How Green is “Green”? Understanding the Challenges of Analyzing Sustainability Bonds

JULY 1, 2019

While sustainability bonds have the potential to contribute to financing a more sustainable future, a thorough analysis is needed to avoid becoming involved in investments posing ESG and reputational risks. Possible pitfalls include non-transparent project categories, limited external reviews, varying ESG performances of issuers and difficulties in determining precise impacts.

The market for green and social bonds (collectively referred to as sustainability bonds in the following) offers investors different fixed-income options to finance projects with sustainability benefits. Financed projects range from renewable energy, green buildings, public transport, and sustainable agriculture to social housing and education programs.

In general, sustainability bonds can provide important tools for financing sustainable projects. ISS ESG analyzes such bonds leveraging a comprehensive ESG rating methodology to help investors make informed investment decisions. The overall results of this analysis are largely positive: 81 percent of the analyzed bond issuances are awarded Approved status, meaning they achieve at least grade B- on the rating scale from D- to A+.

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