ICMA updates sustainability standards post-pandemic

The International Capital Markets Association (ICMA) earlier this month issued its Green and Social Bond Principles 2021, which are expected to become the new industry standard for sustainable bond issues in the post-Covid-19 pandemic era.

ICMA’s previous Green and Social Bond Principles were referenced, according to its data, by 97% of the sustainable bonds issued in 2020, a year which, despite the pandemic’s disruptions, saw record-breaking green bond issuances amounting to US$269.5 billion, according to Climate Bonds.

Interest in green bonds continued to grow this year, globally green bond fund assets under management increased by 80% to €22 billion (US$26.24 billion) in Q1 2021, significantly more than the 4% growth for bond funds in general during the same period, according to data from Fitch Ratings.

Over that past three years, the ICMA’s Green and Social Bond Principles have gone mainstream, with their wide acceptance demonstrated by the fact that they have been translated into 24 languages and have been at the centre of developments in capital markets. The ICMA also revised its Social Bond Principles and Sustainability Bond Guidelines for 2021.

“The updates to the Green and Social Bond Principles ensure that the frameworks keep in step with market developments as issuance grows,” says Denise Odaro, chair of green, social and sustainability-linked bond principles, and head of investor relations, at the International Finance Corporation. “The recent pandemic and ongoing climate crisis have brought sustainability needs more to the core of capital markets, and the goal remains to provide issuers and investors with a compass for best practices in using sustainable bonds to access much-needed capital to meet the transition to a just and low-carbon economy.”

The Green Bond Principles 2021 edition features – two key recommendations on the bond framework and external reviews, designed to increase transparency alongside the four core components (use of proceeds, process for project evaluation and selection, management of proceeds, and reporting); a recommendation of heightened transparency for issuer-level sustainability strategies and commitments; encouragement to supply information, if relevant, on the degree of alignment of projects with official or market-based taxonomies; promotion of transparency on issuer processes to identify and manage perceived and known social and/or environmental risks; and links and references to the complementary guidance of the Climate Transition Finance Handbook, the harmonized framework for impact reporting, and the guidelines for external reviews, which are supplemented by the Guidance Handbook.

The ICMA also issued new illustrative examples on the selection of key performance indicators for sustainability-linked bond issuers, underwriters and investors; a pre-issuance checklist for social bonds/social bond programmes; new guidelines for green, social, sustainability and sustainability-linked bond impact reporting databases; new impact reporting metrics for circular economy and/or eco-efficient projects; an update of the green project mapping to green bond principles (GBP) environmental objectives and other green classifications; and an update to the comprehensive GBP Guidance Handbook.