS is launched in April 2005.


In 2002 COLC works with the UK Government to produce “The London Principles: The Role Of The UK Financial Services In Sustainable Development”, a framework for sustainable finance which formed part of the UK submission to the Johannesburg Earth Summit


City of London becomes first city in the world to adopt a climate change adaptation strategy.  Reissued 2010 –



Before the Stern Review was commissioned, COLC helps form a coalition of 25 financial services organisations, plus some academic and non-governmental institutions, led by Z/Yen, and creates the London Accord – an agreement to “make investment work for the climate”.  The London Accord is a true collaboration towards better policies through shared investment research. The London Accord’s first cooperative, ‘open source’ research was published in 2007. The event was held at Mansion House in December 2007, hosted by Lord Mayor David Lewis.  Over 780 pages, 24 reports analysed the context, opportunities and implications for investment-led solutions to climate change, “The London Accord: Investing in Climate Change” – taking a Pacala/Socolow wedge approach, but on investment rather than technology, for example with the Santa Fe Institute on technology learning curves – https://www.longfinance.net/media/documents/e1.pdf – or a Monte Carlo portfolio investment approach – https://www.longfinance.net/media/documents/d5.pdf .


The London Accord shared the question of how valuations could grossly exceed any sensible burning, Burn-It-All?!  (https://www.zyen.com/research/research/sustainability/carbon-burn-it-all/– 1200 ppm on balance sheets at full value) with Andy Haldane at the Bank of England, and Mark Campanale, who, working with Nick Robins of HSBC, took this forward to create Carbon Tracker with James Leaton.  Andy raised the systemic issues more widely.  Mark and James produced their first report in 2011, and a significant report it turned out to be, Unburnable Carbon: Are the World’s Financial Markets Carrying A Carbon Bubble? . The report, despite not being by an investment bank, was highly commended for Long Finance’s Farsight Award 2011/12.  Mark Carney picked things up from here on systemic risk.


COLC leads a joint submission on ‘cap-and-trade’, index-linked carbon bonds (policy performance bonds), forestry products, and weather derivatives to COP15 in Copenhagen – “Delivering Copenhagen: The Role Of The City’s Financial Services Sector In Supporting Action On Climate Change”.  Four proposals include: The Role of Trade in ‘Cap-and-Trade’, Index-Linked Carbon Bonds (policy performance bonds), Forestry Products, Weather Derivatives.


Lord Mayor Fiona Woolf leads Long Finance’s “Financing Tomorrow’s Cities” programme with WWF and others.


Environmental Audit Committee of the House of Commons, written evidence submitted by COLC based on a conference organised with Global Impact Investment Network (GIIN) on 10th and 11th October 2013 at the Guildhall.


London Accord presents policy performance bonds at COP 21 in Paris.


Green Finance Initiative launched, leading to Green Finance Institute 2019.


French publication of L’Innovation Financière au Service du Climat: Les Obligations à Impact Environnemental.


First corporate policy performance bonds issued.


London Accord continues, now over 625 reports from over 65 firms.


Chile issues first sovereign policy performance bond – see “Sovereign Sustainability-Linked Bonds: Chile Sets A High Bar”.


City of London with C2Zero launches the ‘City Carbon Credit Cancellation Service‘.