Sustainable Finance
Sustainable Finance by Nicholas Pfaff, Valérie Guillaumin, Simone Utermarck and Ozgur Altun
Summary We focus in this update on the 2021 edition of the Green and Social Bond Principles published on 10 June, as well as on the parallel publication of other important documents representing further voluntary guidance for the sustainable bond market. We also report on the continuing progress and diversification of issuance in the international sustainable bond market. Finally, we cover notable regulatory developments and related initiatives.
2021 update of the Green and Social Bond Principles The 6th version of the Green Bond Principles (GBP) was published at the AGM of the Principles on 10 June 2021. This is the first update to the GBP since 2018. Over the last three years, this crucial document, translated into 24 languages, has been at the centre of developments in the market as it has gone mainstream. With this 2021 edition, the GBP integrate best practices that are already recognised by a majority of issuers in the market while also preparing for current and future regulatory developments especially in the EU, but also in Asia. The 2021 editions of the Social Bond Principles and Sustainability Bond Guidelines have been similarly revised. Alongside the established four core components of the GBP which remain unchanged in substance, the 2021 version now identifies key recommendations regarding (i) Bond Frameworks where issuers should explain the alignment of their Green Bond or Green Bond programme with the four core components of the GBP and (ii) External Reviews, both pre-issuance to assess the alignment of their Green Bond or Green Bond programme and/or Framework with the four core components of the GBP, and post-issuance to verify the internal tracking and the allocation of funds from the Green Bond proceeds to eligible green projects. The GBP 2021 ask for heightened transparency from issuers on organisation level sustainability strategies and commitments reflecting increasing investor and stakeholder expectations. It is indeed a growing trend for investors to focus not only on use of proceeds of Green Bonds but also on the issuer’s overarching commitment to sustainability and climate transition. PAGE 35 | I SS U E 62 | THIRD QUARTER 2021 | ICMAGROUP.ORG
With an eye to developments in the regulatory space, the GBP 2021 also encourage the voluntary disclosure of information on alignment with market and official taxonomies. In the same vein, they provide guidance though recommendations on issuer processes to identify mitigants to perceived or known material risks of negative social and/or environmental impacts as a form of due diligence for “do no significant harm”. The GBP 2021 contain additional clarifications and updates relating to recommended market practice and include important references to complementary guidance from the Principles through the Climate Transition Finance Handbook, the Harmonised Framework for Impact Reporting and the Guidelines for External Reviews. This illustrates the relevance and recognition of these documents and the importance of the overall “ecosystem” of interconnected guidance that is now available. The GBP 2021 also feature in an annex an infographic (see below) that summarises both the product guidance available for sustainable bonds (both use-ofproceeds and sustainability-linked) and the thematic guidance in the Climate Transition Finance Handbook.
