ACRA has prepared a draft version of its Methodology for Assessing Sustainability-Linked Debt Obligations in order to gather comments and suggestions from market participants. The document is available on ACRA’s website at https://www.acra-ratings.ru/criteria/2619/?lang=en.
The draft methodology presents ACRA’s approach to assessing the compliance of obligations with the Sustainability-Linked Bond Principles published by the International Capital Market Association (ICMA), as well as with the Sustainability-Linked Bond Principles, which were prepared by the Loan Market Association (LMA), hereinafter collectively referred to as the Principles.
As part of this assessment, ACRA will analyze the sustainability key performance indicators (KPIs) selected by the assessed entity, calibration of sustainability KPIs, the financial/structural characteristics of obligations, and will also take into account the willingness of the assessed entity to provide regular reports and verify the achievements of KPIs. In addition, in order to make the assessment more transparent, ACRA plans to analyze the level of engagement of the issuer/borrower in sustainability issues. Following the analysis of the abovementioned factors, ACRA will form an opinion on compliance or non-compliance of the obligations with the Principles, and also assign a final assessment to the obligations. The assessment score of sustainability-linked debt obligations ranges from SLR5 (worst) to SLR1 (best) and indicates the extent of debt obligations’ compliance with the Principles. ACRA believes that the approach described in the draft methodology is a second-party opinion envisaged by the Principles.
Sustainability-linked debt obligations are any type of debt instrument whose financial and/or structural characteristics depend on whether the assessed entity achieves predetermined sustainability or ESG goals within a specified timeframe. For example, these goals can include greenhouse gas emissions to a certain level, transitioning to renewable energy sources, increasing the share of secondary raw materials used in production, etc. The issuer/borrower has the right to independently choose a significant KPI and set a target for it. An important condition for choosing a KPI and setting targets for it are the ambitiousness of the selected target and its unattainability in the context of the current activities of the issuer/borrower. At the same time, the main difference between sustainability-linked obligations and green and social obligations is the absence of the need for mandatory targeted use of funds, which provides issuers/borrowers with a certain freedom in terms of choosing funds to achieve target indicators.
Confirming the compliance of debt obligations related to sustainability indicators with the Principles and their assessment as a whole contributes to the development of the responsible finance market in Russia and in the world and helps investors to invest in projects that have social and socio-environmental benefits and contribute to the achievement of the UN Sustainable Development Goals.
ACRA encourages all interested parties to take part in discussing the draft methodology and submit their comments and suggestions in writing to methodologyGBR@acra-ratings.ru by September 24, 2021. ACRA will consider all suggestions before the final version is approved by the Methodology Committee.