The team at Calvert believes that green hybrid programs that take steps to address investor considerations (whilst still providing capital structure benefits) can be an important tool for financing the energy transition. By openly discussing these considerations up front with issuers as part of their engagement, the hope is to ensure market participants operate with a shared understanding of how these instruments are to be used, with both issuers and investors cognizant of the others’ viewpoint.

Key Considerations for Responsible Investors

1. This reallocation practice raises potential concerns over the additionality of certain hybrid instruments (whether the security in question can credibly be said to contribute to improved outcomes associated with an issuer’s business activities). It may also lead to double counting the impacts of the project in question between holders of the various securities.
2. By the time projects are reallocated to the new green hybrid, they will generally have been operational for over five years, materially longer than what is generally considered an acceptable lookback period.
3. The mismatch in tenor between the first call date of green hybrids and the lifetime of green projects (which often reach 25 years) raises a question of how many subsequent re-offerings of green hybrids could retain credit for the outcomes associated with the initial projects – for example, the annual greenhouse gas (GHG) emissions avoided associated with the generation of a renewable power project.