ICMA reveals fresh guidelines for bond offerings themed around nature conservation
In the realm of sustainable finance, a significant shift is underway as more issuers are directing proceeds from green and sustainability bonds towards nature-related uses. This trend, spearheaded by influential figures such as Gourc, head of sustainable capital markets at BNP Paribas, is encouraging issuers to align their targets with globally recognised frameworks like the Global Biodiversity Framework, Science-Based Targets Network, and the Taskforce on Nature-related Financial Disclosures (TNFD).
This shift is particularly evident in 2024, where a growing share of these funds have been channeled towards projects focused on nature conservation. Issuers are urged to meticulously assess the materiality and ambition of their chosen sustainability performance targets and key performance indicators (KPIs), as per ICMA guidelines.
The International Capital Market Association (ICMA) has also issued labelling guidelines for nature-related bonds, providing a clear pathway for issuers to follow. However, it's important to note that the "blue bond" label should not be used to finance a country or company's general purpose debt, according to ICMA's subsequent clarification.
In the Asia Pacific region, institutional investors are increasingly allocating funds towards nature-related projects, despite growing political pressure against Environmental, Social, and Governance (ESG) investing in the United States. This trend is expected to continue, with a new survey by climate advisory firm Pollination revealing that all institutional investors surveyed in Singapore, Japan, and Australia plan to increase nature-related allocations.
The global US$6 trillion labelled bond market presents a significant opportunity for issuers to meet the Global Biodiversity Framework's goals to halt and reverse nature loss by 2030. Key performance indicators (KPIs) for sustainability-linked bonds (SLBs) with a focus on nature conservation need to be measurable, auditable, and aligned with international sustainability goals such as the relevant Sustainable Development Goals (SDGs).
To ensure credibility and adherence to best practices, issuers should follow established frameworks like the Sustainability-Linked Bond Principles (SLBP) by ICMA and align with sector-specific guidelines such as those for blue bonds if ocean-related nature conservation is targeted. Potential KPIs for SLBs focused on nature include hectares of habitat restored, key species abundance, or reductions in pollutants discharged into ecosystems.
In order to maintain the credibility and ambition of these KPIs, issuers are advised to follow ICMA's SLBP 2024 guidelines, align KPI targets with international frameworks like the SDGs and UN Sustainable Ocean Principles, set a clear baseline and positive, time-bound targets, use third-party verification or assurance, disclose KPI methodologies and impact in bond documentation, and engage with market best practices and evolving standards.
However, concerns about the credibility and ambition of the KPIs chosen by issuers for SLBs have been raised. For instance, in 2023, US conservation outfit The Nature Conservancy was forced to ditch their "blue bond" label in at least US$1 billion worth of debt swaps meant to fund marine conservation projects due to concerns about the proceeds not being ringfenced for conservation.
Despite these challenges, the market for nature-focused SLBs is expected to grow, with novel financing mechanisms like rhino bonds and debt-for-nature swaps already coming to market in the past few years. As investors continue to prioritise environmental impact, issuers that can demonstrate a genuine commitment to nature conservation objectives and meet investor expectations for credibility and impact stand to reap significant benefits.
- The trend in sustainable finance is directing more green and sustainability bond proceeds towards nature-related uses, aligning with globally recognized frameworks like the Global Biodiversity Framework, Science-Based Targets Network, and the Taskforce on Nature-related Financial Disclosures (TNFD).
- In 2024, a growing share of these funds is being channeled towards projects focused on nature conservation, with issuers assessing the materiality and ambition of their chosen sustainability performance targets and key performance indicators (KPIs) according to ICMA guidelines.
- The International Capital Market Association (ICMA) has issued labelling guidelines for nature-related bonds, but the "blue bond" label should not be used to finance a country or company's general purpose debt.
- In the Asia Pacific region, institutional investors are increasing nature-related project fund allocations, despite political pressure against Environmental, Social, and Governance (ESG) investing in the United States.
- The global US$6 trillion labelled bond market presents a significant opportunity for issuers to meet the Global Biodiversity Framework's goals to halt and reverse nature loss by 2030, with key performance indicators (KPIs) for sustainability-linked bonds (SLBs) with a focus on nature conservation needing to be measurable, auditable, and aligned with international sustainability goals such as the relevant Sustainable Development Goals (SDGs).
- Issuers should follow established frameworks like the Sustainability-Linked Bond Principles (SLBP) by ICMA, align with sector-specific guidelines such as those for blue bonds if ocean-related nature conservation is targeted, and ensure credibility and adherence to best practices to maintain investor confidence in the increasingly growing market for nature-focused SLBs. However, concerns about the credibility and ambition of KPIs chosen by issuers for SLBs have been raised, as illustrated by the case of US conservation outfit The Nature Conservancy in 2023.
