Index providers can arguably serve an ongoing

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Index providers can arguably serve an ongoing monitoring function, since they can discard entities from an index as well as include them. However, since many inclusion criteria for green bond indices are much less concrete than those for conventional bonds (such as minimum levels of market liquidity and credit ratings), it remains to be seen whether the index providers can monitor such environmental criteria on a continuous basis. External reviews Though it is not a part of the four main Green Bond Principles, it was recommended in the 2015 edition of the Principles that green bond issuers “use external assurance to confirm alignment with the key features of Green Bonds”. This can include second opinions and verifications. From 2016, the Principles referred to “external reviews” rather than “external assurance”, while the list of recommended external reviews was expanded to include those provided by rating agencies (ICMA (2016)). A limitation of the CBI standard and inclusion in the green bond indices is their binary nature: a bond is either green or not. More granular assessments could contain valuable information for investors, such as the degree of environmental benefits, or whether environmental benefits are likely to persist. Indeed, the following providers of green certification make more granular assessments. CICERO is a climate research institute based in Oslo (Table 1, third column) and the leading provider of second opinions. It evaluates the issuer’s framework for both project selection and investment (CICERO (2016)). CICERO provides three different degrees of positive assessment (“shades of green”), reflecting the bond’s adherence to a long-term vision for a low-carbon, “environmentally resilient” society. However, CICERO reviews the green bond framework at the time of issuance. Ex post changes in the framework or environmental impact are not monitored, unless the issuer specifically requests it. 7 Moody’s Green Bond Assessments . The first public methodology for the assessment of green bonds by a ratings agency was published by Moody’s Investors Service in March 2016 (Table 2, second column). Green Bond Assessments (GBAs) are intended to “assess the relative likelihood that bond proceeds will be invested to support environmentally friendly projects”, in line with the Green Bond Principles (Table 2, first column). As with their credit rating products, Moody’s employs numerous quantifiable factors in determining the GBAs, with the explicit aim of the Shanghai Stock Exchange in collaboration with China Securities Index Co), or the CUFE-CNI Green Bond Index Series (developed by the Shenzhen Securities Information Co together with the International Institute of Green Finance) are indices based on green bonds issued in China which are also listed in Europe on the Luxembourg stock exchange.
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