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Public Draft of Standard for Evaluating Water-Related Green Bonds Is Released

The Climate Bonds Initiative, Ceres, World Resources Institute, CDP and the Alliance for Global Water Adaptation have released a public review draft of a new standard, known as the Water Climate Bond Standard, for evaluating water-related green bonds. Green bonds are defined as “labeled bonds that claim to be directed toward projects and assets with environmental benefit.”

The consortium that is developing this bond-evaluation standard sees a growing potential for water projects in the green bonds market—which had annual issuances totaling $40 billion in 2014 and is projected to be valued at $1 trillion by 2020. The standard is designed “to provide investors with verifiable, science-based criteria for evaluating water-related bonds, and to assist issuers in the global corporate, municipal, sovereign and supra-sovereign markets in differentiating their green bond offerings.” Ultimately, it will meet the needs of investors, entities seeking financing, technical decision makers, including engineers and water managers, and policymakers.

“Strong investor interest in the green bonds market demands a high degree of rigor in performance reporting and the ability to differentiate truly green, climate adaptive projects from those that are green in name only. This standard is a first step to define what it means to be a climate-responsive water project, and Ceres and its investor partners welcome the insight of other market actors in the design of this critical global response to climate change,” said Sharlene Leurig, Director of the Sustainable Water Infrastructure Program at Ceres.

Representatives from other members of the consortium, as well as from the Technical Working Group and Industry Working Group, made similar statements about the need for this tool.

A key element for evaluating a water project using the standard is how it accounts for climate change. Water projects, especially infrastructure projects, are typically long-range. On the other hand, climate change impacts are complex and often difficult to measure—e.g. changing the type (rather than the amount) of precipitation or impacting water quality—which presents a high level of uncertainty about future conditions and makes investment in a water project risky.

To better define and reduce investment exposure to climate risks, the standard defines a project as having climate mitigation and/or adaptation theme, depending on the type and duration of the project. Longer projects with a focus on ecosystem benefits would be deemed climate adaptation projects, where shorter-term projects with a focus on greenhouse gas emission or concentrations would be classified as climate mitigation projects. The theme guides the analyst through a set of criteria that ultimately produce a score that determines whether the project is superior, acceptable or not acceptable. The thresholds are still in development, and the consortium is seeking public input on the cutoffs.

The group is also seeking public input on how to quantify project-related nominal changes in greenhouse gas emissions without duplicating efforts that have already been made by other organizations.


Written by Marta L. Weismann