Posted Date: July 13, 2018

MARC has published its new methodology for assessing green bonds, social bonds or sustainability bonds including sukuk issued under Malaysia’s Sustainable and Responsible Investment (SRI) Sukuk Framework (collectively referred to hereafter as impact bonds).

MARC had earlier published for feedback from market participants an exposure draft which outlines the rating agency’s Impact Bond Assessments (IBA) criteria. MARC would like to thank all respondents for their comments. Industry feedback had consistently conveyed that the IBA was generally seen as a useful lens with which to assess the environmental and social benefits of impact bonds. No significant revisions were made to the methodology following the conclusion of the exposure period on April 18, 2018.

MARC’s IBA analytical framework consists of three components that provide insight to the sustainability credentials of impact bonds: (1) an assessment of environmental and social benefits of the underlying funded project(s); (2) an assessment of compliance with internationally recognised principles and market standards for the evaluation of such bonds; and (3) an evaluation of the issuer’s sustainability strategy and performance. IBA which meet the minimum thresholds in each of the three analytical components will be rated Gold, Silver or Bronze.

“While bonds with impact objectives presently account for only a fraction of the total bond market globally, MARC is optimistic about their long-term potential in becoming a mainstay of fixed income portfolios. To ensure our IBA methodology is robust and flexible enough to accommodate future issuances of social and sustainability bonds and sukuk in addition to green issuances, MARC has taken the approach of integrating environmental and social dimensions into a single analytical framework,” highlights Kan Wai Sum, MARC’s Chief Executive Officer. “There is room for impact bonds to grow beyond green issuances given the scale and scope of sustainability investments needed to deliver commitments made by national governments under the United Nations (UN) Sustainable Development Goals,” she added. Sustainable bonds are particularly well-suited for funding projects with a mix of social and environmental benefits such as mass transit, affordable housing and infrastructure. They offer a tangible means by which private capital can be tapped to fund projects aligned with the SDGs.

“MARC is proud to bring IBA to the market and eager to play a key role in making impact bonds a mainstream product of domestic capital markets. Through its IBA, MARC seeks to enhance coherence between international and local best practices for impact bond issuance. We believe such coherence is critical to create an enabling environment for mobilising private capital to support sustainable development,” Kan said.

The finalised criteria can be accessed on MARC’s website at Impact Bond Assessments.

Milly Leong, +603-2717 2938/ milly@marc.com.my.