As we head into a new decade, the governance structure of the sustainable finance markets will become increasingly important. Two recent developments might hint at what to expect.
Given the flurry of new labels around sustainable debt, such as “transition”, “SDG”, “target-linked”, “blue”, “gender diversity” bonds and more, there is no doubt that the market is moving at a tremendous pace.
This burst of creativity has drawn attention and made some market participants wonder if it is in the market’s best interest. Certainly this is a relevant point to make, but it is still important to recognise that we are undergoing a fundamental transformation of the financial markets, and innovation is clearly needed to help facilitate this change. The work done by the European Commission on the EU Green Bond Standard is an important piece in this development.
However, one institution has been notably silent on these developments – or at least on the surface. The Executive Committee (ExCom) of the Green and Social Bond Principles is arguably the most influential and important body of governance in the sustainable debt markets. Work done in the ExCom, the supporting Working Groups (WG) and recently the Advisory Council sets the broader direction for the labelled sustainable bond markets. Indeed, many of the members of the ExCom are either directly or indirectly involved in many of the broader market developments, such as the Technical Expert Group.
Recently the ExCom decided to establish a Working Group for both the transition and target-linked developments. Although it might be unrealistic to expect concrete proposals from these working groups at the GBP and SBP Annual General Meeting in May, we have high hopes for their work going forward. Besides the direct focus on the respective topics themselves, the discussions in these working groups could shed light on the development and sentiment around the broader governance question in the sustainable debt markets.
For our thoughts on the broader considerations around transition and target-linked bonds, read our related articles:
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