A new report from S&P Global Ratings suggests that despite increasing concerns that misleading practices are taking place in the green, social, sustainability and sustainability-linked bonds universe, there would appear to be little evidence that such practices are widespread.
“S&P Global believes sustainable bond issuance, including green, social, sustainability and sustainability-linked bonds could now collectively exceed $1-trillion in 2021 (a five times increase over 2018 levels), however a lack of consistency in instrument labelling and post-issuance disclosure has raised investor fears that sustainability claims made by issuers might be overstated or unreliable,” says the recent report, The Fear Of Greenwashing May Be Greater Than The Reality Across The Global Financial Markets. The report is part of the firm’s larger Credit Focus 2021 report.
The report examines the challenges, including that ESG naming conventions lack uniformity and post-issuance disclosure is still hard to come by. This is coupled with the sheer volume of ESG marketing and labelling which has made it difficult for stakeholders to identify which claims are trustworthy and reliable. The report also looks closely at the concerns surrounding transition instruments, says evolving regulation may mitigate greenwashing concerns but harmonization is needed, and discusses standardization efforts currently underway.
“In addition to greenwashing, sustainability-washing concerns have become increasingly prominent as new types of sustainable financing including social, transition, and sustainability-lined instruments take root,” says the report. “While there are increasing concerns that these potentially misleading practices are taking place, there seems to be little evidence that they have become widespread in reality.”