S&P has today unveiled plans for a "green bond evaluation tool ... to analyse and estimate the environmental impact of bond projects or initiatives". The toolkit will provide rigorous analysis of how effective climate change projects that are financed by bonds are likely to be.
Michael Wilkins, head of environmental and climate risk research at S&P said the project would "consider both climate change mitigation and adaptation projects" and would produce an "estimate of the environment impact of a project or initiative ... over its lifetime."
Green financial products have surged in popularity following last year's landmark Paris Climate Change agreement, S&P said. In order to meet the commitment to limit global warming to two degrees, the International Energy Authority has estimated it will cost $1 trillion (£750bn) a year until 2050 – equivalent to 1.3 per cent of global GDP.
Such demand has "led to the development of a range of green financial instruments designed to increase investment flows into projects and technologies to prevent or mitigate climate change", S&P claimed.
The firm believes with an investment influx on the horizon, investors will need more sophisticated tools to compare the effectiveness of the projects they invest in.
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Alongside the tools specifically to analyse climate change projects, S&P also wants to launch a new evaluation system to monitor individual firms' environmental footprint.
S&P said it will start to "evaluate a company's impact on the natural and social environments it inhabits, the governance mechanisms it has in place to oversee those effects, and potential losses it may face as a result of its exposure to such environmental and social risks."
The scores will be published alongside more traditional credit ratings, which monitor the risk of default of countries, corporates and individual projects.