Climate Bonds Initiative launches certification scheme for corporate transitions, SLBs

Certification could “revive” flagging SLB market, CBI's Sean Kidney tells RI, as group's attention turns to resilience taxonomy.

The Climate Bonds Initiative (CBI) has extended its certification scheme to companies and sustainability-linked bonds, in a move designed to increase trust in the market and address credibility issues.

The scheme offers two levels of certification. One covers entities and bonds which are aligned with 1.5C pathways or already at or close to net zero, with the second is for those which will be aligned by 2030.

Certification will be provided to firms with transition plans which meet these pathways, or to SLBs with aligned climate targets. This will be subject to a review every three years, and second-party opinion providers or verifiers will be required to also look at capital expenditure plans to assess the credibility of transition targets.

The CBI will certify pureplay sustainable companies as part of the first level of certification. Sean Kidney, the CBI’s CEO, told Responsible Investor that this certification could allow bonds issued by these firms to “automatically qualify” as sustainable.

“There are arguments in the green bond market about should [wind turbine manufacturer] Vestas just be allowed to issue bonds and count them as green, and we’re trying to sort that out by saying if the assets of the company if the company qualifies then you can get certification,” he said.

“You can do capital-raising knowing you’ve got a certification label behind you.”

Kidney said the standard was not intended as a competitor to SBTi certification. While there has been no formal agreement between the two, Kidney said the “direction of travel is collaboration between SBTi, ourselves, the Transition Pathway Initiative and others”.

He added that the CBI hopes to eventually use some SBTi pathways.

Certification will eventually be available for all sectors when guidelines are established. Cement, steel and basic chemicals firms will have certification immediately available, but issuers in the critical raw materials sector and many agriculture firms will have to wait until later in 2023 for standards to be developed.

The initiative already provides certification standards for green bonds against its Climate Bonds Standard, which have been used by around 15 percent of the use of proceeds market, as well as assessing uncertified bonds and acting as a data source for index providers and investors. The SLB certifications will allow it to expand this data offering, Kidney said.

He hopes that the new standard will help define what counts as necessary ambition for the SLB market, which has been criticised for weak, immaterial and unambitious targets. Criticisms of the market have been linked to a reduction in issuance levels. Kidney said he hoped this will “revive” the market.

Company-level certification could also contribute to a revival of the transition bond market, which has been largely dormant in Europe and the US but has seen growth in Asia, particularly Japan. Kidney said certified companies with a 1.5C target could subsequently issue transition bonds.

Reinforcing resilience

The CBI is also working on a resilience taxonomy, which looks beyond physical adaptation to the impacts of climate change.

The first stage of adaptation and resilience, as set out in the EU taxonomy, is physical requirements. “The next stage needs to be to include social, economic and ecosystem resilience issues,” said Kidney.

Citing the increasing frequency and severity of destructive weather events, he said: “Society has got to be prepared – so what does it take to be prepared? What’s involved in doing that?”

Kidney pointed to Singapore’s target of growing 30 percent of its food within the city by 2030 as an example of resilience. Other examples could be onshoring the manufacture of PPE or investing in primary education, which he described as “incredibly helpful in improving the resilience of economies and societies”.

“Now we need to lay out the evidence base because it’s going to take some time,” Kidney added.

The CBI hopes to eventually offer certification for resilience investments which encompass social, economic and ecosystem resilience. The taxonomy could apply to use-of-proceeds debt, especially at the sovereign level, as well as other uses.

“If you’re a city, and you’ve got a really robust climate plan, and a capex plan in particular then you should be able to be certified as a city,” Kidney said, nothing that this offering could be worked on in conjunction with the C40 group.

A discussion paper on the resilience taxonomy is due later this month.