Green, social bond principles upgraded to boost transparency in sustainable finance
The Green Bond Principles (GBP) and Social Bond Principles (SBP) are the global standard for the $1.6trn market representing sustainable and climate transition finance. These standards were referenced by an estimated 97% of sustainable bond issuances globally in 2020, according to the International Capital Market Association (ICMA).
The updates to the Green and Social Bond Principles were made to ensure that these frameworks are in tune with market developments as the issuance grows, said Denise Odaro, chair of the Principles, head of investor relations, IFC. “The recent pandemic and ongoing climate crisis have brought sustainability needs more to the core of capital markets and the goal remains to provide issuers and investors with a compass for best practices in using sustainable bonds to access much needed capital to meet the transition to a just and low carbon economy,” she added.
Upgraded after its launch in 2018, the Green Bond Principles 2021 has two key recommendations on the bond framework and external reviews designed to increasing increase transparency. This is in addition to the four core concepts – use of proceeds, process for project evaluation and selection, management of proceeds and reporting. It also includes a recommendation of heightened transparency for issuer-level sustainability strategies and commitments and encouragement to supply information on the degree of alignment of projects with official or market-based taxonomies. The upgrade also promotes transparency on issuer processes to identify and manage perceived and known social and/ or environmental risks.
Many investors view the sustainable bond markets through an impact lens, said Johanna Köb, head of responsible investment, Zurich Insurance and vice-chair of the executive committee of the Principles. She added, “Impact reporting is now strongly recommended for all use-of-proceeds bonds. The impact reporting handbook has been expanded with guidance on the circular economy and eco-efficient products category, and there is new guidance for database providers seeking to support market participants with the collection and aggregation of impact data."
New guidance has been issued for social and sustainability bonds and sustainability-linked bonds (SLBs). This covers illustrative examples for the selection of key performance indicators (KPIs) for issuers, underwriters and investors of SLBs and a pre-issuance checklist for social bonds. Updates have been provided to the green project mapping to Green Bond Principles’ environmental objectives and other green classifications. “Encouraging issuers to supply more information on projects’ alignment with official or market-based taxonomies will enhance the credibility and standardisation of this market,” said Tanguy Claquin, global head of sustainable banking, Crédit Agricole CIB and vice-chair of the executive committee of Principles.