When is green, green enough?
We bought a new house last month. The kitchen needs an upgrade, and we are keen to repaint the cabinets. Our colour of choice is green - dark green, like pine trees.
Seems easy enough, one would think. But browsing the different RAL colour codes, I realised that there is a plethora of greens. This brought to mind the experience we had when preparing for the issue of ING’s first green bond. What is green? And when is it green enough?
Since 2014, a new market of green bonds, issued by corporates and financial institutions, has grown rapidly. The idea is simple – and appealing; raise capital via bonds and use this money to fund green and sustainable projects.
With over $36bn in new issues in 2014 alone (according to World Bank statistics), it is clear that investors are keen to buy these forward-looking securities; they support their Responsible Investment strategy and their wider sustainability ambitions.
But how do these investors know that the projects that the issuer claims to be sustainable are really making a positive contribution to society? How do they contribute in terms of energy efficiency, reduced carbon dioxide emissions, resource efficiency? How do they help societal groups? Or, to stay with the colour theme, how can they be sure that the promised green doesn’t turn out as a faded blue or brown?
In 2013, ING started identifying sustainable clients and transactions in its Commercial Banking loan book. We developed client assessments and an appropriate transaction scorecard to help the front office identify the deals that contribute to a sustainable economy. As of H1 2015, this amounted to €3.4bn of sustainable projects across the sectors and industries we’re active in.
We have been working with external assurance provider Oekom to select from this loan book the transactions that we add to our Green bond portfolio, to be refinanced with the proceeds of the Green bond.
Oekom helped us define a framework with an extensive list of criteria to select the best-in-class transactions, those with the most environmental and social benefits. The framework filters and identifies deals that apply high standards, take all stakeholders into consideration and, importantly, have no associated controversies.
Through this comprehensive screening process and seeing through Oekom’ lens, we learnt even more about the selected deals and their sustainability performance. We were reminded that there are many different factors in determining what deserves a sustainable label. What is sustainable for one person, may not be so for another.
We learnt that green can always be more green. For my kitchen, I need to accept that some will find the shade of green we pick pleasing, while others may find it not green enough for their liking.
The important thing is that we all keep painting!
Gerald Naber, vice president of sustainable finance, INGING Group