ICMA Updates Green Securitisation Guidelines and SLB KPIs

    Stockholm (NordSIP) – As the sustainable fixed income market continues to grow, issuers and investors require the development of definitions, guidelines and indicators to guide them on their journey through these new products. This is particularly important for securitised and Sustainability-Linked Bonds (SLBs), the products at the cust of the market at the moment. To answer these needs, the sustainable fixed income initiatives from the International Capital Markets Association (ICMA) announced new and updated definitions for green securitisation, updated key performance indicators for SLBs and new resources for climate transition finance.

    The announcements were made by Green Bond Principles (GBP), Social Bond Principles (SBP), Sustainability Bond Guidelines (SBG) and Sustainability-Linked Bond Principles (SLBP), collectively known as the Principles, provide a global standard for the US$2.4 trillion sustainability and climate transition fixed income market.

    Regarding the securitisation of green bonds, the Principles updated the June 2021 Green Bond Principles Voluntary Process Guidelines for Issuing Green Bonds’ first appendix to incorporate the category of Secured Green Bonds. This type of green security covers “covered bonds, securitisations, asset-backed commercial paper, secured notes and other secured structures, where the cash flows of assets are available as a source of repayment or assets serve as security for the bonds in priority to other claims.”

    In case the proceeds are used to finance or refinance the green project(s) securing the specific bond, then the security is defined as a “Secured Green Collateral Bond”. A “Secured Green Standard Bond” is a security where “such green project(s) of the issuer, originator or sponsor, where such Green Projects may or may not be securing the specific bond in whole or in part”. A “Secured Green Standard Bond” may be a specific class or tranche of a larger transaction. A Q&A document explores related issues such as how assets that are not originated by the issuer, originator or sponsor of the vehicles are included, whether green or social projects associated with a Secured green, social or sustainability bond could repeatedly for financing purposes, among other questions.

    “The 2022 announcements of the Principles represent critical support for market integrity and development. Sustainability now permeates all areas of the capital markets. The Principles provide market participants and stakeholders with an essential reference for product standards, agreed terminology and technical consistency, as well as a resource to benchmark ambition,” Nicholas Pfaff, Deputy Chief Executive and Head of Sustainable Finance, ICMA, said.

    The Principles also published an updated registry of approximately 300 key performance indicators (KPIs) for Sustainability-Linked Bonds, classified by sector and between core and secondary indicators. The registry is based on the input of over 90 leading market participants and stakeholders and is accompanied by a Q&A that addresses the materiality assessment of KPIs, among other issues.

    ”The Principles serve as a model for incorporating sustainability into capital markets, and the updates this year ensure that they remain current with market developments while also recognising emerging related products. Additionally, the updated KPI registry and climate transition methodologies stand to aid issuers to fundamentally and rapidly advance the transition to a low-carbon economy via the bond market and beyond,” Denise Odaro, Chair of the Principles, Head of Investor Relations, International Finance Corporation (IFC) added.

    Among the publication, the ICMA-backed initiative also published a new Climate Transition Finance (CTF) Methodologies registry providing the tools to allow issuers, investors, or financial intermediaries to validate their emission reduction trajectories as “science-based”. Similarly, the Guidelines for External Reviews have been updated to facilitate the assessment of alignment with the existing Climate Transition Finance Handbook (CTFH).

    Moreover, the Principles also released additional guidance, updates and templates, on new metrics for impact reporting for Green Projects and for Social Projects, an updated high-level mapping to the UN Sustainable Development Goals (SDGs), and a pre-issuance checklist for Green Bonds, among others.

    “What the Principles have accomplished over the years has been truly impressive. This has been possible thanks to the very active participation across various market players, the incredible support of ICMA, and the input through our member and advisory network covering the sustainability ecosystem. These updated guidelines reflect hundreds of hours of research, feedback and consensus-building across this community,” Ashley Schulten, Head of Responsible Investing for Global Fixed Income, BlackRock, and Vice-Chair of the Principles, concluded.

    Image courtesy of congerdesign via Pixabay
    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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