Inside this Topic Guide
There is strong international political and regulatory will and desire to develop climate smart, environmentally friendly financing. This is driven in part by the commitment in the 2015 Paris Agreement and the 2021 Glasgow Climate Pact to hold global average temperature increases well below 2 degrees celsius above pre-industrial levels and by the need for highly significant investment to support a low carbon future economy, e.g. the EU estimates a funding gap of EUR 177 billion to deliver its decarbonisation goals. Many governments and nations have also committed to ambitious net zero targets which aim to achieve the goals of the Paris Agreement. Many of these key commitments and goals have been re-affirmed at COP26 in November 2021 with the Glasgow Climate Pact specifically emphasising the need to mobilise climate finance from all sources to achieve the Paris Agreement goals. Complementary to the net carbon reduction aims the United Nations Sustainable Development Goals adopted in 2015, also provide an international framework and we increasingly see financial products being aligned to these SDGs and broader ESG metrics.
There are a huge number of global and national initiatives and developments in relation to achieving these goals and other climate and environmental objectives for example, the EU's 2018 Sustainable Finance Action Plan, Sustainable Finance Strategy and European Green Deal; the UK's roadmap "Greening Finance: a roadmap to sustainable living" and key projects and analyses undertaken by IOSCO, the IFRS (including the establishment of the International Sustainability Standards Board) and the Task Force on Climate-Related Financial Disclosures (TCFD) see (Major Recent Developments below).
Green bonds are the most developed form of sustainable finance, issued first by multi-lateral investment institutions in 2007, followed by corporates in 2013 and the first sovereign green bond in 2016. The green bond market has been supported by the voluntary ICMA Green Bond Principles (GBP) developed by market participants and first published in 2014. In July 2021 the EU published its own legislative proposal for regulation of green bonds, known as the EU Green Bond Standard (EU GBS) but this is yet to be finalised by the co-legislation. Over the past few years the GBP has published a number of other principles and guidance reflecting developments in different types of sustainable bond financing, for example the Social Bond Principles (SBP), the Sustainability Bond Guidelines (SBG) and most recently the Sustainability Linked Bond Principles (SLBP). Issuance of green, social, sustainable and sustainability-linked bonds has exceeded USD 1 trillion in 2021.
Mirroring developments in the capital markets, the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA) published their own Green Loan Principles in 2018 which follow the same structure as the GBP. Subsequently the LMA published its Sustainability Linked Loan Principles (in 2019) and its Social Loan Principles (in 2021). Other sustainable finance products, such as sustainable securitisation, are continuing to develop.
Please see also our Thought Leadership page on climate change, green finance and renewables.
