Center for American Progress

RELEASE: CAP Proposes Gold, Silver, and Bronze Rankings for Green Muni Bonds
Press Release

RELEASE: CAP Proposes Gold, Silver, and Bronze Rankings for Green Muni Bonds

Washington, D.C. — A new report from the Center for American Progress proposes a framework to strengthen and standardize the reporting for green municipal bonds. The report proposes a ranking giving municipal bonds a gold, silver, or bronze rating that reflects the expected environmental and social performance of the projects they are financing with the goal of increasing capital flows to high-quality sustainability and environmental justice projects and eliminating greenwashing.

The green municipal bond market has expanded rapidly in recent years. However, the many current frameworks for labeling green products do not include environmental performance standards grounded in climate science or environmental justice performance standards. Additionally, current frameworks for identifying green bonds are binary—either a bond is considered green or it is not—so there is no way to differentiate between truly exceptional projects and those that would result in modest environmental benefits.

In “A Framework for Strengthening Municipal Market Green Bond Labeling,” Kevin DeGood calls for adding a hierarchical ranking of either bronze, silver, or gold to municipal bonds to differentiate offerings based on the degree of expected environmental performance. Adding a ranking to green bonds would reduce greenwashing and provide retail investors with additional information to make informed decisions. Additionally, it would allow institutional investors to design more sophisticated portfolios and products. DeGood looks at three recent green municipal bond issuances—in New York state, Washington, D.C., and Salem, Massachusetts—and evaluates them against the proposed ranking framework.

The report also assess several of the most common current green bond labeling frameworks, including the International Capital Markets Association Green Bond Principles; the Climate Bonds Initiative’s Climate Bond Standards and associated sector criteria; the European Union’s Green Bond Standard and associated economic activity Taxonomy and Technical Screening Criteria; and Moody’s Investors Service Green Bond Assessment.

“Investors are increasingly demanding information about the sustainability of their investments, but in the absence of environmental performance and governance standards, the green finance movement risks becoming an exercise in marketing gloss and greenwashing,” said DeGood, director of Infrastructure Policy at the CAP. “Labeling of green municipal bonds should be strengthened, standardized, science-based, and hierarchical to account for the differences in the quality of projects. Widespread adoption of the framework proposed in this report would not only give the investors the information they need to make sound decisions, but also push state and local governments to design projects that deliver greater environmental benefits.”

Read the report: “A Framework for Strengthening Municipal Market Green Bond Labeling” by Kevin DeGood

For more information or to speak with an expert, contact Julia Cusick at [email protected].