Finance coalition calls for clearer guidance on social impact for green bond markets

Sustainable bond markets need stronger reporting standards and implementation tools to take account of social and environmental factors, a coalition of leading organisations recommends. While bond frameworks might refer to “just transition” principles, “these commitments are rarely reflected in allocation criteria, reporting metrics or accountability mechanisms”, according to a review by a coalition of organisations across finance, policy and civil society convened by the London School of Economics (LSE). “We want to help bridge that divide between high level commitments and actual movement of capital,” said Nick Robins, senior director, finance and private sector, climate, economics and finance programme at World Resources Institute (WRI). “It is vital that there are clear, high-integrity frameworks that enable investors to allocate finance at the scale required”. The coalition’s review of 29 sovereign and multilateral development bank (MDB) sustainable finance frameworks found that out of approximately 630 references to climate, social, or community issues, only around six explicitly mention "just transition”. The war against Iran and the jump in oil prices could be a turning point for a more sustained reallocation of capital towards green projects to boost energy security, Robins said. “The just transition is very consistent with financial stability because it's likely to make a disorderly transition more acceptable and more politically viable and probably more supported by the public”. The report notes that the green economy could create 24 million new jobs by 2030, but the phase-out of coal could displace up to 17 million people, most of whom are concentrated in a small number of regions. Ongoing just transition framework initiative Robins is the co-chair of a community of practice convened by the LSE’s Just Transition Finance Lab which brings together market participants, investors, underwriters and community voices, mostly from Europe and Asia. It plans to publish guidelines in November on how frameworks for green, social and transition bonds can incorporate just transition principles in a credible way after running a series of workshops. It also plans to create practical case studies for corporate, MDB, and sovereign issuers organised by bond type and sector. The Institutional Investors Group on Climate Change (IIGCC) , which is part of the coalition, welcomed the initiative. “Integrating just transition can strengthen investment strategies by enhancing portfolio resilience and reducing risk,” said Elena Vydrine, IIGCC senior investment specialist. The coalition proposes integrating just transition considerations into existing frameworks for green bonds, rather than creating a new category of bonds. This could mean, for example, producing guidelines for how a utility company could demonstrate that it is pursuing a just transition as it switches from fossil fuels into renewables. “Scaling down and ultimately phasing out fossil fuels has big worker and community impacts but obviously rapidly expanding renewables, doing home energy retrofits and so on all have quite profound social, worker and community implications,” Robins said. Central bankers have dual role to support just transition Central banks and financial regulators have an important role to play in supporting this push, Robins said. “The message to central banks is that you should be considering buying bonds which take account of the just transition, not least because you are serving countries whose governments are supporting the just transition,” he said. They should also take these factors into consideration if they supervise bank and insurer transition plans, Robins said, but he does not see a need at the moment for mandatory standards on this issue. “We're very aware that there can be a disincentive for issuers by unwieldy or overly burdensome regulation on this and we want to get a market going … so it's going to be highly credible but also very practical,” he said. Despite the departure last year of the US Federal Reserve from a coalition of central banks focused on addressing climate change , Robins said progress was still being made on sustainable finance, particularly in Europe and Asia. “A lot of things are being done in a more discrete manner … more working on a sort of submarine basis,” he said. The post Finance coalition calls for clearer guidance on social impact for green bond markets appeared first on Green Central Banking .