Highlights from the AGM of the “Principles”

The International Capital Market Association (ICMA) hosted its eighth consecutive Annual General Meeting (AGM) of the “Principles” on 28^th June, announcing the publication of a wealth of additional resources with relevance across the market. Nicholas Pfaff, Deputy Chief Executive and Head of Sustainable Finance at ICMA, stated that “the 2022 announcements of the Principles represent critical support for market integrity and development […] 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.”

With the common objective of increasing market integrity and transparency, the headline announcements following the AGM include:

• New definitions for green securitisation (Secured Green Collateral Bond, Secured Green Standard Bond), clarifying terminology and market practice, notably for collateral. A Q&A has been published alongside the definitions, in addition to similar guidance relating to social bond securitisation.
• An updated registry of approximately 300 key performance indicators (KPIs) for sustainability-linked bonds and a related Q&A. Based on input from over 90 leading market participants, the registry includes sector classifications and provides detail on core and secondary indicators.
• A registry of Climate Transition Finance (CTF) Methodologies containing a list of tools to assist issuers, investors and financial intermediaries to validate emission reduction trajectories/pathways as "science-based". Similarly, in order to guide the assessment of alignment with the existing Climate Transition Finance Handbook (CTFH), the Guidelines for External Reviews have also been updated.

Sustainable Securitisation Definitions

Comprising 28 organisations, the Sustainable Securitisation Taskforce kicked off in January 2022 with the initial objectives of assessing existing market practices, inclusive of both green and social assets, to review the relevant section of the Principles and to provide amendments and additional guidance if necessary.

Following the work of the Taskforce, new definitions have been embedded in Appendix 1 of the Green Bond Principles. The scope of the definitions includes covered bonds, securitisations, asset-backed commercial paper, secured notes and other secured structures.

New definitions include:

• A distinction between Standard Green/Social Use of Proceeds Bonds (unsecured debt obligation ) and Secured GSS Bonds.
• Further detail on Secured GSS Bonds:
  • Secured GSS Collateral Bond: the net proceeds will be exclusively applied to finance or refinance the Green/Social Project(s) securing the specific bond only.
  • Secured Standard Bond: the net proceeds will be exclusively applied to finance or refinance the Green/Social Project(s) of the issuer, originator or sponsor, where such Green/Social Projects may or may not be securing the specific bond in whole or in part.
• To assist with interpretation, recommendations and a Q&A covering the selection method transparency, full alignment with the Principles, double counting, reporting requirements, sustainability criteria and class-specific concerns have been published.

Sustainability-Linked Bonds KPI Registry

Representing the fastest growing segment of the sustainable bond market, sustainability-linked bonds have sparked ongoing debate among market participants over materiality and ambitiousness, among other KPI characteristics. The sustainability-linked bonds working group aims to promote transparency and integrity through increasing understanding of KPI materiality and the application of best practice calculation methodologies.

Integrating input from over 90 organisations, the working group has published a registry of approximately 300 key performance indicators (KPIs) for sustainability-linked bonds. This registry, published with a Q&A, provides collated suggestions on how to identify, select and apply KPIs for the purpose of structuring SLBs. The combined documents provide guidance relating to topics such as KPI materiality, target observation dates (and call dates), adjustments to bond financial characteristics, KPI or SPT amendments, and the use of multiple KPIs.

The published registry provides the following detail with relation to illustrative KPIs where relevant:

• Sector/sub-sector application
• Sustainability theme alignment
• Application guidance as core or secondary KPIs
• Reference to global benchmarks for KPI definition and SPT calibration
• EU objective mapping

Climate Transition Finance

The need for credible and science-based decarbonisation targets that follow ambitious yet realistic trajectories is clearer now than ever. As the sophistication of the market’s understanding of the subject has increased, so has the volume and complexity of guidance available. In recognition of the importance that methodologies are both grounded in science and reasonably applied, the Climate Transition Finance Working Group has published a registry of Climate Transition Finance (CTF) Methodologies.

While the publication does not act as a comprehensive source for all tools that issuers, investors and financial intermediaries may use, the registry aims to guide these parties in the appropriate use of tools covered, specifically in the context of Element 3 of the Climate Transition Handbook (CTFH). The registry provides categorisations, including target institution type and sector and sub-sector applications. The publication is viewed as “live” and is expected to evolve as requirements relating to the validation of specific emission reduction pathways, as well as scientific understanding of the underlying issues, change over time.

Additional guidance, updates and templates from the Principles

Additional publications announced at the AGM include: new metrics for impact reporting (Green Projects relating to environmentally sustainable management of living natural resources and land use, and Social Projects including an enhanced list of social indicators and impact confirmation on target population), updated high-level mapping to the UNSDGs, a recommendations paper proposed information template for providers of Green, Social and Sustainability Bond index services, and a Pre-issuance Checklist for Green Bonds/Green Bond Programmes.

All new or updated documents released following the AGM:

• Green Bond Principles - June 2021 (with June 2022 Appendix 1)
• Pre-issuance Checklist for Green Bonds / Green Bond Programmes - June 2022
• Social Bond Principles - June 2021 (with June 2022 Appendix 1)
• Sustainable Securitisation Related questions - June 2022
• Sustainability-Linked Bond Principles Related Questions - June 2022
• Sustainability-Linked Bonds Illustrative KPIs Registry - June 2022
• Climate Transition Finance Methodologies Registry - June 2022
• Green, Social and Sustainability Bonds: A High-Level Mapping to the Sustainable Development Goals - June 2022
• Handbook - Harmonised Framework for Impact Reporting (Green Bonds) - June 2022
• Harmonised Framework for Impact Reporting for Social Bonds - June 2022
• Guidelines for Green, Social, Sustainability and Sustainability-Linked Bonds External Reviews June 2022 - June 2022
• Green, Social and Sustainability Bond Index Service Mapping Supporting Paper - June 2022
• Index Providers Mapping Template - June 2022