articles Ratings /ratings/en/research/articles/230727-faq-applying-our-integrated-analytical-approach-for-use-of-proceeds-second-party-opinions-12788419 content esgSubNav
In This List

FAQ: Applying Our Integrated Analytical Approach For Use-Of-Proceeds Second Party Opinions


Weak Cash Flow Pressures Ratings For North American Speculative-Grade Health Care Issuers


Instant Insights: Key Takeaways From Our Research


Emerging Markets Real Estate Issuers Stand Their Ground


Leveraged Finance: Creative Structuring Helps Trinseo PLC, Comes With Lowered Recovery Prospects And Higher Costs

FAQ: Applying Our Integrated Analytical Approach For Use-Of-Proceeds Second Party Opinions

This report does not constitute a rating action.

Since S&P Global acquired Shades of Green from CICERO climate research foundation, it has been working on integrating the product suite to support transparency in the sustainable debt market.

We use these products to analyze sustainable finance instruments, programs, transactions, or frameworks, which we refer to collectively as financing. Our new use-of-proceeds Second Party Opinions (SPOs) combine important features of the existing methodologies from S&P Global Ratings and Shades of Green (see "S&P Global Ratings To Launch Integrated SPOs Soon," published July 6, 2023).

For additional information, see "Analytical Approach: Second Party Opinions: Use Of Proceeds," and "Analytical Approach: Shades Of Green Assessments," both published July 27, 2023.

Frequently Asked Questions

How are SPOs related to credit ratings?

SPOs are not credit ratings, do not consider credit quality, and do not factor into our credit ratings.

What are the components of the integrated SPO report?

Our SPO reports, which are a point-in-time analysis of financing, have four main sections:

  • Summary: On the first page, we provide the entity location and sector, conclusions on alignment with sustainability principles, the Shade of Green for the overall framework (if applicable), and key highlights of our analysis framed as strengths, weaknesses, and areas to watch.
  • Issuer sustainability context: We provide issuer sustainability context to show our opinion on how the financing contributes to addressing what we consider to be the issuer's most material sustainability factors. We identify and consider which sustainability factors are most material for the issuer and how they are addressed by the financing; we also review the issuer's strategy for the sustainability factors relevant to the financing.
  • Alignment assessment: This is our opinion of whether the financing's documentation aligns with certain third-party published sustainable finance principles and guidelines (Principles) identified by the issuer.
  • Analysis of eligible projects: This is our assessment of the projects funded by the financing. In the case of "green" projects, this includes specifying a Shade of Green, which is our qualitative opinion of how consistent environmental activities are with a low-carbon climate resilient (LCCR) future.

The SPO may also include our assessment of a financing's alignment with the EU Taxonomy, which we provide on request from the issuer. In addition, if U.N. Sustainable Development Goals (SDGs) are referenced in the financing documentation, we consider which SDGs the financing contributes to, if requested by the issuer.

How many Shades are there and what do they represent?

An S&P Global Ratings Shade of Green (or Shade) represents our qualitative opinion of how consistent an economic activity or financial investment is with an LCCR future (see "Analytical Approach: Shades Of Green Assessments," published July 27, 2023). There are six possible Shades (see graphic 1):

Graphic 1

What climate scenario assumptions do you make in the Shades of Green assessment?

In our Shades of Green analytical approach, we define an LCCR future as one aligned with the Paris Agreement, where the global average temperature increase is held below 2 degrees Celsius (2 C), with efforts to limit it to 1.5 C above pre-industrial levels. Equally, an LCCR future includes building resilience to the adverse impact of climate change and achieving sustainable outcomes for both climate and non‐climate environmental objectives. In the context of an LCCR future, the term carbon covers greenhouse gas emissions as measured in carbon dioxide-equivalents.

We view adaptation and increased resilience as critical to minimizing the potential damage caused by climate change. We aim to provide opinions on adaptation and resilience to physical risks in all applicable project categories, regardless of whether the primary aim of the projects is to address resilience.

What information do you include in the strengths, weaknesses, and areas to watch section of the SPO?

The strengths, weaknesses, and areas to watch provide, on the first page of the SPO, a summary of key analytical conclusions that we expand in the rest of the report.

  • We consider a strength to be a feature of the financing that stands out as positive compared with our view of standard practices. For example, we could consider value-chain policies that address material sustainability factors and support the implementation of the financing to be a strength for an issuer. We may also see the inclusion of components that far exceed the minimum requirements of the Principles as a strength.
  • We consider a weakness to be a significant limitation, identified in our analysis, that would likely prevent the financing from achieving the full benefits of its sustainability objectives. For example, we would consider the failure to exclude diesel-powered back-up generators from the financing of newly constructed buildings to be a weakness for an issuer.
  • We consider an area to watch to be a potential problem or risk related to the financing. In general, areas to watch are risks that the issuer plans to mitigate, or residual risks that remain after mitigating actions the issuer has taken. For example, if an issuer is exposed to material physical climate risk that necessitates active mitigation, we could consider this an area to watch.

We consider a weakness to be more serious than an area to watch.

What does the issuer sustainability context analysis entail?

In our issuer sustainability context analysis, we provide our view of how the financing contributes to addressing what we consider to be the issuer's most material sustainability factors. This context opinion also identifies the issuer's management of additional sustainability factors that we consider relevant to the financing. To do this, we first identify material sustainability factors relevant for the issuer as they relate to our SPO analysis. To identify the sustainability factors we consider most material to the issuer, we consult S&P Global Ratings' ESG Materiality Maps, or our other resources if we have not published a materiality map for the issuer's sector. We then review the issuer's strategy for sustainability factors relevant to the financing.

Our analysis focuses on entitywide management of sustainability factors--as they relate to our SPO analysis--by considering the issuer's related public statements, actions, goals, and policies. For example, if we consider climate transition risk to be a relevant sustainability factor, we consider the issuer's overall climate transition strategy.

Although our analysis typically centers on the issuer of the financing, we may also consider the context of entities related to the legal issuer. For example, if the financing is issued by a special-purpose vehicle (SPV), we typically consider the entity that established the SPV as part of our analysis.

In what types of SPO reports will you specify a Shade as part of the analysis?

When the financing contains green project categories, we assess the activities within those project categories by conducting a Shades of Green analysis. We consider both climate-related objectives and nonclimate environmental objectives in our analysis. Depending on the materiality of the impact of these objectives on the activity we are assessing, we will place greater emphasis on either climate or nonclimate environmental impacts. For example, if the financing is for a waste recycling plant, we may place a greater emphasis on the waste-prevention impact than on the climate impact.

If the financing we're assessing only has green project categories, and no social project categories, then we also determine an overall Shade for the financing. To do this, we consider the most likely allocation of proceeds over the three years following issuance.

Why do you use a range of Shades rather than apply a binary approach?

In our Shades of Green assessment, we recognize the importance of early steps in the transition to an LCCR future. These early stages, generally represented by a Light green Shade, can involve significant emission reductions but do not represent a sustainable future. The Dark green Shade, on the other hand, signifies activities that are in line with an LCCR future.

Is climate always the main driver of the Shades of Green assessment?

No. We also consider nonclimate environmental factors. We typically start our analysis by focusing on what we identify to be the most material sustainability factor for the activity we're assessing. We then adjust for other relevant factors to specify a Shade.

For example, when climate is the most important factor for the activity we're assessing, we start with the climate analysis then adjust for nonclimate environmental factors (see graphic 2).

Graphic 2


When nonclimate environmental factors are most important for the activity we're assessing, we start with the environmental analysis and then adjust for climate factors (see graphic 3).

Graphic 3

How do you determine Shades in emerging markets?

In terms of public policy and market dynamics, the speed and ambition of a jurisdiction's transition to an LCCR future can influence the risk of investments and activities. We acknowledge that emerging markets will likely follow a more gradual path toward energy transition than developed markets. This is compatible with the Paris Agreement's principle of common but differentiated responsibilities, and we take it into account in our analysis.

Do Shades apply to sustainability or social financing frameworks?

No. We do not determine Shades for social project categories, so our analysis doesn't capture environmental co-benefits or the negative environmental impact of social projects. We will not determine an overall Shade for sustainability or social financing SPOs.

How do you determine Shades in different sectors?

We identify the relevant considerations for climate and other environmental issues within a given project. These can include, for example, technological developments and regional context informed by climate science, such as from the Intergovernmental Panel on Climate Change. Below are examples of factors we may consider in our Shades of Green analysis of financing in three key green bond sectors:


  • The degree of life-cycle emissions and environmental risk, such as embodied emissions and the environmental impact related to raw material extraction, manufacturing of components, and feedstocks associated with the financing.
  • Transition risk associated with the end use of energy generated or transported by the infrastructure.
  • The local environmental impact of the financing, including related to biodiversity and land use.
  • The degree that physical climate risks, such as those related to cooling needs, are evaluated by the issuer and mitigated using scenario analysis.

Real estate: 

  • The extent that building energy efficiency levels exceed national regulations and low-carbon energy sources are utilized.
  • The extent that embodied emissions are considered, such as those related to building material choice and use of recycled materials.
  • The degree to which building refurbishment is prioritized over new construction.
  • The extent to which primary energy demand is reduced as a result of refurbishment.
  • The degree that physical climate risks, such as those related to flooding and storms, are evaluated by the issuer and mitigated using scenario analyses.
  • Whether projects are certified under voluntary schemes such as LEED and BREEAM, and such certifications help address the above considerations.


  • The type of transportation supported by the financing, such as zero-emission vehicles, or whether it is to promote public transit and walking or cycling over car ownership and air travel.
  • The extent that life-cycle emissions and environmental risks in vehicle manufacturing and raw material extraction are considered; for example, whether renewable energy is used and there are efforts to address the environmental impact of extraction and processing of raw materials for batteries and other components.
  • The degree to which the impact on the local environment and climate resilience is considered during design, manufacturing, and construction of vehicles and transport infrastructure.
  • Sourcing of alternative fuels, such as hydrogen and biofuels, with sufficient life-cycle climate benefits and stringent safeguards against direct and indirect land use change.

Our analysis for determining a Shade in the integrated SPO product suite is similar to the approach used when Shades of Green was part of CICERO climate research institute. For context on considerations in different sectors, please see the "Best Practices 2022 Report" on

How do you capture social and environmental co-benefits and the potential for negative impacts in your analysis?

There are several places where we can capture co-benefits or potential negative impacts in our SPO report.

The Shade we allocate to a green project category reflects our view of the environmental risks and benefits, including any environmental co-benefit or negative environmental impact. Social co-benefits or negative effects do not influence the Shade we determine. We may, however, comment on relevant social risks or benefits introduced by an activity as part of our review:

  • In the strengths, weaknesses, and areas to watch section on the first page, we may highlight co-benefits or potential negative effects that are particularly material to our analysis.
  • Our issuer sustainability context analysis includes all material sustainability factors that we consider relevant to the SPO financing, including those related to environmental and social co-benefits or potential negative effects, where applicable.

In our Alignment Assessment section, the impact of social and environmental co-benefits or negative effects on our alignment analysis varies, depending on which principles we are assessing alignment against.

  • When we assess alignment with the International Capital Market Association's (ICMA's) Sustainability Bond Guidelines for the use-of-proceeds assessment, we take the view that, for a financing to be aligned, all projects that have green and social co-benefits should meet the eligibility criteria of both the Green Bond Principles (GBP) and the Social Bond Principles (SBP).
  • When we assess alignment with ICMA's GBP and SBP, and the Loan Market Association's Green Loan Principles and Social Loan Principles, we consider whether the issuer clearly communicates processes to identify and manage perceived social and environmental risks associated with the projects. If the issuer does not clearly communicate its management of the potential negative impact, we may assess it as not aligned.
  • For us to consider the use of proceeds of financing for a green project to be aligned, we require project categories directly funded by the financing to be allocated one of the three green Shades.
  • For us to consider the use of proceeds of financing for a social project to be aligned, we require that the social project directly aims to address or mitigate a specific social issue or provide clear social benefits to the target population.
How does your issuer sustainability context analysis account for entities that may not have sustainability teams or disclosures?

We approach our SPO analysis objectively and without prejudgment tied to any particular characteristic or circumstance of an issuer, including but not limited to, size or reputation. For each sustainability factor we consider relevant to the financing, we review the issuer's strategy and outline its actions, goals, and policies. We review each issuer's strategies based on their circumstances.

Larger or more established issuers typically have more comprehensive targets and policies in many areas. Smaller issuers may have less developed strategies but still address material sustainability issues. This leads us to provide context on how the financing fits into the issuer's broader strategies, rather than a score or comparison across issuers.

Will controversies and allegations related to the issuer play a role in the issuer sustainability context assessment?

We do not provide controversy screening. We may review negative environmental or social impacts in our analysis if they relate to a sustainability factor we consider relevant to the financing. For example, if we consider the impact on communities relevant to the financing, we may review instances where the issuer's activity had a negative impact on communities in previous projects and review the issuer's steps to mitigate those factors in proposed projects.

We do not review environmental or social impacts that are not relevant to the financing. For example, an issuer may be associated with negative sentiment in the media regarding its impact on biodiversity. If we do not consider biodiversity a relevant sustainability factor for the financing, we will not incorporate these instances into our issuer sustainability context analysis.

Do you compare issuers with peers in your issuer sustainability context assessment?

We do not compare issuers with peers in our issuer sustainability context analysis to determine relative performance on a specific sustainability factor, such as reported greenhouse gas emission values. We may, however, compare an issuer's strategy for the relevant sustainability factors to our view of standard industry practices.

Will best practice for alignment with the Green Bond Principles be recognized?

The Shade we allocate reflects the activity's environmental benefits, including those we would consider best practice for alignment with the Green Bond Principles. We may also highlight any features that distinguish the financing positively compared to standard practices, by listing them as a strength on the front page of our SPO report.

Our SPO reports will provide an opinion of aligned or not aligned. We will not provide outcomes of aligned with strong commitments or aligned with advanced commitments to signal alignment with recommendations from the relevant principles or emerging best practices. We may include stronger commitments in the strengths section of our SPO reports.

When will you apply the ICMA Climate Transition Finance Handbook?

Some of the elements in the handbook are included when we review the issuer sustainability context if climate transition is identified as a material sustainability factor. For transition financing--which is typically allocated a Light green Shade--the handbook will be applied when relevant to the financing.

How will you evaluate issuers with nondebt instruments?

Our alignment analysis typically has two possible outcomes: aligned, or not aligned. An opinion of aligned means that, in our view, the financing meets the minimum requirements for alignment with the relevant Principles.

In rare cases, we determine the financing to be conceptually aligned, which means we believe it meets the minimum requirements for alignment with the relevant Principles, but that characteristics of the financing do not technically match the scope of the Principles. In those cases, we apply the Principles as closely as possible, after making any necessary changes to our analysis. For example, this could be relevant for funds or other sustainability frameworks that are not directly tied to a financial instrument.

How do you assess alignment with the EU Taxonomy when requested to do so?

In our EU Taxonomy Assessment, which is available as an optional add-on to the SPO report at the issuer's request, we give our opinion on whether an eligible project to be financed aligns with the EU Taxonomy. Under the EU Taxonomy regulation, to qualify as environmentally sustainable, an activity must have three elements:

  • Make a substantial contribution to at least one of the EU Objectives.
  • Do no significant harm (DNSH) to any other EU Objective.
  • Meet minimum safeguards.

We consider a framework fully aligned if all three criteria are met for all activities funded by the financing. We differentiate nonalignment with the EU taxonomy into two categories:

  • Partially aligned, when at least one activity funded by the financing meets the three criteria; or
  • Not aligned, when none of the activities funded by the financing meet the three criteria.
Is it possible to request a stand-alone EU Taxonomy assessment?

No. We offer the EU Taxonomy alignment assessment only as part of our SPOs. This allows us to analyze projects using our Shades of Green assessment, thereby providing a value-chain perspective alongside the issuer sustainability context in our SPOs. This also allows us to assess project categories for which a taxonomy category has not yet been established.

How do you assess a financing's contribution to the U.N.'s SDGs?

We can assess which of the SDGs the financing contributes to as an optional add-on to the SPO report, at the issuer's request. We include a table in our SPO report that outlines the linkages between the financing and the SDGs. Our assessment of SDG mapping does not have an impact on our alignment opinion.

How are SDG objectives mapped if the issuer does not indicate them, and how are national goals taken into account?

We compare the activities funded by the financing to the ICMA SDG mapping and outline the linkages within our SPO analysis.

Related Research

External Research

  • AR6 Synthesis Report: Climate Change 2023, Intergovernmental Panel on Climate Change
Primary Author:Charlie Cowcher, CFA, London +44 7977 595797;
Secondary Contacts:Beth Burks, London + 44 20 7176 9829;
Bertrand P Jabouley, CFA, Singapore + 65 6239 6303;
Florence Devevey, Paris + 33 1 40 75 25 01;
Michael T Ferguson, CFA, CPA, New York + 1 (212) 438 7670;
Bernard De Longevialle, Paris + 33 14 075 2517;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at