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S&P lays out plans for green bond and ESG market tools

Ratings agency launches white papers for two new tools to assess exposure of investments to environmental risk.

Influential ratings agency S&P Global has launched plans for a new tool to examine the environmental impact of projects or initiatives financed by bonds.

Dubbed the Green Bond Evaluation Tool, the market instrument would identify projects that aim to reduce greenhouse gas emissions or mitigate the impact of natural catastrophes.

The overall evaluation would consist of at least three scores: a transparency score; a governance score; and a mitigation or adaptation score, which then would be weighted into a final Green Bond Evaluation, S&P said last week.

Alongside the green bond tool, S&P also launched a proposal for a Environmental, Social, and Governance (ESG) Assessment tool.

This would evaluate the impact of a firm on the natural and social environment, as well as any potential losses due to its exposure to the associated risks. It would also assess the strength of the governance mechanisms the company has in place to address these risks.

S&P said the two tools would help to provide market standardization as interest in socially responsible financing continues to rise.

"Investors have told us that they want to develop more meaningful insights into the environmental, social, and governance characteristics of individual debt securities and corporate entities," said Michael Wilkins, head of environmental and climate risk research at S&P Global Ratings, in a statement. "We believe that our proposed tools will offer a unique assessment of risks associated with sustainability over the medium to long term."

S&P Global has released white papers on the two market tools, which are separate from its credit ratings, and is seeking market feedback.

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