We use our second party opinions (SPOs) to analyze sustainable finance instruments, programs, transactions, or frameworks, which we refer to collectively as financing. Our SPOs combine important features of the existing methodologies from S&P Global Ratings and Shades of Green, and the most recent update to our methodology adds sustainability-linked financings to the product suite.

For additional information, see "Analytical Approach: Second Party Opinions," published March 6, 2025, and "Analytical Approach: Shades Of Green Assessments," published July 27, 2023.

Frequently Asked Questions

How are SPOs related to credit ratings?

SPOs are not credit ratings, do not consider credit quality, and do not factor into our credit ratings.

What are the components of the integrated SPO report?

Our SPO reports, which are a point-in-time analysis of financing, typically have four main sections:

• Summary: On the first page, we provide the entity location and sector, conclusions on alignment with sustainability principles, the Shade of Green for the overall framework (if applicable), and key highlights of our analysis framed as strengths, weaknesses, and areas to watch.
• Issuer sustainability context: We provide issuer sustainability context to show our opinion on how the financing contributes to addressing what we consider to be the issuer's most material sustainability factors. We identify and consider which sustainability factors are most material for the issuer and how they are addressed by the financing; we also review the issuer's strategy for the sustainability factors relevant to the financing. For sustainability-linked financings, we would also consider the alignment of their investment plans with sustainability strategy.
• Alignment assessment: This is our opinion of whether the financing's documentation aligns with certain third-party published sustainable finance principles and guidelines (Principles) identified by the issuer.
• Analysis of eligible projects (for Use of Proceeds {UoP}): This is our assessment of the projects funded by the financing. In the case of "green" projects, this includes specifying a Shade of Green, which is our qualitative opinion of how consistent environmental activities are with a low-carbon climate resilient (LCCR) future.
• Relevance and ambition (for sustainability-linked financings): This is our qualitative assessment of the relevance of Key Performance Indicators (KPIs) and the ambition of Sustainability Performance Targets (SPTs).

The SPO may also include our assessment of a financing's alignment with the EU Taxonomy, which we provide on request from the issuer. In addition, if U.N. Sustainable Development Goals (SDGs) are referenced in the financing documentation, we consider which SDGs the financing contributes to, if requested by the issuer.

How many Shades are there and what do they represent?

An S&P Global Ratings Shade of Green (or Shade) represents our qualitative opinion of how consistent an economic activity or financial investment is with a low-carbon climate resilient (LCCR) future (see "Analytical Approach: Shades Of Green Assessments," published July 27, 2023). There are six possible Shades (see graphic 1):

Graphic 1

What climate scenario assumptions do you make in the Shades of Green assessment?

In our Shades of Green analytical approach, we define an LCCR future as one aligned with the Paris Agreement, where the global average temperature increase is held below 2 degrees Celsius (2 C). Equally, an LCCR future includes building resilience to the adverse impact of climate change and achieving sustainable outcomes for both climate and nonclimate environmental objectives. In the context of an LCCR future, the term carbon covers greenhouse gas emissions as measured in carbon dioxide-equivalents.

We view adaptation and increased resilience as critical to minimizing the potential damage caused by climate change. We aim to provide opinions on adaptation and resilience to physical risks in all applicable project categories, regardless of whether the primary aim of the projects is to address resilience.

What information do you include in the strengths, weaknesses, and areas to watch section of the SPO?

The strengths, weaknesses, and areas to watch provide, on the first page of the SPO, a summary of key analytical conclusions that we expand in the rest of the report.

• We consider a strength to be a feature of the financing that stands out as positive compared with our view of standard practices. For example, we could consider value-chain policies that address material sustainability factors and support the implementation of the financing to be a strength for an issuer. We may also see the inclusion of components that far exceed the minimum requirements of the Principles as a strength.
• We consider a weakness to be a significant limitation, identified in our analysis, that would likely prevent the financing from achieving the full benefits of its sustainability objectives. For example, we would consider the failure to exclude diesel-powered back-up generators from the financing of newly constructed buildings to be a weakness for an issuer.
• We consider an area to watch to be a potential problem or risk related to the financing. In general, areas to watch are risks that the issuer plans to mitigate, or residual risks that remain after mitigating actions the issuer has taken. For example, if an issuer is exposed to material physical climate risk that necessitates active mitigation, we could consider this an area to watch.

We consider a weakness to be more serious than an area to watch.

What does the issuer sustainability context analysis entail?

In our issuer sustainability context analysis, we provide our view of how the financing contributes to addressing what we consider to be the issuer's most material sustainability factors. This context opinion also identifies the issuer's management of additional sustainability factors that we consider relevant to the financing. To do this, we first identify material sustainability factors relevant for the issuer as they relate to our SPO analysis. To identify the sustainability factors we consider most material to the issuer, we consult S&P Global Ratings' ESG Materiality Maps, or our other resources as appropriate. We then review the issuer's strategy for sustainability factors relevant to the financing; this may be either through the designated project categories in UoP financing or through KPIs and SPTs in a sustainability-linked financing.

Our analysis focuses on entitywide management of sustainability factors--as they relate to our SPO analysis--by considering the issuer's related public statements, actions, goals, and policies. For example, if we consider climate transition risk to be a relevant sustainability factor, we consider the issuer's overall climate transition strategy.

Although our analysis typically centers on the issuer of the financing, we may also consider the context of entities related to the legal issuer. For example, if the financing is issued by a special-purpose vehicle (SPV), we typically consider the entity that established the SPV as part of our analysis.

In what types of SPO reports will you specify a Shade as part of the analysis?

When a UoP financing contains green project categories, we assess the activities within those project categories by conducting a Shades of Green analysis. We consider both climate-related objectives and nonclimate environmental objectives in our analysis. Depending on the materiality of the impact of these objectives on the activity we are assessing, we will place greater emphasis on either climate or nonclimate environmental impacts. For example, if the financing is for a waste recycling plant, we may place a greater emphasis on the waste-prevention impact than on the climate impact.

If the financing we're assessing only has green project categories, and no social project categories, then we also determine an overall Shade for the financing. To do this, we consider the most likely allocation of proceeds over the three years following issuance.

Additionally, in sustainability-linked financings that have at least one environmental KPI, we will typically assign shades to the various capital expenditures, where relevant. In most cases, there will be multiple shades to represent all of the activities, not just a single shade.

Why do you use a range of Shades rather than apply a binary approach?

In our Shades of Green assessment, we recognize the importance of early steps in the transition to an LCCR future. These early stages, generally represented by a Light green Shade, can involve significant emission reductions but do not represent a sustainable future. The Dark green Shade, on the other hand, signifies activities that are in line with an LCCR future.

Is climate always the main driver of the Shades of Green assessment?

No. We also consider nonclimate environmental factors. We typically start our analysis by focusing on what we identify to be the most material sustainability factor for the activity we're assessing. We then adjust for other relevant factors to specify a Shade.

For example, when climate is the most important factor for the activity we're assessing, we start with the climate analysis then adjust for nonclimate environmental factors (see graphic 2).

Graphic 2

When nonclimate environmental factors are most important for the activity we're assessing, we start with the environmental analysis and then adjust for climate factors (see graphic 3).

Graphic 3

How do you determine Shades in emerging markets?

In terms of public policy and market dynamics, the speed and ambition of a jurisdiction's transition to an LCCR future can influence the risk of investments and activities. We acknowledge that emerging markets will likely follow a more gradual path toward energy transition than developed markets. This is compatible with the Paris Agreement's principle of common but differentiated responsibilities, and we take it into account in our analysis.

Do Shades apply to sustainability, social, or sustainability-linked financing frameworks?

No. We do not determine Shades for social project categories, so our analysis doesn't capture environmental co-benefits or the negative environmental impact of social projects. We will not determine an overall Shade for sustainability or social financing SPOs, nor for sustainability-linked financing SPOs.

What do you consider in assessing whether a social project category is aligned with the Principles?

There are several conditions that should be met in order for a social project to comply with the Principles. There must be a social issue to be solved. An example would be a housing shortage or lack of sufficient access to medicine. There should be a target population that faces that issue. This could be indigenous communities, for instance. The funds should address that specific issue for the target population in question, for example, they would allow access to housing or medicine for this rural population that previously did not have those. Finally, there should be some social risk mitigation, to ensure a net positive benefit. To continue this example, this might mean ensuring that the cost of these services was not so onerous that it would cause excessive indebtedness.

Additionally, a social project must comply with the Process for Project Evaluation and Selection, Management of Proceeds, and Reporting requirements of the Social Bond Principles.

How do you determine Shades in different sectors?

We identify the relevant considerations for climate and other environmental issues within a given project. These can include, for example, technological developments and regional context informed by climate science, such as from the Intergovernmental Panel on Climate Change. Below are examples of factors we may consider in our Shades of Green analysis of financing in three key green bond sectors:

Energy: 

• The degree of life-cycle emissions and environmental risk, such as embodied emissions and the environmental impact related to raw material extraction, manufacturing of components, and feedstocks associated with the financing.
• Transition risk associated with the end use of energy generated or transported by the infrastructure.
• The local environmental impact of the financing, including related to biodiversity and land use.
• The degree that physical climate risks, such as those related to cooling needs, are evaluated by the issuer and mitigated using scenario analysis.

Real estate: 

• The extent that building energy efficiency levels exceed national regulations and low-carbon energy sources are utilized.
• The extent that embodied emissions are considered, such as those related to building material choice and use of recycled materials.
• The extent to which primary energy demand is reduced as a result of refurbishment.
• The degree that physical climate risks, such as those related to flooding and storms, are evaluated by the issuer and mitigated using scenario analyses.
• Whether projects are certified under voluntary schemes, and such certifications help address the above considerations.

Transportation:  

• The type of transportation supported by the financing, such as zero-emission vehicles, or whether it is to promote public transit and walking or cycling over car ownership and air travel.
• The extent that life-cycle emissions and environmental risks in vehicle manufacturing and raw material extraction are considered; for example, whether renewable energy is used and there are efforts to address the environmental impact of extraction and processing of raw materials for batteries and other components.
• The degree to which the impact on the local environment and climate resilience is considered during design, manufacturing, and construction of vehicles and transport infrastructure.
• Sourcing of alternative fuels, such as hydrogen and biofuels, with sufficient life-cycle climate benefits and stringent safeguards against direct and indirect land use change.

How do you capture social and environmental co-benefits and the potential for negative impacts in your analysis?

There are several places where we can capture co-benefits or potential negative impacts in our SPO report.

The Shade we allocate to a green project category reflects our view of the environmental risks and benefits, including any environmental co-benefit or negative environmental impact. Social co-benefits or negative effects do not influence the Shade we determine for a project category. We may, however, comment on relevant social risks or benefits introduced by an activity as part of our review:

• In the strengths, weaknesses, and areas to watch section on the first page, we may highlight co-benefits or potential negative effects that are particularly material to our analysis.
• Our issuer sustainability context analysis includes all material sustainability factors that we consider relevant to the SPO financing, including those related to environmental and social co-benefits or potential negative effects, where applicable.

In our Alignment Assessment section, the impact of social and environmental co-benefits or negative effects on our alignment analysis varies, depending on which principles we are assessing alignment against.

• When we assess alignment with the International Capital Market Association's (ICMA's) Sustainability Bond Guidelines for the use-of-proceeds assessment, we take the view that, for a financing to be aligned, all projects that have green and social co-benefits should meet the eligibility criteria of both the Green Bond Principles (GBP) and the Social Bond Principles (SBP).
• When we assess alignment with ICMA's GBP and SBP, and the Loan Market Association's Green Loan Principles and Social Loan Principles, we consider whether the issuer clearly communicates processes to identify and manage perceived social and environmental risks associated with the projects. If the issuer does not clearly communicate its management of the potential negative impact, we may assess it as not aligned.
• For us to consider the use of proceeds of financing for a green project to be aligned, we require project categories directly funded by the financing to be allocated one of the three green Shades.
• For us to consider the use of proceeds of financing for a social project to be aligned, we require that the social project directly aims to address or mitigate a specific social issue or provide clear social benefits to the target population.

How does your issuer sustainability context analysis account for entities that may not have sustainability teams or disclosures?

We approach our SPO analysis objectively and without prejudgment tied to any particular characteristic or circumstance of an issuer, including but not limited to, size or reputation. For each sustainability factor we consider relevant to the financing, we review the issuer's strategy and outline its actions, goals, and policies. We review each issuer's strategies based on their circumstances.

Larger or more established issuers typically have more comprehensive targets and policies in many areas. Smaller issuers may have less developed strategies but still address material sustainability issues. This leads us to provide context on how the financing fits into the issuer's broader strategies, rather than a score or comparison across issuers.

Will controversies and allegations related to the issuer play a role in the issuer sustainability context assessment?

We do not provide controversy screening. We may review negative environmental or social impacts in our analysis if they relate to a sustainability factor we consider relevant to the financing. For example, if we consider the impact on communities relevant to the financing, we may review instances where the issuer's activity had a negative impact on communities in previous projects and review the issuer's steps to mitigate those factors in proposed projects.

We do not review environmental or social impacts that are not relevant to the financing. For example, an issuer may be associated with negative sentiment in the media regarding its impact on biodiversity. If we do not consider biodiversity a relevant sustainability factor for the financing, we will not incorporate these instances into our issuer sustainability context analysis.

Do you compare issuers with peers in your issuer sustainability context assessment?

We do not compare issuers with peers in our issuer sustainability context analysis to determine relative performance on a specific sustainability factor, such as reported greenhouse gas emission values. We may, however, compare an issuer's strategy for the relevant sustainability factors to our view of standard industry practices.

Will best practices for alignment with the Green Bond Principles be recognized?

The Shade we allocate reflects the activity's environmental benefits, including those we would consider best practice for alignment with the Green Bond Principles. We may also highlight any features that distinguish the financing positively compared to standard practices, by listing them as a strength on the front page of our SPO report.

Our SPO reports will provide an opinion of aligned or not aligned. We will not provide outcomes of aligned with strong commitments or aligned with advanced commitments to signal alignment with recommendations from the relevant principles or emerging best practices. We may include stronger commitments in the strengths section of our SPO reports.

For sustainability-linked financings, how do you factor historical performance and performance compared to peers to assess whether an SPT is ambitious?

Both historical performance and performance against peers are relevant for assessing the ambition of a target. Targets that are aligned with the Principles will typically show performance on the metric improving at a rate that exceeds what the issuer had done historically. In some cases, when continuous metric improvement entails increasing efforts for even marginal progress, we could consider a target as ambitious even without acceleration in performance improvement. Moreover, we typically consider alignment with scientific targets.

Additionally, we expect aligned targets will exceed sector averages in their ambition. A company need not exceed the ambition of every peer in its sector, but it should be among the leaders in addressing the sustainability factor in question. We also typically consider local context in assessing relative ambition. Peer benchmarking is an essential part of our analysis of the SPT's ambition. While we expect companies issuing sustainability-linked financings will do their own benchmarking as part of their due diligence, we may come to different conclusions about the relative strength of the SPT compared to peers.

If a KPI is important to an entity but less relevant for its industry, can this be aligned with the sustainability-linked principles?

A KPI should generally be relevant to the sector in which an entity operates, but relevance can also come from the region in which the entity operates or other entity specific attributes. For instance, we have seen instances in which an energy company will use proportion of indigenous employees as a KPI. While this is not inherently meaningful for the sector large, in certain geographies, it may be highly relevant.

A KPI that is considered Highly Relevant will generally meet best practices for sustainability-linked financings, including:

• The KPI is related to one of the entity's most material sustainability factors. 
• The KPI is one of the most effective ways to address the sustainability factor. 
• The KPI is outcome focused or a direct proxy for performance against the sustainability factor.  
• KPI encompasses most or all the issuer's activities.  

When will you apply the ICMA Climate Transition Finance Handbook or other supplementary guidance?

Some of the elements in the Climate Transition Finance Handbook are included when we review the issuer sustainability context if climate transition is identified as a material sustainability factor. For transition financing--which is typically allocated a Light green Shade--the handbook will be applied when relevant to the financing. Additionally, we can review for adherence to ICMA's guide for bonds to finance the sustainable blue economy, when referenced in a framework or transaction documents.

Further, we can assess which of the SDGs the financing contributes to as an optional add-on to the SPO report, at the issuer's request. We include a table in our SPO report that outlines the linkages between the financing and the SDGs. Our assessment of SDG mapping does not have an impact on our alignment opinion.

How will you evaluate issuers with nondebt instruments?

Our alignment analysis typically has two possible outcomes: aligned, or not aligned. An opinion of aligned means that, in our view, the financing meets the minimum requirements for alignment with the relevant Principles.

In rare cases, we determine the financing to be conceptually aligned, which means we believe it meets the minimum requirements for alignment with the relevant Principles, but that characteristics of the financing do not technically match the scope of the Principles. In those cases, we apply the Principles as closely as possible, after making any necessary changes to our analysis. For example, this could be relevant for a bank's sustainability lending or investing framework not directly tied to a financial instrument.

How do you assess alignment with the EU Taxonomy when requested to do so?

In our EU Taxonomy Assessment, which is available as an optional add-on to the SPO report at the issuer's request, we give our opinion on whether an eligible project to be financed aligns with the EU Taxonomy. Under the EU Taxonomy regulation, to qualify as environmentally sustainable, an activity must meet three criteria:

• Make a substantial contribution to at least one of the EU objectives.
• Do no significant harm (DNSH) to any other EU objective.
• Meet minimum safeguards.

Is it possible to request a stand-alone EU Taxonomy assessment?

No. We offer the EU Taxonomy alignment assessment only as part of our SPOs or European Green Bond External Reviews. This allows us to analyze projects using our Shades of Green assessment, thereby providing a value-chain perspective alongside the issuer sustainability context in our SPOs. This also allows us to assess project categories for which a taxonomy category has not yet been established.

Related Research

• Analytical Approach: Second Party Opinions, March 6, 2025
• Analytical Approach: European Green Bond External Reviews, Oct. 31, 2024
• FAQ: Applying Our Analytical Approach For European Green Bond External Reviews, Oct. 31, 2024
• Analytical Approach: EU Taxonomy Assessment, Oct. 31, 2024
• Analytical Approach: Climate Transition Assessments. July 18, 2024
• SPO Spotlight, March 28, 2024
• Analytical Approach: Shades Of Green Assessments, July 27, 2023
• S&P Global Ratings ESG Materiality Maps on spglobal.com
• S&P Global Ratings Published Second Party Opinions

External Research

• AR6 Synthesis Report: Climate Change 2023, Intergovernmental Panel on Climate Change