What is an Integrated Second Party Opinion?

Projects that are deemed beneficial in environmental areas such as energy efficiency, pollution prevention, protection of water and terrestrial ecosystems, and sustainable water management are financed by green bonds. Second Party Opinion (SPO) has an important place in ensuring that projects implemented in such areas comply with regulations and gain access to both various resources and investors. Let's look together at the answers to questions such as “What is SPO?” and “What advantages does SPO offer?” 

Second Party Opinion (SPO) and Its Importance in Sustainability Projects 

Bonds that generate resources or budget for projects that benefit sustainability, climate, wildlife, and the environment are referred to as green bonds. The independent review conducted for the actual allocation of project funds supported by green bonds is called Second Party Opinion. This independent review reassures investors that the projects supported by the green bond will meet the conditions required by the green bond. 

Green bond requirements are typically shaped by standards such as ICMA Green Bond Principles, Sustainability Bond Guidelines, LMA Green Loan Principles, ICMA Social Bond Principles, LMA Social Loan Principles. Second Party Opinion considers these standards when evaluating a financing framework and informs investors. 

In a simpler definition, SPO can be described as an assessment process used for sustainability projects. The reports prepared at the end of this evaluation process constitute a guarantee for investors and lenders. The environmental and social impacts, risks, and areas requiring development of the projects can be seen thanks to SPO.  

Investors who wish to issue bond varieties such as green, social, and sustainability bonds can benefit from SPO. Likewise, mature financial institutions, companies conducting responsible financing, development finance institutions, and banks meeting the necessary conditions can also receive SPO service. 

Second Party Opinion Steps 

The steps for a Second Party Opinion may vary depending on the organization providing support for this service. However, the general workflow is largely the same. The most basic steps of SPO, which can be obtained from various organizations, are typically as follows: 

• An initial meeting is held between the two parties regarding the project and expectations. In this meeting, topics such as company operations, sustainability infrastructure, and sustainability strategies are evaluated. 

• The Green Bonds Framework prepared about the company, project, or assets is reviewed and analyzed with a sustainability approach.  

• After all reviews and analyses are completed, an SPO is presented.  

Second Party Opinion Evaluation Process 

The Second Party Opinion offers two types of frameworks: Use of Proceeds and Sustainability-Linked. The evaluation processes for both frameworks are as follows: 

Use of Proceeds Financing 

The framework called "use of proceeds" evaluates sustainable financing where the proceeds are allocated for specific environmental or social projects. This type of financing addresses four core aspects of the bonds or loans: 

• Has how the proceeds will be used been clearly defined? 

• Is there a clear and transparent approach to the project selection and evaluation process? 

• Are there assurances that the received bonds, loans, or funds will go to the selected projects? 

• Is there a clear process in place to report on the allocation of proceeds and the social and environmental impacts of the projects? 

Sustainability-Linked Financing 

Sustainability-linked financing assesses alignment with ICMA's Sustainability-Linked Bond Principles and LMA's Sustainability-Linked Loan Principles. Here, there are cases where the proceeds will be used for general corporate purposes. In the evaluation process for sustainability-linked bonds and loans, answers to the following questions are sought: 

• Are Key Performance Indicators (KPIs), which can be described as goals in the business world, reliable and important for the strategies? 

• Are Sustainability Performance Targets (SPTs) standard or ambitious? Are sustainability performance targets aligned with environmental, social, and corporate governance strategies, also known as ESG (Environmental, Social, and Corporate Governance)? 

• What will be the changes in financial and structural characteristics depending on reaching the designated key performance indicators and sustainability performance targets? 

• Is there a clear process for reporting both key performance indicators and sustainability performance targets? 

What Advantages Does Second Party Opinion Offer? 

Legal entities that develop, register, or sell securities to finance their activities are referred to as issuers. Domestic or foreign governments, investment trusts, or companies can be issuers. The legal responsibility of issuers is to report both the obligations of the issuance and the financial conditions, significant developments, and other operational activities in compliance with the regulations enacted in their jurisdictions. 

The most fundamental advantage of Second Party Opinion is that it helps issuers launch their green bonds, social bonds, and sustainability bonds. Other prominent advantages of Second Party Opinion are as follows: 

• Issuers can share both their green assets and their efforts toward sustainability goals with investors and stakeholders. This can help increase awareness regarding environmental and social issues. 

• As sustainability becomes more important, more investors make commitments to climate initiatives and sustainable finance. Second Party Opinion can support meeting the growing demand from investors and lenders. 

• It can help gain the trust of investors and lenders, providing additional assurances regarding the credibility of issuers. 

• The increasing demand for thematic bond types such as green, social, and sustainable bonds can contribute to diversifying the issuer base. 

• Since bond and loan frameworks are evaluated for alignment with ICMA Principles and other guidelines, meeting market expectations can be possible. 

• Projects and assets with an SPO can gain access to both various financial sources and investors. The credibility of projects and assets proven to comply with regulations increases. 

• Issuers and investors with enhanced transparency and shared impact goals can interact more easily. 

• SPO analyzes the framework of the bond to identify strengths and areas for improvement. This gives issuers perspectives on how to improve their policies, systems, and tools. 

Examples of SPOs Conducted for the Republic of Türkiye and Organizations in Türkiye 

Organizations such as ISS Corporate Solutions and Sustainalytics have prepared SPOs for the Republic of Türkiye and various banks in Türkiye. Some examples of these include: 

In the SPO report prepared for the Republic of Türkiye by Sustainalytics on November 2, 2021, it is stated: “The Republic of Türkiye plans to report on the allocation annually on its website until full allocation of proceeds. Allocation reporting will include information on, among other things, the total amount of outstanding sustainable funding instruments, net proceeds allocated to eligible projects, and the balance of unallocated proceeds. In addition, the Republic of Türkiye commits to reporting on relevant impact metrics. Sustainalytics assesses the allocation and impact reporting of the Republic of Türkiye as aligned with market practice.” 

In the SPO report prepared for Ziraat Bank by Sustainalytics on August 7, 2020, the following statements are included: “Ziraat Bank aims to report the allocation of net proceeds annually on its website until full allocation on a portfolio basis. Allocation reporting will include the size of the designated Eligible Sustainable Finance Portfolio, the total amount of proceeds allocated, the balance of unallocated proceeds, if any, the share of new financing and refinancing, and the geographic location of assets at the country level. In addition, Ziraat Bank commits to reporting relevant impact metrics. Sustainalytics assesses Ziraat Bank's allocation and impact reporting as aligned with market practice.” 

The SPO report prepared for Yapı Kredi by Sustainalytics on December 3, 2021, states: “Yapı Kredi plans to provide annual reports on the allocation of proceeds and impact on its website until full allocation is achieved. Allocation reporting will include the total amount of outstanding sustainable financing instruments, the amount of proceeds allocated to eligible loans, the balance of unallocated proceeds, the share of finance versus refinancing, and the geographical distribution of projects. In addition, Yapı Kredi commits to reporting on relevant impact metrics. This allocation and impact reporting process is aligned with market practice.” 

Increase Investor Confidence by Reducing Carbon Footprint! 

SPO conducts evaluations on areas such as renewable energy, green buildings, clean transportation, energy efficiency, access to basic services, job creation, and programs aimed at mitigating the effects of unemployment. By transition to renewable energy sources in particular, it can help reduce carbon footprint and build investor confidence for projects looking to benefit from green financing. To develop strategies for reducing carbon footprint, the footprint must first be measured. 

QuickCarbon allows institutions to calculate and report their corporate footprint without receiving any consultancy services. Thanks to our user-friendly software, you can perform all your calculation and reporting operations in compliance with the ISO 14064-1:2018 Standard and GHG Protocol principles. If you'd like to get detailed information about subjects such as carbon footprint consultancy, water footprint consultancy, and carbon offsetting, you can contact us.