Second Party Opinions

Professor Kevin Haines
July 2021

“Thank you Doctor, but I think I’ll ask for a second opinion”

It is already becoming increasingly well known that not all ESG rating agencies are the same and that the ratings they provide can be challenging to understand and wildly divergent (predominantly because they scrape publicly available data and code responses in a binary manner). Whilst this state of affairs is problematic for the general market, it is grossly unfit for purpose when it comes to Green and Social Bonds – given the very specific claims made about the purpose of these Bonds. Consequently, ICMA has produced principles that define Green, Social and Sustainable (i.e. Green+Social) Bonds, ‘information templates’ for issuers to complete in issuing such Bonds and the concept of Second Party Opinions.

Any issuer wishing to bring Green, Social or Sustainable Bonds to market (within the EU) must now comply with ICMA principles and they must obtain (and repeat annually) a Second Party Opinion.

Second Party Opinions can only be obtained from an ICMA approved list of ESG/specialist ratings agencies – so-called ‘External Reviewers’ ( These Second Party Opinion providers must, in turn, assess companies/projects/bonds using bespoke assessment tools developed and provided by ICMA (

ICMA stands for The International Capital Market Association ( Look under the ‘Sustainable Finance’ tag for relevant documentation. The ICMA should not be confused with International City/County Management Association


The purpose of all this ICMA activity in this area is, of course, 1) to bring consistency to the issuance of Green, Social and Sustainable Bonds, 2) to give investors confidence in the integrity of such Bonds and 3) to promote the issuance and investment in such bonds.

It’s important, therefore, to ask: to what extent do the measures introduced by ICMA achieve their objectives?

The answer is a qualified: in part. 

Part of the difficulty in coming to a definitive assessment of the ICMA measures is that it is rather too soon to tell. The introduction of Second Party Opinions (and their compulsory nature) is a relatively new measure and this is a fast moving field – so look out for new developments.

Presently, however, there are a number of weaknesses to the Second Party Opinion process that require airing and, therefore, caution in the way in which they are used. Not in any order of priority or importance or significance, these issues, as far as we see them, are:

  • The ICMA uses language, concepts and standards that are bespoke and, therefore, different from others; potentially causing confusion and exposing itself to the potential for greenwashing.
  • The ICMA slices the cake very thinly. In other words, it defines and divides Green and Social Bonds into rather specific and narrow types. This has two immediate consequences: 1) it leaves gaps (not all potential Green or Social bonds are included when there are advantages, for companies and investors, to their inclusion) and 2) it creates distance between the ICMA principles, our (developing) understanding of ESG and the (increasing) use of the SDGs by companies and investors globally pursuing a positive ESG agenda.
  • I remain to be convinced that Second Party Opinion assessments actually get under the bonnet on companies. Assessments are bespoke (i.e. they do not rely on scraping publicly available data) but the extent to which reviewers are actually capable of assessing the green or social credentials of individual projects remains, for me, an open question – particularly in the context of the sheer complexity of these issues.
  • Despite being all about Governance (in the form of regulation) the ICMA principles and the requirements of Second Party Opinion providers are actually rather silent and weak on matters of Governance – especially if one understands Governance in an ESG context. This is a serious weakness for no other reason than without effective Governance there is no effective Green, Social or Sustainable business.
  • Second Party Opinions are only required if the issuer defines their Bond as Green, Social or Sustainable. It is perfectly possible to issue Bonds with Green, Social or Sustainable objectives without such labels (plenty of other terms exist in the ESG universe to describe such Bonds) and therefore avoid the strictures and costs associated with these Second Party Opinions – without losing impact and value.
  • Finally, there is insufficient attention paid, in the principles and in Second Party Opinions, to outcomes and impact. In our experience both companies seeking investment (through bonds) and potential investors are increasingly thinking, talking and acting in terms of outcomes and impact – precisely because these are easier to articulate and measure, providing clear benchmarks for company performance and demonstrable achievements to interested investors.

Overall, therefore, there is still a long way to go before the ICMA route is the preferred route to market for many issuers. Indeed, one has to ask: is the ICMA way the best way for both issuers and investors? One (of the many) reasons why we put so much emphasis on the G in ESG is that it embodies transparency and integrity in issuer and investor. This is, in our view, an essential component of modern market behaviour.

Read More