Brownfield – Sustainability Bonds

Will we see an increased demand in investment in green bonds given growing awareness of the impact of climate change and contamination and this impact on consumer habits?  Our clients are increasing exploring opportunities in the renewals sector.

A new handbook has been released by the International Capital Market Association containing a harmonized framework for impact reporting on green bonds (Handbook). We expect this to bring a greater conformity of product to meet increased demand.

Green bonds are bonds which allocate their proceeds to environmentally beneficial projects and in January 2014 a voluntary set of guidelines, the Green Bond Principles (GBP), were first published to help enhance the integrity and transparency of the green bond market, including through impact reporting.

The Handbook unites previously published harmonizing frameworks for impact reporting for some (but not all) categories of GBP eligible green projects under the GBP and seeks to enhance the usability of those frameworks and avoid repetition.

There are 16 core principles and recommendations for reporting contained in the Handbook which include:

• reporting on both the use of green bond proceeds and the expected environmental impacts on at least an annual basis;
• indicating the total approved and legally committed amount of financing for a project and the amount of green bond proceeds allocated to project eligible disbursements;
• illustrating the expected environmental impact made possible as a result of projects to which green bond proceeds have been allocated;
• reporting on the estimated lifetime results and/or project economic life (in years) to provide users with a basis for understanding the impact of the project over its lifetime;
• aiming to report on at least a limited number of sector specific core indicators for projects included in green bond programs;
• for the calculation of indicators, where there is no single commonly-used standard, issuers may follow their own methodologies while making these available to investors;
• for consistency reasons issuers may elect to convert units reported for individual projects (based on a standard conversion factor to facilitate comparison and aggregation for example converting tons of coal equivalent to megawatt hours); and
• being transparent about projects with partial eligibility (to an issuers’ green bond eligibility criteria).

The impact sector specific guidance and reporting metrics and the reporting templates cover: (1) Renewable Energy, (2) Energy Efficiency; (3) Sustainable Water and Wastewater Management; (4) Waste Management and Resource-Efficiency; (5) Clean Transportation; and (6) Green Buildings.