The growth of sustainable finance seems certain to continue as most governments worldwide focus on how to cut pollution and greenhouse gases and more regulators require companies to disclose climate-related risks. The renewable-energy sector for electricity, for example, has doubled in the past decade and more than quadrupled in the past 15 years.
Despite an upsurge in investment, much more is needed to meet the targets of the Paris Agreement and United Nations Sustainable Development Goals (SDGs). And the scale of investment required is enormous. According to the World Economic Forum, we need to devote around USD 5.7 trillion annually to green infrastructure, whilst the International Energy Agency has determined that we need at least USD 53 trillion in the next 15 years to combat climate change. And more is needed for other areas of sustainability, such as the emerging circular economy.
Evidence shows that robust, credible, fully developed and widely accepted standards are urgently needed. International Standards can help structure the emerging sustainable finance market and create the trust and confidence that investors need. Experts leading the development of standards for sustainable finance are very lucid when explaining why. “International Standards will deliver harmonization, credibility, transparency and trust,” states John Shideler of Futurepast Inc., who is heading a group of experts in ISO/TC 207, Environmental management, the ISO technical committee in charge of developing a series of standards for green bonds and loans.
Evidence shows that widely accepted standards are urgently needed.
Green bonds and beyond
“We need standards to avoid greenwashing,” explains Hayden Morgan of the international Green Investment Group, who fronts another group of experts in ISO/TC 322, Sustainable finance. “The work done in this group is aimed at supporting organizations across the globe to integrate sustainability principles into their activities,” he explains. “Without that, we have greenwashing, such as the overstating of environmental credentials.”
So what exactly are green bonds? Green bonds, also known as climate bonds, are designed to fund positive environmental or climate projects. Not all green bonds are created equal, however. Greenwashing, or at least the perception of it, has been one of the obstacles that has hindered their growth by deceiving green bond investors into believing in purported climate-related benefits.
Green bonds have been around for almost 15 years and, since then, a range and diversity of trade standards, guidance and rules have emerged, aimed at providing a firm foundation and, moreover, to counter greenwashing. Whilst important in a fledgling market, we now need ISO standards to provide structure, transparency and credibility through internationally recognized certification schemes that will unlock the trillions of dollars needed for sustainable development. These are the objectives of a brand-new series of standards covering green bonds, green loans, a taxonomy for green bonds and a fourth standard for verification.
So how will ISO 14030 help? The aim is to provide clarity and describe what is required to determine the eligibility and credibility of green-debt instruments, as well as a robust reporting mechanism, so that investors will have the results they need to make informed decisions, explains Shideler. Buy-in from the financial sector is crucial for the success of such standards, and the working group has been fortunate to have had good support. “This has helped to produce standards which are both consistent with the green bonds standards and green loans principles,” Shideler concludes.