NWM’s Issue Your Greens
ESG market dynamics
The 4 A's of green bond analysis
"Is it too easy being green?"
A growing number of market participants are feeling this way, as characterised by:
- Bloomberg Barclays MSCI Green bond indices placing several recent TMT and sovereign green bonds under "review" to assess additionality
- Insight Investment red-flagging 10 green bonds so far this year as failing to meet their standards, citing a particularly concern regarding lack of clear linkage with the company's sustainability strategy
- At a recent NWM investor survey, 54% of accounts called for greater "harmonisation of standards around level of greenness"
Given the absence of a clear, authoritative standard around green bond thresholds, the market is still reliant on individual investor discretion and assessment. ICMA standards are quite broad (i.e. the debate surrounding the Repsol Green bond) and many asset improvement projects can be argued to have some (modest) environmental benefit as a helpful by-product.
So, how is this analysis conducted? When discussing helpful areas of due diligence, ESG investors tend to focus on the following areas - the "4 A's":
- Level of Ambition : Is this business as usual, or an issuer seeking to be industry leading in embracing the carbon transition?
- Alignment with the issuer's overall strategy : is it a "side show" project, or truly congruent with a company's overall operations
- Additiveness of the projects : what portion of proceeds is being used for new initiatives?
- Analysis offered on projects : What measurable environmental impact is expected?
Hopefully this helps you bring your A-game when issuing / reviewing your next green bond !
Note that the text above is subject to the disclaimer(s) accessible if you Click Here
Dr. Arthur Krebbers, CF&RS and Head of Sustainable Finance, Corporates, NatWest Markets