Case Study: Assessing Physical Risks of Green Bonds
The green bond is one of the fastest-growing instruments in sustainable finance and, as such, has been subject to extensive development of its reporting frameworks in recent years. Green bond disclosure and reporting includes proceeds allocation and impact reporting—quantitative impact indicators, such as avoided emissions and/or energy saved, are now readily available. However, this information sheds little light on the exposure, vulnerability and resilience of green bond projects to climate events, or how they compare to those of other issuers.
South Pole, in collaboration with Affirmative Investment Management (AIM), has conducted ground-breaking work to develop, test and implement climate-related risk assessment and to inform green bond analysis and disclosure. Forward-looking risk assessment can be used to highlight the resilience of green bonds as an investment strategy, and to identify opportunities and risks. Improved reporting on climate-related risk, and the adaptive capacity of projects, can benefit both issuers and investors.