S&P Global’s Michael Wilkins on the rising fear of greenwashing

S&P Global, a renowned financial services company, has estimated that sustainable bond issuance, including Green, Social, Sustainability, and Sustainability-Linked bonds, could collectively exceed $1 trillion in 2021. This significant growth in the sustainable bond market is a positive indicator of the increasing focus on sustainable investments globally. However, concerns have been raised due to a lack of consistency in instrument labeling and post-issuance disclosure, leading to fears of greenwashing - a practice where companies make misleading claims about their environmentally friendly practices. In a recent interview on CNBC Africa, Michael Wilkins, Managing Director at S&P Global Ratings, discussed the state of the sustainable bond market and the challenges faced by investors and regulators. Wilkins highlighted the need for transparency and disclosure to ensure the credibility and integrity of sustainable investments. Africa, while showing signs of increased activity in sustainable bonds, still has a long way to go to match the levels seen in other regions like Europe, the US, and Asia Pacific. The continent's green bond issuance has historically been low, but recent developments in countries like Cote d'Ivoire and Southern Africa indicate a growing interest in sustainable finance. Greenwashing, a prevalent concern for investors, refers to misleading statements or practices by companies that falsely claim their activities are environmentally friendly. This poses a risk not only to investors but also to regulators who require accurate disclosure for climate change mitigation. While instances of greenwashing in financial instruments have been limited, the lack of impact reporting on green bonds remains a significant issue. Only around two-thirds of green bonds currently provide impact reporting, raising questions about the actual environmental benefits generated by these investments. To address these challenges, regulators and standard setters have been proactive in establishing guidelines and principles to prevent greenwashing. Organizations like the International Capital Markets Association have introduced voluntary standards like the Green Bond Principles, Social Bond Principles, and Sustainability-Linked Bond Principles to encourage transparent reporting on environmental and social impacts. Furthermore, regulatory standards are being implemented, with the EU set to introduce a green bond standard that will be mandatory for bonds issued in Europe. This standard will require issuers to align their proceeds with the EU green taxonomy, enhancing market credibility and investor confidence.