Green Bonds and Climate — Towards a Quantitative Method

Participants in the green-bond market have traditionally examined a green bond’s “use of proceeds” to check the legitimacy of these projects and whether the bond was created in line with the Green Bond Principles.

While examining use of proceeds remains a key element of assessing green bonds, in this paper we highlight four additional metrics that could be used to examine green bonds and their issuers in a more quantitative way, offering a new set of lenses with which to tackle green-bond analysis:

• MSCI’s Total Portfolio Footprinting (TPF)
• MSCI’s Implied Temperature Rise (ITR)
• MSCI’s Climate Value-at-Risk (Climate VaR)
• The terms/language of sustainability-linked bonds

To show the relevance of these metrics and how they can be used alongside use-of-proceeds analysis, we present a case study examining 18 green bonds and show how these measures may give a broader view with regards to the attributes of individual green bonds.

Issuer ITR vs bond OAS divided by duration

Size of bubbles represents TPF (tC02/USD m outstanding principal) of each green bond. Data as of March 31, 2023. Source: MSCI ESG Research, Refinitiv