Today the International Capital Markets Association (ICMA) updated its guidance regarding Sustainability-Linked Bonds (SLBs), among other things.
You may remember the controversies regarding the use of SLBs in Canada by companies like Enbridge and Tamarack Valley Energy who used proceeds from SLBs to expand fossil fuel infrastructure and development – thereby increasing emissions.
Unfortunately, ICMA wasted this opportunity to end that greenwashing, thereby ensuring future controversies that will undermine the credibility of the instrument.
The new ICMA guidance includes a list of possible Key Performance Indicators (KPIs) that can be used in SLBs, a menu-like approach that provides maximum flexibility to those creating SLBs. The KPIs for energy don’t distinguish between the use of “intensity” vs. “absolute” emissions, which is the crux of how companies like Enbridge and Tamarack game the system.
There is a new – and again entirely optional – set of Guidelines for External Reviews of these bonds that could apply to companies hires to verify the claims made in SLBs. Those say that a 2nd party opinion “may” be sought to consider the credibility of targets and business strategy to meet them, but the question arises whether a bond issuer would ever pay for that when it doesn’t have to.
Overall, ICMA has done nothing to stem the flow of dodgy SLB deals coming out of the Canadian oil patch. Expect to see more greenwashing, more controversy, and more calls for the regulator to finally step in to establish credibility in this space.