Being a leading provider of second opinions on green bonds for the last ten years, CICERO has seen how the market has grown and developed. If the financial sector is serious about climate, green investments are needed in all sectors.
CICERO Center for International Climate Research provided the first second opinion – an independent, research-based evaluation – of a green bond framework for the World Bank in 2008. To date, CICERO has reviewed green bonds for more than 100 issuers across the globe.
What is a green bond? Green Bonds are any type of bond instrument used to finance environment and climate friendly projects.
What is a second opinion? To show investors that their investments are climate-friendly, CICERO provides issuers with second opinions that are independent, research-based evaluations of green bond investment frameworks to determine their environmental robustness.
“Many green bond frameworks have been rated dark green, meaning that they finance projects in line with the long-term vision of a low carbon future, in sectors such as renewable energy and green buildings. That is excellent, but if we want to solve the climate problem, we need every sector to go green,” says Christa Clapp, Research Director on Climate Finance at CICERO. This means that more green bonds financing projects within sectors such as shipping, manufacturing and industry are needed.
Shaded rating based on climate science
CICERO is using the Shades of Green methodology, utilising a climate-science rating method focusing on avoiding a lock-in of greenhouse gas emissions over the assets’ life time and promoting transparency on resilience planning and strategy. Green bond frameworks are rated from dark to light green.
The most sophisticated green bond issuers (dark green) are looking both at physical risk (e.g. flooding and extreme weather) and transition risk (changes in policies, liability and technology).
The largest property company in Sweden, Vasakronan, has been rated dark green and has a holistic approach to climate-friendly investments in new and existing green buildings. They include among other things flood risk, flood resilience, location of the buildings in relation to public transport as well as energy efficiency and greenhouse gas emissions.
Race to the top
The green bond market has seen rapid growth in recent years. From a total issuance of 39 billion USD in 2014, the market reached 163 billion USD by the end of 2017.
“The strength of the three shades of green method is that it allows investments in different ranges of green. Hence, CICERO’s approach has the potential to contribute to expanding the green bond market and encourage a race to the top,” says Harald Francke Lund, Head of Second Opinions at CICERO.
In 2013 CICERO provided its second opinion for the first municipal green bond by Gothenburg in Sweden and has since reviewed several municipalities’ frameworks.
“We have reached a tipping point in Sweden where municipalities are competing with each other to be the ‘greenest’ by looking at what their neighbours are doing and what green rating they got for their bonds”, explains Clapp.
More experience and best practice examples from different sectors gathered over the last ten years, can be found in the report “CICERO Milestones 2018 – A practitioners’ perspective on the green bond market”.