Climate Bonds for Hydropower
The Climate Bonds Initiative (CBI), a not-for-profit organisation responsible for green bond certification, has introduced Climate Bond Standard criteria for hydropower.
The guidance clears the way for significant green investment in sustainable hydropower projects.
All types of hydropower projects – of all sizes, in all locations and whether planned or already built – will be eligible for financing with a CBI climate bond provided they meet strict qualifying criteria. The bonds can be issued by governments, municipalities, multinational banks or corporations.
The Hydropower Criteria was announced on 25 March 2021 following a multi-year consultation process. According to the CBI, the new climate green bond criteria “take a bold new approach” by defining rigorous standards for both the reduction of greenhouse gas emissions and resilience to climate change. Read the CBI announcement.
Response from IHA
Before the CBI announcement, most green bond issuers either excluded hydropower or limited investments to small-scale projects due to a lack of clarity over suitable sustainability criteria for the sector. Read the IHA response to the CBI criteria.
Assessment tools
To demonstrate their eligibility for a climate bond, hydropower projects will need to be assessed using two sustainability reporting tools recommended by CBI:
The Hydropower Sustainability ESG Gap Analysis Tool, one of a set of Hydropower Sustainability Tools governed by the multi-stakeholder Hydropower Sustainability Assessment Council. The tool is used to identify and address gaps against good practice across 12 environmental, social and governance assessment topics. The tool is aligned with World Bank environmental and social guidance and IFC performance standards.
The G-res Tool for reporting the estimated net greenhouse gas emissions of a reservoir. The tool was developed by the UNESCO Chair for Global Environmental Change and the International Hydropower Association, with assistance from the World Bank. It uses a conceptual framework created with scientists from the University of Quebec at Montreal, the Norwegian Foundation for Scientific and Industrial Research and the Natural Resources Institute of Finland.
Key criteria
Under the new CBI criteria, to qualify for a climate bond a hydropower project must:
• Demonstrate it meets international good practice with an official sustainability assessment using the Hydropower Sustainability 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 show:
• No more than 10 gaps in total against international good practice.
• No more than 2 gaps in each section.
• If gaps are identified, the majority must be closed within 12 months and the remaining within 24 months.
• Demonstrate it has a low carbon footprint: recording either a power density of more than 5 W/m² or an emissions intensity of less than 100 gCO₂e/kWh. For newer projects (in operation from or after the year 2020), the power density should be greater than 10 W/m² or the emission intensity should be less than 50 gCO₂e/kWh. Emissions intensity can be estimated using the G-res Tool.
Visit the CBI website to learn more.
Frequently asked questions
The CBI has published Frequently Asked Questions (FAQs) on the CBI Hydropower Criteria and consultation process on its website.
The FAQ covers the following questions:
• What is the Climate Bonds Initiative (CBI)?
• Why is hydropower important in the context of climate change?
• What is a hydropower climate bond?
• Why do we need criteria for hydropower projects and assets?
• What kind of projects and assets are eligible and under what conditions?
• What is certification?
• How is compliance verified?
• How have these criteria been developed and what is CBI’s role?
• How does the criteria account for environmental and social responsibility?
• What is not covered by the criteria?
• What are the reporting requirements for certification?
• Is there any risk that the Criteria are too strict and discourage certification?
Contact IHA
IHA members can contact the team at sustainability@hydropower.org to learn more hydropower climate bonds.
