(Bloomberg) -- Greek utility Public Power Corp. is closer to meeting a sustainability-linked bond target than previously thought, the Anthropocene Fixed Income Institute said.

The development could mean investors won’t get the penalty coupon payment that bond pricing currently indicates they’re expecting, according to AFII, a research group that monitors debt markets. 

Sustainability-linked bonds typically require issuers to pay a so-called coupon step-up if they miss pre-determined environmental, social or governance goals. The PPC development would mark a turnaround for the state-owned firm. Its failure to reach an end-2022 emissions goal tied to a 2026 SLB sparked speculation that it would also be unable to meet its next end-of-year target, which is tied to a 2028 SLB. 

In the event the 2028 bond avoids the coupon step-up, it will probably underperform its 2026 peer, which is trading at a higher coupon after its target was missed, Jo Richardson, the AFII’s head of research, told Bloomberg. “This new information seems yet to be digested by the market,” she said.

The market for SLBs hasn’t been around for long, and investors are still figuring out how such products behave under pressure. Projections that an issuer is on course to miss a target from market-watchers such as AFII can jolt bond prices, as happened for the SLBs of Enel SpA.

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The 2028 PPC bond targets a 57% reduction in Scope 1 emissions by 2024 from a 2019 base year. AFII said a company presentation last month which included details on the company’s coal phase-out gives it greater confidence it has met the target. 

The presentation underlines “a positive commitment to emissions reduction, towards which the existence of an SLB may have provided incentives,” Richardson said. 

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