ISS STOXX Launches New Sustainability Bond Rating System for Investors

ISS STOXX, a leading research and technology solutions company for financial markets, has unveiled a new sustainability bond rating system within its sustainable investment business, ISS ESG. The new rating system aims to rate the sustainability impact and risk of bonds, i.e., green, social, sustainability, and sustainability-linked bonds (GSSS+), upon issuance.

Unlike conventional methods that rate the issuer's general sustainability performance, this system provides a complete assessment of every bond separately. Focusing on the bond at the time of issuance, the investor can better understand the contributions and risks of the bond in relation to sustainability. The shift in strategy helps address the growing necessity for accurate, detailed assessments of labelled bonds with a more varied market.

The global bond market has seen a record high growth in labelled bonds over the past few years. But various rules and various market practices have prevented investors from comparing these bonds on a practical level. ISS STOXX's new rating system sidesteps this problem by providing a structured, standardized way of evaluating bonds based on international sustainability standards. The system uses a 12-point grading scale, A+ (excellent) to D- (poor), in order to allow investors to estimate the sustainability performance of each bond.

Other than the 12-point scorecard, the system also provides other details like the bond's alignment with the EU Taxonomy and forecasting of the greenhouse gas emissions of the financed project. This provides investors with the opportunity to tailor their assessments according to individual preferences and specific sustainability goals.

The rating system is constructed with multiple uses in mind. It can be used by investors for security selection, risk management, and impact studies. It is delivered as data feeds and APIs so that it is accessible easily to investment professionals. The approach being comprehensive makes sure that the investors get a chance to verify if the bond is fine from their end as per their sustainability criteria and requirements.

The demand for more precise and comparable sustainability data has been growing as the complexity and size of labelled bond issuances increase. ISS STOXX's new rating system avoids these challenges by providing investors with actionable insights into the sustainability opportunities and risks of each bond.

Lastly, the introduction of this system for sustainability bond rating represents a significant step towards enabling investors to have the information they need to make well-educated choices on the sustainability of their investments. By offering an integrated and uniform assessment of labelled bonds at issuance, ISS STOXX is enabling investors to overcome the pitfalls of sustainable investing and make more thoughtful choices.