Transparency Pays in the Age of Sustainable Investing

Contact: Przemek Koralewski
Head of Sales - Market Data,
Nasdaq European Markets

The green bond market is in its adolescence—and at 13 years old, it's going through a growth spurt.

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While there is no question that the rapid uptake of sustainable investing is impressive, the long-term health of this endeavor relies on one thing: Satisfying both issuers and investors alike that funds are being used to drive projects that have sustainability at their core. 

In other words, transparency is imperative if sustainable finance is to reach maturity.

The reason for this is self-evident because the distinguishing feature of green bonds is that they are debt securities designed to finance specific projects. But how can investors be confident that their funds are being used as promised? And who will be minding the store?

Many parties who support sustainable finance recognized the need for clear-cut answers from the time the first green bond was issued in 2008. Just a year later, the Sustainable Stock Exchanges (SSE) Initiative was launched in partnership with the UN. The SSE set out to establish "a global platform for exploring how exchanges, in collaboration with investors, companies (issuers), regulators, policymakers and relevant international organizations, can enhance performance" on environmental, social and governance (ESG) issues.

As the sustainable finance marketplace accelerated, other organizations sought to refine standards for measuring the authenticity of these instruments. In 2014, for example, a group of investment banks developed four criteria for sustainable bond issuance:

  • Use of proceeds
  • Process for project evaluation and selection
  • Management of proceeds and
  • Reporting

Now, however, the next stage in the development of this financing vehicle involves securing an even more robust, competitive, and diversified market. For that to happen and for confidence to keep growing, investors need additional third-party sources they can rely on that can independently verify the claims of issuers.

In that regard, initiatives such as the Nasdaq Sustainability Bond Network are proving to be a valuable addition to the quest for accountability. Launched in 2019, the network is not a listing venue for bonds. Instead, its function is to increase transparency by providing a one-stop platform where issuers can display how proceeds are used and the outcomes their financed projects have had. It's a source of information about the impact, frameworks, certifications, and follow-up of these undertakings. In short, it's a due diligence hub—a straightforward meeting place where investors can access, explore, and compare the various offerings companies are issuing.

Critically, the network takes an agnostic approach to the sustainable bond market, applying the same principles as it does to any exchange. What's more, it offers a standardized dataset and a list of key performance indicators (KPIs) to help investors evaluate green and social bonds.

Since its inception, the Nasdaq Sustainability Bond Network has attracted hundreds of issuers who have dispensed thousands of bonds, with coverage rising rapidly. Almost 20 percent of participants are Nasdaq ESG transparency partners who release their sustainable bond reports, along with detailed data backing their claims, directly to the network.

The collected data is available in regular Nasdaq market data feeds and through online portals where investors can register portfolios. In this way, they can analyze aggregated figures regarding the impact of their investments. They can also see which of the UN's Sustainability Development Goals the portfolio helps support. The portal offers many other features as well.

Meanwhile, other efforts are underway to standardize points of reference for what constitutes a green or sustainable bond. For their part, the European Union has created the EU taxonomy for sustainable activities in advance of establishing an EU green bond standard. In late April, in close collaboration with the Nasdaq Sustainability Bond Network, the Inter-American Development Bank (IDB) and IDB Invest launched the Green Bond Transparency Platform (GBTP). The goal of this project is to bring greater transparency to the Latin America and the Caribbean green bond market with synchronized reporting by issuers and ratification by external reviewers.

Ventures such as these are putting sustainable finance in the spotlight, placing these instruments in context. With that context comes transparency—which can help raise investment in ESG projects to a whole new level.

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