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How Do Labeled Green Bonds Measure Up?

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How Do Labeled Green Bonds Measure Up?

Green finance is a fast-expanding market. Driven by a global political push and new market dynamics, it is channeling investments into green technologies and infrastructure that support climate and other environmental-related policies. The challenge ahead is huge: The Paris Agreement--signed by 197 countries in December 2015--requires an estimated $1 trillion in annual investment to transition to a low-carbon economy.

In recent years, green bond issuance has become a bellwether of green finance. These self labeled green bonds have been issued to finance new projects and refinance existing projects with a positive environmental contribution. The market is growing rapidly, expanding by 127% annually since 2012 and S&P Global Ratings expects 2017 to be the fifth consecutive year of growth, with 130 billion of self-labeled green bonds issuance forecast for the full year. The universe for potential green bonds is even higher if one includes projects that have a positive environmental impact but are not labeled as "green".


  • The results of our retrospective scoring exercise suggest that self-labeled green bonds meeting the CBI eligibility criteria would be likely to score between 50 and 100 under our Green Evaluation.
  • Close to two-thirds (63%) of the green bonds in our sample got an overall score of E2, the second highest score on our scale. Of those, 42% would have been scored E1 if they had achieved higher governance and transparency scores.
  • The main factor explaining the high average overall score is the type of projects financed by the self-labeled green bonds in our sample, the majority of which were in the green energy, buildings, transport, and water sectors.
  • Our hierarchy adjustment positively affects the overall score of these projects, reflecting the higher contribution of these sectors to systemic decarbonization and water system enhancement.
  • The types of projects financed by self-labeled green bonds also explain the limited number of bonds scoring E3 and the absence of bonds scoring E4. Our sample, based on the CBI eligibility criteria excludes projects with a limited environmental contribution, such as upgrades of fossil-fuel technologies, though these could be evaluated under our Green Evaluation.
  • While providing a useful reference point, these results are not representative of the wider unlabeled green finance universe excluded under the CBI criteria.
  • Although the recipient project’s location plays a material role on the overall score of green bonds in our sample, this is typically less significant than the impact of our hierarchy adjustment.
  • There is not one geographical region that scores systematically higher than others in our net benefit ranking. The relative ranking between regions is specific to each project category due to the use of local sector-specific factors in our Green Evaluation for environmental key performance indicators (eKPIs).
  • The average governance and transparency scores of respectively 60 and 51 in our sample reflect the comparatively low level of disclosure in the vintage green bond market, as opposed to the bonds that have been evaluated by S&P Global Ratings to date and point to the need for better transparency of the environmental contribution of green bond transactions.