KfW has so far only included its ESG rating on its green bonds. Its next step should be to do the same for its conventional bonds.
Green bond sceptics love to point out that the vast majority of the hundreds of billions of dollars raised via the instrument could have been obtained without a special label, but the rise of green bonds has made it increasingly mainstream for investors to care about how their money is spent.
So far, that has meant reporting on the impact of the proceeds of specific bonds. That is a reasonable starting point, but an obviously superficial approach. Investors should be looking at all of a borrower's activities, not just the ones they're proud of.
Bonds financing the borrower's transition to a sustainable business model are a special case, but even then, the impact of the proceeds is only important insofar as it changes the issuer's overall footprint.
Development banks are among the most prolific issuers of green bonds, yet they have been reporting on the impact of their lending for years. Indeed, KfW says all its new lending is aligned to the UN’s Sustainable Development Goals.
Considering the impact of investments needs to become ubiquitous, not just something for green bond investors.
When it becomes normal for investors to consider ESG factors in their investment, financial markets will finally offer commercial incentives for ethical and environmentally friendly behaviour. That should have been the goal all along.