Credit ratings agency S&P Global Ratings announced an expansion of its sustainable financing opinions services to include Second Party Opinions (SPOs) to Sustainability-Linked Financings, one of the fastest growing sectors of the market.
Sustainability linked securities and loans are a rapidly emerging form of sustainable finance, with attributes including interest payments tied to an issuer’s achievement of key performance indicators (KPIs) and associated sustainability performance targets (SPTs). Examples of SPTs include greenhouse gas emissions reduction, use of renewable energy, diversion of waste from landfills and reduced water use, as well as social and diversity metrics like increased workforce diversity.
Susan Gray, Global Head of Sustainable Finance Business and Innovation, S&P Global Ratings, said:
“Sustainability-linked financial instruments barely existed two years ago. And now, they’re a fast-growing segment of a sustainable debt market that we estimate will reach $1 trillion in issuance this year.”
For the new SPOs, S&P Global Ratings will for the first time provide opinions on the relevancy of the KPIs, and on the ambition of the performance targets for each KPI. According to S&P Global Ratings, the SPOs will reflect the degree to which the financing adheres to sustainable finance principles and guidelines, such as the International Capital Markets Association (ICMA)’s Sustainability-Linked Bond Principles (SLBP) and the Loan Market Association (LMA)’s Sustainability-Linked Loan Principles (SLLP), with components including selection of KPIs, calibration of SPTs, instrument characteristics, reporting and post-issuance review.
“In such a rapidly innovating market, investors are seeking more transparency and a clearer analysis of how exactly their investments support the sustainability agenda. At the same time, issuers are looking for informed, independent and respected second party opinions on their sustainable financing including their sustainability-linked debt.”
S&P Global Ratings stated that it published its first SPO on Philip Morris’ Business Transformation-Linked Financing Framework.