Cicero Shades of Green


Submitted by GSC Board Member Sophie Dejonckheere, Senior Climate Finance Advisor at Cicero- Center for International Climate Research in Olso, Norway.

Climate risk has been in the headlines a lot recently, not least because it can and has translated to significant financial risk and damages across borders and along supply chains in all sectors. Climate risk has become financial risk, and the financial sector is taking notes. 

The global and financial impacts of flooding.

In 2011, the worst flooding to hit Bangkok in 70 years inundated several industry parks, the airport, and large parts of the capital. The industrial parks hosted 804 companies, including Japanese hard drive assembly facilities, producers of electronic components, and car manufacturers. This caused sever supply chain and production interruptions for global brands like Acer, Samsung, Lenovo, Apple, Toyota and Honda, and incurred an estimated 44 billion USD of damage.*

For sources and more information, see CICERO’s Shades of Risk report.

The Financial Stability Board’s Task Force on Climate-Related Financial Disclosure (TCFD) breaks climate risk out into physical risk and transition risk; physical risk includes tangible climate impacts such as extreme weather, flooding, drought, sea level rise and heat stress. Transition risk is a result of changes in policy, liability or technologies that move us away from a fossil fuel-based economy.

In the case of physical risk, the impacts are already visible and cannot be changed in the next 10 to 20 years because of historical emissions. Many physical impacts that scientists had originally anticipated over a much longer time horizon are already being observed around the world: flooding in Thailand and Norway, extreme heat stress in India, fires in California and Greece.  All sectors are exposed to physical climate risk, either by direct physical damage to infrastructure or via indirect transportation, communication, or electricity disruptions. From hurricanes to flooding to heat stress, extreme weather trends and their financial impacts increasingly confront investors with unplanned and abrupt changes, significant damages or costly disruptions to businesses, supply chains, and assets. Resiliency planning for the public and private-sector entities is now critical.

Transition risk is not as easy to capture in a photograph, but it is already having a measurable impact nonetheless. Transition risk impacts markets, resource pricing and consumer behavior, as we have seen with China’s focus on green finance, the falling price of solar and wind energy, and rising electric vehicle sales.

Climate risk and potential financial impacts (Shades of Climate Risk, CICERO, 2017)

The financial sector is taking note of these risks and has turned to green bonds in an effort to improve its environmental performance and deflect climate risk. This raises the question: can green bonds effectively protect investors from the worst effects of climate change?

The short answer: green bonds do not actively shield investors from the effects of climate change. However, taken in tandem with integrated climate resiliency planning and accurate “green” labelling, they can be part of a climate risk management strategy.

All green bonds are not created equal; some are “more green” than others. Green bond projects each represent a range of climate strengths and weaknesses. These range from different levels of exposure to physical and transition climate risk to varying potential impact on the environment. Getting the labelling right is, therefore, critical. External reviews, or “second opinions,” of green bonds can help us identify, understand, and transparently communicate this range of strengths and weaknesses. They provide investors with the insight necessary to navigate climate risk and select projects that align with their particular level of climate risk tolerance.

CICERO uses three shades of green to rate green bond frameworks, signaling to investors the potential environmental impact that projects under the given framework may have, as well as the projects’ potential exposure to physical and transitional climate risk. A Dark Green project signals lower exposure to climate risk. For a detailed review of this applied methodology and discussion of best practices, see the recently released CICERO Milestones 2018 Report.


Investments in all Shades of Green – light, medium, and dark – and in all sectors are necessary in order to protect against the worst effects of climate change. We have already seen many good examples of Medium and Dark Green bonds in expected sectors like renewable energy, green buildings, energy efficiency, and clean transportation. We hope to see increased participation from other key sectors such as agriculture, shipping, and manufacturing.  Opportunities for light green projects abound and are necessary buildings blocks to pave the way towards a low carbon, climate resilient future.

Sophie Dejonckheere is a Senior Advisor in Climate Finance at CICERO/ENSO. She has over ten years of experience in international development consulting, project design and management, and strategic communications, with a strong focus on climate change and clean energy policy in Latin America. Most recently, she worked with UNDP to coordinate Green Climate Fund Readiness programs in over 30 countries. Sophie speaks fluent Spanish, advanced French, basic Portuguese and German. She holds an MSc. in sustainability management from Columbia University and a B.A. in international economics from the College of William and Mary.