Cicero is biggest second opinion provider in 2016 - despite bumper year for Sustainalytics

By Joe Walsh

[The table at the foot of the story has been updated with extra information about DNV.]

The Centre for International Climate and Environmental Research Oslo (Cicero) was the biggest second opinion provider in the green bond market in 2016, but Sustainalytics is breathing down its neck after signing up more new business than any of its competitors.

Green bonds with a second opinion provided by Cicero had a combined value of $14.1 billion in 2016, compared with $11.2 billion that have an assessment from Sustainalytics, the second biggest opinion provider, according to an analysis conducted using Environmental Finance's green bond database. (See table for full breakdown of 2016 issuances by second opinion providers.)

However, the data for bonds issued in 2016 that have a new second opinion, rather than those that were issued using a second opinion written in a previous year, tells a different story.

Sustainalytics provided 19 new second opinions over the year, for bonds with a combined value of $10.7 billion, while Cicero completed 10 new second opinions for a total issuance size of approximately $3 billion. Vigeo-Eiris came second in terms of new second opinions provided, with a total $3.4 billion in issuances over the year.

Sustainalytics' largest second opinions of the year were Apple's $1.5 billion bond and nearly $2 billion of issuance for Renovate America when it retrospectively labelled all its Property Assessed Clean Energy (Pace) bonds green. (See box for full list of Sustainalytics new second opinions of 2016).

Vikram Puppala, associate director at Sustainalytics, puts the company's rapid growth in second opinions down to its expertise, closeness to investors and global presence – it has offices in the Americas, Europe, Asia and Oceania.

"New issuers also require advisory support and flexibility to work within their constraints (such as tight timelines or limited internal process), which we have been able to do successfully," he added.

Poland's sovereign bond was arguably Sustainalytics' most significant second opinion over the year. Puppala described the issue as "a great development for the market".

Many of the bonds issued in 2016 with a Cicero second opinion use opinion letters written before 2016. These repeat issuers, whose frameworks have an opinion from Cicero, include big players in the green bond market such as the IFC.

Some notable Cicero second opinions in the year were in the Swedish market: Kommuninvest issued the largest ever green bond issued in Swedish Krona, raising SEK5 billion ($570 million). And the first Swedish commercial bank to issue a green bond, SBAB Bank, raised SEK2 billion.

Cicero – which wrote the first ever second opinion, of a World Bank green bond in 2008, and is believed to have been the biggest second opinion provider in the market ever since – is not worried about the increasing level of competition in the green bond assessment market.

"As [green bonds] move from a niche market to the mainstream, we expect more providers to be offering second opinions," said Harald Lund, senior climate finance specialist at Cicero. "We are not concerned about competition from other providers.

"What's important for us is to be a thought leader on what is green, based on our strong position in the market."

Cicero believes its shades of green methodology, launched in March 2015, which has a three-tier ranking system for a bond's 'greenness', cements its position as a thought leader.

In addition to its 10 new second opinions Cicero said it provided a further six in 2016, but there is currently no data available for these issues, and it is understood that they have yet to come to market.

Among its 10 second opinions was a $150 million issue from Chinese property company Modern Land, with the second opinion done through the Expert Network on Second Opinions (ENSO), a Cicero-led network of five second opinion providers launched in 2014 to scale up green bond research.

2016 also saw credit ratings agencies enter the green bonds market, with Moody's providing its first assessments of green bonds and S&P Global expected to follow in coming months.

Both Cicero and Sustainalytics welcomed this addition to the market, arguing that it demonstrates that green bonds are entering the mainstream, with Vigeo stating it would consider integrating rating agencies assessments into its methodology.

"Our conversation with issuers, investors and the rating agencies indicate that secondary opinions are complementary to the ratings," said Puppala. He pointed out that there have been examples of a green bond obtaining both a second opinion and a rating from a ratings agency. Dutch grid operator TenneT's third green bond, a $554 million issuance, received both a Green Bond Assessment from Moody's and a second opinion.

Vigeo-Eiris, which had a strong year as a second opinion provider, is bullish on the market.

"I think the market will continue its exponential growth… diversification will continue with new issuers, such as sovereign issuers," concluded Laurie Chesne, head of sustainability bonds services at Vigeo-Eiris.