Green projects and assets have a wide variety of environmental impacts. This is not surprising given the diverse range of green sectors, subsectors, and supporting infrastructure that have already been supported by green bonds.

There is a lot of focus on impact reporting by green bond investors. This is often the focus of asset managers who buy green bonds in the market and then sell their green investment products to investors. They want to have quantified green impacts from each of the green bonds to assist with demonstrating the green credentials of their funds or products.

However, the impacts recognized by green bond investors are actually indicators that cover the outputs, outcomes, and impacts from green projects and assets.

Therefore, the focus for green bond issuers should be on impact indicators that can be readily derived from the information they already have available to them.

Output–Outcome–Impact Frameworks

Many projects are designed and evaluated based on a framework that covers the progression from inputs and activities through to impacts. The diagram below illustrates this framework.

Based on the framework above, impact reporting in the green bond market could perhaps be better described as indicator reporting, where the indicators reported by green bond issuers include a variety of outputs, outcomes, and impacts.

Key indicators for specific green sectors, subsectors, and supporting infrastructure have been suggested and compiled by a working group under the Green Bond Principles. The group has published and continue to update the Handbook: Harmonized Framework for Impact Reporting, which provides useful suggestions for indicators from a growing list of sectors.

Examples of Impact Indicators

The flow from outputs, such as renewable energy capacity installed, through to impacts, such as greenhouse gas emissions (GHG) avoided, can often require many assumptions and detailed methodologies.

For example, in the case of a wind farm, the output is the installed capacity. The outcome is the production of electricity with zero GHG emissions. The impact is GHG emissions avoided, based on the potential displacement of fossil fuel electricity sources from the same grid compared to what would have happed if the wind farm were not operating.

The methods used by the issuer for measuring or estimating the impacts of green projects and assets need to be disclosed in the impact report. Methods include the framework used and the calculation methodology, including if metrics are annual, annualized, and/or lifetime calculations.

Both proprietary and institutional frameworks may be used, institutional frameworks may be referenced, and proprietary and new frameworks should be described in sufficient detail to allow assessment. Examples of institutional and proprietary frameworks are the Harmonized Framework for Impact Reporting (institutional) and the Nordic Public Sector Issuers Position Paper on Green Bond Impact Reporting (proprietary).

Ex-Post versus Ex-Ante Reporting

The expected impacts from green projects and assets (known as ex-ante) are usually estimated as part of the formulation of the green bond, and the estimates are often reported as part of the pre-issuance disclosure from a green bond issuer.

Gathering ex-post information on the actual performance and impacts of green projects and assets can create a substantial workload for issuers. This is a key consideration for green bond issuers, especially if their portfolio of green projects and assets covers a variety of green sectors.

There is usually a lot of effort, cost, and potential risks involved with the issuer providing ex-post information in reports, but this is greatly applauded by investors.

The use of ex-ante information (estimates of impact) can be easier for issuers, and it is usually enough to satisfy investors when looking for relevant impact indicators.

The Green Bond Principles recommend the use of qualitative indicators and, where feasible, quantitative performance measures of expected impact. Issuers with the ability to report achieved impacts are encouraged to include those also in their regular update reporting.

Data and Systems

More and more companies and public organizations are using purpose-built systems to capture relevant green and sustainability data and produce the information they need for reporting.

These systems make it easier for external reviewers to verify information flows and data integrity, as well as provide up-to-date information for management reporting.

Green bond issuers with large portfolios of green projects and assets are encouraged to adopt these systems to ensure the integrity of their green portfolios over time and simplify their regular processes for compiling and confirming reports.

This is particularly important for dynamic green portfolios, where projects and assets are entering and leaving the green list in between the annual allocation reports being provided.