The environmental impact of a project is becoming an increasingly important factor to investors seeking new places to put their money – in large part due to increasing climate change policies that are “putting a price on carbon” globally. However, there is a significant gap between the demand for “green financing” tools – that is, those that promote sustainable and environmentally friendly investment – and the rate of issuance.
The void is due to a lack of market standardisation and the higher costs associated with guaranteeing “green certification” – or the level of confidence that bonds are delivering environmentally sustainable projects. So far, only a limited number of larger, highly liquid bond issuers have been able to engage in paying these costs and have all done so via various certification methods. The market is therefore calling for increased standardization in order to more easily compare standards of “green”—and S&P have been listening.
Firstly, S&P’s new proposal for a Green Bond Evaluation Tool strives to provide a measure of the transparency, governance, and possible environmental impacts of green bond proceeds to projects over time– arguably the most comprehensive tool of its type, thus far. In addition, S&P proposes a corporate Environmental, Social, and Governance (ESG) risk assessment to evaluate a company’s potential social and environmental impact. This analysis aims to align investors’ need for greater clarity on how such factors are calculated in a company’s overall credit analysis.
Following Moorgate outreach, news coverage of both the Green Bond Evaluation Tool and ESG Assessment can be found at Investment & Pensions Europe, Fund Strategy, Institutional Asset Manager, Business Green, Yahoo Finance, FTSE Global Markets, Infrastructure News, Responsible Investor, Environmental Finance, Bloomberg, International Project Finance Association, Energy Live News, CPI Financial, and The National.