New era for green investment

The International Hydropower Association (IHA) says the launch of Climate Bonds Standard criteria for hydropower paves the way for a “new era” for green investment in renewable energy and will help accelerate global decarbonisation efforts. 

The hydropower sector-specific criteria were released on 25 March 2021 by the Climate Bonds Initiative (CBI), a not-for-profit organisation responsible for climate bond standards and certification. 

CBI certified climate bonds are widely regarded as the best way to direct investment to infrastructure that supports the Paris Agreement while reducing negative impacts on local environments and communities. CBI criteria already exist for solar, wind, marine and geothermal power among other industries.

“The world needs urgent investment in renewables to avert catastrophic climate change. Until now,” Eddie Rich, Chief Executive of the International Hydropower Association says, “the lack of specific hydropower climate bond criteria has meant that most issuers have either excluded hydropower or limited investments to small-scale projects.  

Certification

The Climate Bonds Standard Board (CBSB) approved the Hydropower Criteria under the International Climate Bonds Standard which means that certification for hydropower is now formally available for issuers of green debt products across all markets.

The criteria were developed through a technical working group process that included representation from the WorldWide Fund for Nature, International Institute for Environment and Development, International Union for Conservation of Nature, IHA and others. It was then reviewed by an industry working group and underwent a public consultation process in 2019-2020.

The Hydropower Criteria encompasses the broad components of climate mitigation, and climate adaptation and resilience.

To qualify for a climate bond under the new Hydropower Criteria, a hydropower project must:

• Demonstrate it has a high power density or a low emissions intensity: recording either a power density of more than 5W/m² or an emissions intensity of less than 100gCO2e/kWh if the facility was operational pre-2020; and either a power density of more than 10W/m² or an emission intensity of less than 50gCO2e/kWh if the facility became operational in 2020 or thereafter.
• Undertake an official assessment using the ESG Gap Analysis Tool (HESG), one of the IHA Hydropower Sustainability Tools. The assessment must be carried out by an accredited assessor, be publicly available, and demonstrate: No more than ten gaps in total against international good practice; No more than two gaps in each section.

The majority (>50%) of the gaps must be closed within 12 months and the remaining within 24 months. Projects of all sizes, types (including pumped storage), and in all locations, will be eligible, provided they meet the Hydropower Criteria.

A number of green bonds have already been issued to finance or refinance hydropower projects. CBI says that “considering the potential negative impacts of the specific assets and projects linked to those green bonds, it is necessary to ensure consistent and credible guidance is available to investors who wish to channel funds into green bonds linked to hydropower”. Furthermore, the criteria ensure that a robust and transparent screening process will certify that investments are ‘climate compatible’, enabling greater climate adaptation and resilience, and do not cause significant harm in respect of wider environmental or social issues.

"The urgency of the climate crisis calls for the accelerated adoption of renewable and sustainable energy sources. Sustainable hydropower is part of the suite of clean energy options to replace coal, oil and gas generation and help meet future demand for low carbon energy,” Sean Kidney, CEO of the Climate Bonds Initiative said. “Certification under the Climate Bond Standard will now provide a best practice guide for investors as to the environmental features of potential hydro investments."

“The CBI’s new Climate Bonds Standard criteria clears the way for significant additional investment in sustainable hydropower,” Eddie Rich, IHA Chief Executive adds. “It provides the clarity and assurance that investors, governments, the industry, as well as local communities, have demanded for years. To qualify, new and existing projects must now assess their environmental, social and governance performance and report a low carbon footprint.  

“Let there be no mistake,” Rich continued, “these are tough criteria to meet for any energy industry. Whilst the hydropower sector can be proud of being held to the most rigorous sustainability investment criteria for any renewable, we will continue to strive for a level playing field to ensure that good green projects do not get left behind. Nonetheless, this marks the beginning of a new era for investment in sustainable hydropower.”

Climate Bonds Initiative (CBI)

The Climate Bonds Initiative (CBI) is an international investor-focused and not-for-profit organisation working solely to mobilise the US$100 trillion bond market for climate change solutions. To-date, worldwide green bond issuances have reached over US$1 trillion. To learn more about CBI climate bonds and view the eligibility requirements see www.climatebonds.net/standard/hydropower

In order to limit the rise in global temperature to well below two degrees Celsius, the International Renewable Energy Agency estimates worldwide hydropower capacity will need to grow from just over 1300GW today to reach 2150GW by 2050. Annual investment in hydropower topped US$50billion in 2019, but this is far short of the estimated US$100 billion required, according to the International Energy Agency.

The Climate Bonds Standard criteria for hydropower stipulates use of two sustainability assessment tools supported by the IHA and a multistakeholder coalition of organisations. These tools are the ESG Gap Analysis Tool for identifying and addressing gaps against recognised good practice across 12 environmental, social and governance assessment topics; and the G-res Tool for reporting the estimated net greenhouse gas emissions of a reservoir.