ICMA highlights areas of concern in green bond market 

October 18th, 2023

The International Capital Market Association (ICMA) has identified four key areas of concern for sustainable bonds in its ‘market integrity and greenwashing risks in sustainable finance’ report.

The report highlighted lack of ambition, strategic inconsistency, mismanagement of wider sustainability risks and actual deception as potential challenges for sustainable bonds.

However, the report noted that there was little to no evidence of widespread greenwashing for green and sustainability bonds.

The report’s authors said: “Reviewing existing data and studies on potential greenwashing, we find that greenwashing is not prevalent in the green bond market, but that ambition and materiality in the early development of the new sustainability-linked bond market may have been insufficient.

“Market feedback and our research based on reported controversies and Science-Based Targets initiative (SBTi) alignment points, however, to a positive trend in the sustainability-linked bond market in the last 12 months.”

The trade body said its Green Bond Principles that it launched in 2014 address many of the areas of concern by encouraging transparency from issues over their ambitions, helping to identify and manage risks and providing guidance on how information on projects should be communicated to investors.

On the sustainable fund industry, the ICMA concurred with wider concerns regarding investment methodologies and fund naming.

It noted: “For the sustainable fund market, market best practice has not led to international agreement on industry standards.

“There are, however, several regulatory initiatives under way, such as on disclosures for investment methodologies and proposals for fund naming to support market integrity.”

The report notes that regulators may not need to further define greenwashing to crack down on the practice and argues “exhaustive” definitions may risk market paralysis.

It proposed a new, focused definition for the practice which could help identify, quantify and regulate greenwashing.