The term “green bond” is receiving more and more attention, not only because of the growing demand for ESG investments, but also because the “green” label is so ambiguous. Perhaps the lack of a clear definition is partly a result of the approximately $576 billion universe of unlabeled green bonds. Furthermore, as climate change mitigation and adaptation technologies expand rapidly, a concrete definition for “green bonds” will become increasingly difficult to establish. Fortunately, evaluators are looking at ways to tackle this issue by addressing investors’ demand for a more transparent and clear label.
One of those evaluators is S&P Global Inc. which announced last month the launch of its Green Evaluation service “which aims to provide investors with a more comprehensive picture of the green impact and climate risk attributes of their portfolios”. The S&P Global Ratings Green Evaluation are available for projects or initiatives that focus on: renewable energy, energy efficiency, green transportation, environmentally compliant buildings, fossil fuel (decreased carbon intensity of conventional energy production), nuclear, and water. Part of the evaluation includes looking at an asset’s expected lifetime environmental impact in its region or its likely level of resilience to natural catastrophes.
“We wanted to respond to the robust market demand for rankings that consistently measure climate risk and environmental impact, and research that delivers actionable insights,” said Michael Wilkins, managing director and head of environmental and climate risk research at S&P Global Ratings in a press release. “We developed this approach after consultation with investors, issuers, and other constituents, and we’re confident that it sets a new standard in the green finance market.”
By offering this evaluation service, S&P Global Ratings provides impact investors a better understanding on how their bonds are green, thereby satisfying their intentions with their investments. Although not yet rating bonds, Morningstar Sustainability Rating for Funds say that they provide a “reliable, objective way to evaluate how investments are meeting environmental, social, and governance challenges.” We hope that Morningstar will additionally offer a sustainable fixed income rating service in the future.
At Community Capital Management, our impact investors have been buying green bonds since 1999—before “green” was even a label. For us, a declaration of green intent by an issuer is just a starting point. We need to be able to identify, record, and track the underlying environmental benefit(s) the transaction supports. It’s encouraging to see credit rating providers like S&P Global, digging deeper into the wider impact of bonds and the green label.