The Race to Zero

A critical project I have taken on during the coronavirus quarantine is measuring and reporting on the impact of green bonds. A key traction of investments in green bonds is that they deliver positive environmental benefits that are measurable. Investors want to quantify how their green bond investments are contributing to their environmental objectives. Asset managers, pension funds and insurers also want to report the environmental benefits of their green bond investments to their end investors, plan participants and customers. The impact reporting exercise addresses exactly that. The million-dollar question I want to answer? What is the impact, the positive environmental and social outcomes, of $1 million investment in a portfolio tracking the Bloomberg Barclays MSCI Global Green Bond Index?

As I set off to engage with over 200 issuers as COVID-induced lockdown measures around the world are put in place, a parallel became clear. Tracking the impact of green bonds has many similarities to containing the coronavirus – they are both races to zero. In the case of the former, it’s the race to a zero-carbon economy. Leveraging the framework for best practices on containing the coronavirus as guide posts, I present here my key takeaways on the exercise of green bond impact reporting.

1. Containment and lockdown

Just as countries and cities have adopted virus containment measures with varying degrees of control, individual green bond issuers have also applied different measures to ‘lock down’ the impact of their projects.

Some have joined forces to figure this out. International finance institutions including the Nordic Investment Bank, Asian Development Bank, European Investment Bank, among others, signed onto a harmonized reporting framework for project-level greenhouse gas emission accounting. Nordic public sector issuers like Kommuninvest, SEK, Kommunalbanken and MuniFin carry out their impact analysis based on the recommendations of the Nordic Position Paper on Green Bond Impact Reporting (2020). This makes sense, as these groups of issuers share commonalities in the way they provide financing.

Investors also want to understand green bond impact figures at the portfolio level. To do so, the indicators need to be scalable and aggregable, issuer-agnostic. We locked down a list of 50 commonly tracked quantitative indicators. These are measures in absolute terms, like tonnes of waste treated/collected per year, tonnes of CO2 emissions reductions or avoided/year, annual renewable energy generation (in MWh), annual energy savings (in MWh), and the number of jobs created, to name a few.

We then do an annual impact reporting exercise for green bond issuers whose bonds we hold. In our attempt to align issuers’ reported impact figures to our set of commonly tracked indicators, we asked each of the issuers to complete a template based on their latest available impact and allocation data. Within hours, my inbox was flooded with responses.