We’ve just released Climate Bonds Standard V2.1, the most recent update to our overarching multi-sector standard. The Standard allows investors and intermediaries to easily assess the environmental integrity of green bonds so they can invest accurately on low-carbon and climate-resilient projects.
Process improvements and an increase in product reach, mark this update to the assessment tool, the next stage in development since Standard V2.0 was launched in December 2015.
Major new features are:
- The expansion of the Range of Debt Instruments that can now be Certified under the Standard
- The inclusion of a Programmatic Certification option that will streamline the verification process for regular issuers with large portfolios of eligible assets
New Range of Debt Instruments
While the focus of Climate Bonds' work is on the international bond markets, there are some potential issuers who are also keen to explore Certification of debt instruments which may not fall within the strict definitions of a ‘bond.’
This includes Loan Facilities, Syndicated Loans, Sukuk and a wide variety of other debt instruments which are all useful additions to the climate finance movement.
In Version 2.1 of the Standard, the definitions of what is a ‘bond’ for the purposes of Certification has been expanded to include 'Other Debt Instruments'. A full list is available on our website here.
This list expands the existing four bond definitions that are based on the Green Bonds Principles definitions (Use of Proceeds, Use of Proceeds Revenue, Project, Securitized).
We expect to see exciting developments in this space in the coming months, as issuers become more familiar with the expanded range of debt instruments including Certification of loan facilities for green building initiatives.
What is Programmatic Certification?
Previously, under Version 2.0 of the Standard, each bond issued had to have both pre and post-issuance involvement of the verifier for it to be Certified. However, many issuers want to issue multiple Certified Climate Bonds each year against a large portfolio of eligible assets.
Version 2.1 of the Standard includes this option, a ‘Programmatic Certification’ to streamline the verification of several bonds against the same large portfolio of eligible assets.
Programmatic Certification is for issuers that intend to issue at least twice a year over multiple years. This option has been very popular in discussions with existing and potential issuers.
How Programmatic Certification Works in Practice
There are four steps for issuers under the Programmatic Certification option:
- The issuer's first Certified Climate Bond in the programme is verified and Certified for pre-issuance and post-issuance in the normal way. This ensures that the issuer’s internal compliance framework is in place and that they have a large enough stack of eligible assets for the issuance programme.
- When the issuer comes to issue again under their programme, they must provide the requisite information to, and receive formal Certification, from the Board, but the issuer does not need to involve the verifier during the issuance phase.
- The issuer must engage a verifier annually to review the issuer’s internal Green Bond Framework, to examine the compliance of all Certified Climate Bonds issued under the programme since the previous year’s verification and to produce a Verifier’s Report.
- Reporting obligations remain the same for each bond as Climate Bonds continues to track all existing Certified Climate Bonds via the submission of the Climate Bond Information Form by the issuer before every issuance under their programme, and the annual Verifier’s Report on all bonds issued under the programme.
Backwards Compatibility with Version 2.0 for Previous Certifications
The updated version of the Climate Bonds Standard has new options available to issuers but it has not changed the detailed requirements for meeting the Standard. This means that there is no need for bonds Certified under version 2.0 of the Standard to update their documents or seek recertification under Version 2.1.
Issuers are encouraged to use version 2.1 of the Standard for new applications for Certification. Existing applications using version 2.0 of the Standard are welcome to be submitted up to the middle of 2017.
What Other Updates are in V2.1?
Other updates from Version 2.0 to Version 2.1 include:
- Alignment with the most recent version of the Green Bond Principles
- Adjusting the list of sector-specific Criteria available to include new additions such as Water Sector Criteria
- Clarification of wording in the Standard based on feedback from issuers and verifiers, including the eligibility of leased assets, examples for reporting metrics, and updated Climate Bonds terminology
- Removing some redundant explanatory material to reduce the overall size of the document
The Last Word
This update to the Standard, combined with the new sector criteria available to issuers, further streamlines the process and widens the pool of assets available for Certification. If you would like to explore the new possibilities opened up by V2.1, please get in touch with our Head of Certification, Rob Fowler.
We’ll continue our development work in 2017 and as always keep you advised on the latest Certifications and market developments.
‘Till next time
Climate Bonds Initiative
Disclaimer: The information contained in this communication does not constitute investment advice and the Climate Bonds Initiative is not an investment adviser. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites.
The Climate Bonds Initiative is not advising on the merits or otherwise of any investment. A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts no liability of any kind for investments any individual or organisation makes, nor for investments made by third parties on behalf of an individual or organisation.