The Climate Bonds Standard Board of the Climate Bonds Initiative (CBI) has approved the Hydropower Criteria under the International Climate Bonds Standard, providing screening criteria for investments in sustainable hydropower projects. 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 WWF, AGWA, IIED, IUCN, the International Hydropower Association (IHA) and others, was reviewed by an Industry Working Group and underwent a public consultation process in 2019 to 2020.
The Hydropower Criteria encompasses the broad components of climate mitigation and climate adaptation and resilience.
Under the new criteria, the issuer must provide the following to the verifier:
- Demonstrate it has a high power density or a low emissions intensity: recording either a power density of more than 5 W/m² or an emissions intensity of less than 100 gCO2e/kWh if the facility was operational pre-2020, and either a power density of more than 10 W/m² or an emission intensity of less than 50 gCO2e/kWh if the facility became operational in 2020 or after.
- Undertake an official assessment using the ESG Gap Analysis Tool (HESG), one of the Hydropower Sustainability Tools. The assessment must be carried out by an accredited assessor, be publicly available, and demonstrate no more than 10 gaps in total against international good practice and 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 and types (including pumped storage) and in all locations will be eligible, provided they meet the hydropower criteria.
“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,” said Sean Kidney, CBI chief executive officer. “Certification under the Climate Bond Standard will now provide a best practice guide for investors as to the environmental features of potential hydro investments.”
A number of issuers have already issued green bonds to finance or refinance hydropower projects. 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. The criteria determine a robust and transparent screening to ensure that investments are “climate compatible,” therefore being sufficiently low carbon and enabling greater climate adaptation and resilience in a world of unavoidable climate change, in line with the goals of the Paris Agreement, and do not cause significant harm in respect of a number of wider environmental or social issues.
Eddie Rich, chief executive for IHA, said: “The world needs urgent investment in renewables to avert catastrophic climate change. Until now, however, the lack of specific hydropower climate bond criteria has meant that most issuers have either excluded hydropower or limited investments to small-scale projects.
“The CBI’s new Climate Bonds Standard criteria clears the way for significant additional investment in sustainable hydropower. 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 (ESG) performance and report a low carbon footprint.
“Let there be no mistake, 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 don’t get left behind. Nonetheless, this marks the beginning of a new era for investment in sustainable hydropower.”
CBI is an investor-focused not-for-profit promoting large-scale investment in the low-carbon economy.