It’s Not Easy Being a Green-Bond Investor So Raters Are Helping

  • New S&P Global product evaluates environmental impact of debt
  • Joins Moody’s, Trucost as issuance on record $76 billion pace

One recurring criticism of the green-bond market is that a company or municipality can call nearly anything green. Credit-rating companies are looking to change that.

S&P Global Inc. is planning a new evaluation product that will analyze the environmental impact of securities issued in the global green-bond market -- which could reach a record $76.2 billion in issuance this year, if the current pace of sales continue, according to Bloomberg New Energy Finance figures.

The Green Bond Evaluation, a proposal for which was released Sept. 2, will consider projects that either mitigate climate change by reducing or preventing greenhouse gas emissions or those that reduce the impact of natural disasters.

"There are very few products which measure the environmental net benefit of green bonds in a holistic way," Michael Wilkins, global head of environmental and climate risk research at S&P Global Ratings, said in an interview. "We thought this was something investors would appreciate."

New York City-based S&P follows rival ratings company Moody’s Investors Service, which launched its own assessments in March. Moody’s has since issued four assessments, its green-bonds analyst Henry Shilling said in August.

Others are also entering the scene. Trucost Plc, an environmental data-analysis firm, and Golden Credit Rating, a Beijing-based credit-rating company, jointly launched their own framework for green-bond assessment on Sept. 6, establishing a means for investors to assess environmental performance of green bonds issued in China, Bloomberg BNA reported Wednesday.

S&P’s proposed assessment tool, which is not a credit rating, will provide an overall final score to green bonds based on transparency, governance, mitigation and adaptation when applicable.

The ratings company also launched an environmental, social and governance assessment for corporations earlier this week. The tools will have "no relation" with each other and no impact on credit ratings, said Wilkins, although in some cases there could be a connection between green quality and credit quality, he added.

S&P is seeking feedback from the public on both assessment proposals by Oct. 17 with expectations to launch them concurrently in time for the United Nations Climate Change Summit in November.

This article was originally published in Bloomberg’s Sustainable Finance Brief.

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