New framework created to help investors map green and social bonds to SDGs

The International Capital Markets Association has, through the Green and Social Bond Principles and the Sustainability Bond Guidelines (known altogether as the Principles), launched a reference framework to enable investors and others to map green and sustainability bonds to the UN’s Sustainable Development Goals.

The SDGs continue to gain traction in the investment world as a way of ‘mapping’ the social and environmental value of investments, and assessing their alignment with global objectives. The new document, “aims to provide a board frame of reference by which issuers, investors and bond market participants can evaluate the financing objectives of a given green, social or sustainability bond/bond programme against the SDGs,” the Principles said in a statement.

The document includes a table outlining 15 of the goals that the Principles have identified as being relevant to green and social bonds – excluding Peace, Justice and Strong Institutions, and Partnerships for the Goals. It provides project categories that could support the 15 and examples of performance indicators that could be used. Some SDGs don’t have eligible project categories listed for both social and green. For example, it is suggested that quality education and gender equality cannot be supported by a green bond, while climate action and life on land cannot be supported by a social one.

The move is part of annual overhauls to the Principles, announced at this week’s AGM. Other changes include a strengthening of focus on impact investment and measurement, with a new Framework for Impact Reporting of Social Bonds, designed to “accelerate progress” on impact reporting for social and sustainability bonds, and a refinement to the definition of ‘target populations’ in the context of the Social Bond Principles. The Green Bond Principles now include the recognition of climate mitigation, adaptation, natural resource conservation, biodiversity and pollution prevention and control as five environmental objectives, and a distinction has been made between these and the actual projects that will support them.

Companies and organisations providing second-party review for green and social bonds now have guidelines too, describing best practice, as well as new templates to explain the service being provided in each case.“In 2018, we conducted the first systematic survey among the Principles’ investor community,” said Johanna Kob, Head of Responsible Investment at Zurich Insurance and Vice-Chair of the Green Bond Principles Executive Committee. “It revealed that 70% of these investors are impact investors. The majority of them are interested in both environmental and social impact, and are just as likely to buy a green bond as a social or sustainability bond. Many of the annual updates to the 2018 Principles and supporting tool kit focus on improving the measurement and communication of impact, which will certainly be good news to the investor community.”

The AGM took place in Hong Kong this year. John Flint, Group Chief Executive of HSBC Holdings gave a speech at the event, in which he said that the bank’s “future success is going to be determined by our ability to [grow safely and sustainably], and by the way we approach the low-carbon transition and ESG issues more generally”.

He added that climate change was “really a pivotal issue” for HSBC and “features prominently at every level of our strategy for the firm”. This is partly because “this is what our shareholders and investors want”, he told the audience.

“It’s also incumbent on financial centres to help drive this forward,” he urged. “Particularly in parts of the world where the green finance need is greatest”. He described this as “a plea to you all and to market participants around the world” to consider “the next stage” of the green bond market’s development.

This week, the Canada Pension Plan Investment Board made history when it became the first ever pension fund to issue a green bond. The C$1.5bn, 10-year deal was also the largest green bond to come out of Canada, it claims. The order book reached $2.7bn, with 79 final buyers, including Ridgewood Capital Asset Management. The coupon is 3%. Manulife Financial was the first life insurer in the world to issue green bonds at its debut last year.