A set of recommendations on how green bond issuers might best report on the environmental benefits of how the loan capital is deployed has been out together by a powerful group of 11 of the world’s biggest multilateral (MDB) and national (NDB) development banks.
The principles on accounting for green bond ‘use of proceeds’, released for the COP21 conference in Paris, are important as the market grows and investors and civil society bodies increasingly ask for evidence of the impact of the bonds.
The groups said the recommendations were for reference only, but would help green bond issuers, including corporates, to develop their own reporting templates. Green bond issuance tripled between 2103 and 2014 from $11bn to $35bn, but there are question marks over further growth in the market without more formalised agreement on what the ‘green’ part of the bonds constitutes and how investors might know how green their bond is over its credit life. The members of the group said the new document was a pragmatic attempt to start answering some of these questions more formally.
Currently, the green bonds issued by MDBs and NDBs are backed by the entity’s credit rating rather than the project itself, as is the case with much corporate issuance. More standardised use-of-proceeds reporting could help further develop the measurement ofenvironmental factors such as C02 emissions cuts against verifiable benchmarks.
It could also support greater green bond issuance where the credit is based on the financial and environmental characteristics of specific projects.
The MDBs in the group include the European Investment Bank (EIB), World Bank, and African Development Bank (ADB). They are joined by NDBs including the Nordic Investment Bank, FMO in the Netherlands, Germany’s KFW and France’s AFD.
The new document provides a basic reporting template for green bonds such as disclosing the green projects being allocated to, their eligibility criteria and the activity periods and possible withdrawals within the timeframe of the bond. It makes impact reporting suggestions such as clear project delineation, measurement of expected annual results based against ex-ante estimates and projected environmental benefits over the bond duration.
Significantly, due to the absence of a single common standard for calculating GHG emissions, it encourages issuers to only report this data when they can provide full transparency on the applicable accounting methodology and assumptions used.
The report recommends more specific ‘core’ environmental measurement indicators for two sectors: energy efficiency and renewable energy. Link to report