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

Resendiz, Jose L., Ranger, Nicola and Mahul, Olivier (2025) Sustainability-linked finance: a lever for firm-level resilience innovation. Grantham Research Institute on Climate Change and the Environment Working Papers (429). Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science, London, UK.

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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.

Item Type:	Monograph (Working Paper)
Additional Information:	© 2025 The Author(s)
Divisions:	Grantham Research Institute
Subjects:	G Geography. Anthropology. Recreation > GE Environmental Sciences H Social Sciences > HC Economic History and Conditions
JEL classification:	Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounting; Environmental Equity Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D
Date Deposited:	05 Dec 2025 16:36
Last Modified:	05 Dec 2025 16:36
URI:	http://eprints.lse.ac.uk/id/eprint/130463

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