The green bond market urgently needs a common framework for use of proceeds and impact reporting, according to a Climate Bonds Initiative (CBI) survey, which found the nature of reporting so far to be “totally fragmented”, even if post-issuance reporting itself is now widespread.
The findings of the CBI’s third report on post-issuance reporting in the green bond market were discussed by CBI and market representatives in a webinar following its publication last Wednesday (26 May).
Sean Kidney, CBI CEO, said that for the green bond market to work, there needs to be confidence that proceeds are being used in a manner commensurate with the promises being made by issuers and with the ambition necessary to achieve targets.
“That’s where post-issuance reporting comes in,” he said. “We need to know that what was said on the label up-front is actually being carried out.”
The CBI report analysed close to 700 deals launched between November 2017 and March 2019 from over 400 issuers and observed that larger issuers were more likely to report.
It was found that 77% of issuers, representing 88% of the amount issued, provided use of proceeds (UoP) reporting, which refers to the projects, activities or assets financed by the bond proceeds. Meanwhile, 59% of issuers accounting for 74% of the amount issued reported on impacts, which refers to the environmental impacts achieved through the projects financed by the bond. 57% of issuers and 73% of the amount issued reported on both UoP and impacts, demonstrating best practice. However, several issuers were still not reporting within one year of issuance.
A key finding was that impact reporting is “highly unstandardised”. According to the report, a lack of consistency poses problems, as it means that the data is not comparable and cannot be reliably aggregated between regions and issuers or projects, preventing a proper impact assessment.
Miguel Almeida, CBI research manager and lead author of the report, said the nature of reporting up to now has been “totally fragmented”.
“In the absence of a comprehensive, widely-adopted framework to report within, issuers have to independently publish green bond reports,” he said.
“So in our view, the real resolution is yet to come in the form of a common reporting framework that will drive greater transparency, quality and consistency.”
Efforts are underway to harmonise disclosures in the absence of a common framework to report within. The report put a spotlight on platforms such as the Green Assets Wallet and IDB’s Green Bond Transparency Platform (GBTP), which are publicly available, frameworks and methodologies for impact reporting, such as ICMA’s Harmonized Framework for Impact Reporting, and initiatives such as ICMA’s impact reporting working group and the EU Green Bonds Standard.
“These promising efforts could really have the potential to help drive harmonised reporting,” Almeida said.
Region-wise, it was noted that developed markets tend to have a higher share and quality of reporting. European entities were most consistent in their reporting quality, and the more mature green bonds markets had consistently good-scoring issuers, according to a scoring methodology used by the CBI to evaluate the quality of overall reporting.
Maria Netto, financial institutions principal specialist, Inter-American Development Bank (IDB), believes Latin America to be a “huge opportunity”, with the green bond market seeing an exponential increase, and Latin America increasing eight-fold.
“We need to look at two things,” she said. “How do we create this new asset class and give confidence in the market that these green bonds are truly green, that the impacts of these investments are relevant, so investors have the confidence to invest more in this kind of asset.
“And how do we help issuers go ahead and issue, and demonstrate their impacts.”
Five green bond issuers achieved the maximum score available under CBI’s methodology: France’s La Poste, Japan’s Obayashi Corporation, Portugal’s Sociedade Bioelétrica do Mondego, Norway’s SpareBank 1 Boligkreditt, and Hong Kong’s Swire Properties.
Reporting issuers scored between 6-25 points, with most at the top end
The report found “greenwashing” to be rare, with almost all non-reporting issuers at the time of research having at least reported UoP.
Alexander Vasa, financial institutions senior specialist at IDB, who is also part of the team that developed the GBTP, admitted that detecting greenwashing was “very challenging”.
“We haven’t seen greenwashing, we have seen that issuers are interested in reporting in a standardised way, and they haven’t had an opportunity to do so,” he said. “So sometimes when you do not see a report, or a report is not well done, it’s not necessarily because they want to greenwash, it’s actually the opposite – they don’t have a way to make it simple, and to put all the data they have in a standardised manner.”
The report and webinar can be found here:
Main image: CBI webinar screenshot; Source: CBI/YouTube