The Rockefeller Foundation, Lion’s Head Global Partners, South Pole Group and Affirmative Investment Management launch the Carbon Yield.
London, 19th June, 2017 - Launched today, the Carbon Yield, quantifies the climate change mitigation that Green Bonds enable, allowing issuers and investors alike to better understand the impact of their activities and portfolios. The methodology for calculating the Carbon Yield is publicly available at www.carbonyield.org.
Pioneered by Lion’s Head Global Partners, South Pole Group and Affirmative Investment Management (AIM), with support from The Rockefeller Foundation, the new methodology comes at a time when the Green Bond market is set to exceed $100bn in issuance and demand continues to outpace supply.
Green Bonds have steadily become one of the most successful instruments for socially responsible investors to harness the power of capital markets in the fight against climate change, allowing for the scaling up of climate change mitigation and adaptation activities. The “greenness” of Green Bonds to date, however, has been a largely qualitative attribute. As the Green Bond market moves towards a greater understanding of what investments enable, methodologies such as the Carbon Yield provide a common framework for issuers and investors to communicate the impact of their cashflows on the environment and enabling more transparent communications - ultimately catalysing further investment in the segment.
Providing a common language on the GHG emissions abatement impact of Green Bonds
Despite significant progress in the harmonisation of reporting across issuers and established voluntary guidelines, such as the Green Bond Principles and Climate Bond Standards, there is no common language in the market on quantifying and communicating the emissions abatement impact of Green Bonds. Whilst many issuers already collect the necessary data to disclose the mitigation impact of their projects, the market does not have a consistent, uniform metric to refer to. At the same time, investors are attempting to independently calculate the mitigation impact of their portfolios but do not have access to consistent data across issuers.
The open access Carbon Yield methodology provides a common approach to the market resulting in a comparable metric quantifying the mitigation impact of Green Bonds on a prospective basis in terms of GHG emissions avoided per unit of capital per annum through the financed activities.
The impact quantified by the Carbon Yield is expressed in Potential Avoided Emissions (PAE) enabled by the use of proceeds in terms of tCO2e/year/unit of capital. In other words, how many tonnes of carbon dioxide equivalents (tCO2e) are expected to be avoided per year per unit of investment.
e.g. Company Corp. €500 million 02/2025 3.5% 0.735(CY)
(CY) = tCO2e/year/€1,000
This approach seeks to increase transparency in the Green Bond market via a metric which is simple to understand and can be applied to any Green Bond. Significantly this would allow issuers to communicate the Carbon Yield of their framework at the point of issuance of a new transaction. This allows for better comparability across different issuances and easier aggregation of impact across portfolios.
Going forward, the consortium of partners hopes to expand the reporting of the environmental impact of Green Bonds to include factors beyond GHG abatement, such as indicators for water efficiency/savings.
The Carbon Yield methodology is designed to be used by green bond issuers and investors, and is being pioneered by AIM as part of their annual impact reporting published in June 2017, reporting on the mitigation impact per year per $/€1,000 of their impact bond funds.