In a recent article for Environmental Finance, Michael Wilkins managing director and head of environmental & climate risk research at S&P Global Ratings, discusses why two new assessment tools will increase green bond issuance by bringing much needed transparency and standardisation to the market.
In his article, Wilkins explains that while investors are increasingly pursuing green financing tools the demand for green bonds currently outstrips supply. He explains that this imbalance is due to a lack of standardisation; which ultimately constrains green bond issuance to a limited amount of corporate issuers that can afford the associated costs of certifying green bonds. In addition, as yet, there is no official measure of a project bond’s level of ‘greenness’, making it very difficult to define.
For these reasons, S&P has released two new proposals for the assessment of a project’s impact on the environment. The Green Bond Evaluation Tool would measure the transparency, governance, mitigation and/or adaption of green bond proceeds, while the Environmental, Social, and Governance (ESG) assessment would evaluate a company’s natural and social environmental impact in order to identify potential risks and exposures. Neither assessments are credit ratings, yet they do aim to accommodate the increasing level of green bond demand in the financial markets.
The full article can be read online here.