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I. Green bonds

  1. Is there a definition of a green bond?
  2. Is there an official list of each green bond issued?
  3. What are the advantages of issuing a green bond?
  4. Can a project bond be a green bond?
  5. What is the difference between green bonds, climate bonds, environmental bonds, social bonds, sustainability bonds and ESG bonds?
  6. Are green bonds becoming a separate asset class?
  7. How can investors recognize the eligibility of a bond as a green bond when the issuer doesn’t refer to the GBP?
  8. Can green bonds “default” by not following the GBP recommendations anymore?

II. General

  1. Are the GBP a regulatory institution?
  2. Does an issuer need to demonstrate that the projects would not have been undertaken without green bond issuance?
  3. How do GBP eligible Green Project Categories differ from other publicly available taxonomies? 
  4. How do the GBP align with international climate change related initiatives, such as the Paris Agreement, or the Sustainable Development Goals (SDGs)?
  5. Can a green bond be issued by an issuer that has low ESG ratings, exposure to controversial issues or controversial sectors/technologies (such as fossil fuels or nuclear energy)?
  6. Can ‘pure play’ companies issue green bonds? Are all bonds from pure play companies automatically green bonds?
  7. Is an external review required?
  8. What’s the difference between a certified, verified, and rated green bond?

III. Use of proceeds

  1. Do the GBP provide clear standards for defining what projects or activities qualify as green? Are the GBP project categories comprehensive?
  2. Do all green bonds have to be climate related?
  3. Are all hydropower projects eligible for a green bond, regardless of size?
  4. Would a project be eligible for inclusion in a green bond if it were to improve energy efficiency on projects associated with fossil fuel production or industrial processes linked to fossil fuel production?
  5. How can issuers be transparent about the age of refinanced projects?
  6. Are intangible assets (such as education, monitoring, R&D, tax credits) or expenditures also eligible for green bonds? How can investors assess their eligibility?

IV. Social and sustainability bonds

  1. When a bond finances projects that have both social and environmental benefits, such as sustainable social housing, sustainable public transport and access to clean water, can the issuer freely choose the designation of the bond as either green bond, social bond or sustainability bond?
  2. Can an issuer issue a green, social, or a sustainability bond where not all the proceeds are directed towards green and/or social projects?
  3. Is there a difference between a social bond and a social impact bond?

V. Joining the GBP and SBP community

  1. How can I become a member or observer of the GBP and SBP, and enter into active dialogue with the community?
  2. How is the Executive Committee elected?
  3. What Working Groups exist and how can I get involved?

Appendix

  1. Translations of the GBP, SBP and SBG
  2. Translations of the Q&A

DISCLAIMER


This document has been prepared for the purpose of giving information with regard to green, social and sustainability bonds. It constitutes neither a supplement to nor an interpretation of the Green Bond Principles (GBP), Social Bond Principles (SBP) and/or Sustainability Bond Guidelines (SBG). For more information on the guidelines and recommendations of the GBP, SBP and SBG please refer to the latest edition of these documents, as published by the Secretariat. Terms defined in the GBP, SBP and SBG have the same meaning when used in this document.



I. Green bonds

1. Is there a definition of a green bond?

The GBP define a green bond as any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible green projects with a clear environmental benefit (see section 1 Use of Proceeds of the GBP) and which are aligned with the four core components of the GBP.

2. Is there an official list of each green bond issued?
The GBP are making publicly available at the Resource Centre a non-exhaustive list of issuers that have released their external review report and that have completed a market information template that enables green bond issuers to publicly confirm their alignment with the GBP. Apart from this, there are several lists, databases or indices that exchanges, market data providers, the Climate Bond Initiative (CBI) or the external opinion providers are updating, based on their own criteria. The GBP’s Database and Index Working Group has also published summaries of green bond database and indices providers that are available online in the Resource Centre.

3. What are the advantages of issuing a green bond?
Issuers signal with a green bond their commitment to addressing green and environmental issues both externally and internally by financing Projects with clear environmental benefits. They can also achieve greater diversification of their investor base resulting in potential increased demand and related advantages.

4. Can a project bond be a green bond?
Yes, a project bond can be a green bond if it qualifies as green and is aligned with the GBP's four core components.

5. What is the difference between green bonds, climate bonds, environmental bonds, social bonds, sustainability bonds and ESG bonds?
As defined by the GBP, green bonds encompass climate and environmental bonds as long as they are aligned with the four core components of the GBP. The Social Bond Principles (SBP) provide a definition for social bonds, while the Sustainability Bond Guidelines (SBG) provide one for sustainability bonds. The common feature of green bonds, social bonds and sustainability bonds is their predetermined use of proceeds and voluntary alignment with a common set of criteria. Issuers are encouraged to use the green bond, social bond or sustainability bond designations, as appropriate, whenever their issuance is aligned with the four core components of the GBP and SBP. Environmental Social and Governance (ESG) bonds also integrate governance criteria which are not featured in the GBP, SBP or SBG; and may refer to an issuers overall sustainability credentials rather than a specific use of proceeds.

6. Are green bonds becoming a separate asset class?
Since the overall risk and return characteristics of green bonds do not differ from those of non-green bonds, they do not meet all the criteria that are generally considered necessary to qualify as a separate asset class. However, some investors disagree, and a growing number adjust investment processes or allocations to seek exposure to green bonds in an attempt to actively contribute to the positive impact associated with green bonds.

7. How can investors recognize the eligibility of a bond as a green bond when the issuer doesn’t refer to the GBP?
It is up to the issuer to confirm alignment with the GBP. Certain financial information providers and indices, such as Bloomberg and MSCI, provide wider and complementary definitions for which links can be found in the Resource Centre.

8. Can green bonds “default” by not following the GBP recommendations anymore?
Alignment with the GBP guidelines is voluntary. Issuers should, however, address in their reporting whether their green bond(s) remain aligned with the GBP recommendations, and will be exposed to significant reputational risk if their green bond(s) do not meet their environmental undertakings and cease to be aligned with the GBP.


II. General

1. Are the GBP a regulatory institution?
No, the GBP are voluntary guidelines as opposed to a mandatory framework. The GBP are typically updated annually on the basis of a consultation of members and observers by its Executive Committee, which is comprised of 24 market participants elected by the GBP members.

2. Does an issuer need to demonstrate that the projects would not have been undertaken without green bond issuance?
No. The purpose of the green bond market is to fund or re-finance projects that contribute to environmental sustainability irrespective of whether other means of financing were/are available. 

3. How do GBP eligible Green Project Categories differ from other publicly available taxonomies? 
The GBP provide high-level project categories. These categories can be complemented by detailed taxonomies such as those provided by the Climate Bonds Initiative and Multilateral Development Banks. Links to these taxonomies can be found on the Resource Centre.

4. How do the GBP align with international climate change related initiatives, such as the Paris Agreement, or the Sustainable Development Goals (SDGs)?
The GBP are voluntary guidelines drafted by the private sector to promote best practices in terms of transparency and disclosure in the green bond market. The Paris Agreement is an international convention under the aegis of the United Nations. The SDGs are part of the United Nations agenda on sustainable development. Though well aligned with the goals of these initiatives, the GBP remain separate and independent as a market-driven initiative.  While the eligible project categories in the GBP encompass climate change related interventions, they also include projects that address broader environmental concerns. Green bonds generally lend themselves to finance activities that are carried out in order to comply with Nationally Determined Contributions (NDCs) and SDGs. However, not all of the 17 SDGs map to a GBP and/or SBP current eligible project category.

5. Can a green bond be issued by an issuer that has low ESG ratings, exposure to controversial issues or controversial sectors/technologies (such as fossil fuels or nuclear energy)?
The focus of green bonds is on the eligible projects rather than on the issuer itself. It should nonetheless be noted that the GBP recommend that issuers clearly communicate to investors their environmental sustainability objectives overall, and how they will identify and manage potential environmental and social risks associated with the selected projects. Many investors consider the issuer's profile and take into consideration the quality of the issuer’s overall profile and performance regarding environmental sustainability. In the presence of controversial issues, such as fossil fuel, extractive or nuclear based activities, or limited overall sustainability credentials, investors, stock exchanges, index providers and other market participants may also require additional transparency from the issuer, particularly around the strategic importance of sustainability for the business, demonstration of the issuer’s transition and/or sustainability benefits from the underlying projects that go beyond established sector norms and business as usual.

6. Can ‘pure play’ companies issue green bonds? Are all bonds from pure play companies automatically green bonds?
Bonds issued by companies whose business activities are exclusively focused on the green economy (pure play) are only considered as green bonds if they are explicitly aligned with the GBP (see definition of Green Bond above). The GBP, however, recognizes that there is a wider universe of climate and/or environmentally themed bonds of which pure play bonds (that are not explicitly aligned with the GBP) may be considered a part.

7. Is an external review required?
The GBP recommend that issuers use an external review to confirm the alignment of their green bonds with the key features of the GBP. In addition, Investors appreciate/welcome the second party opinions, verifications and attestations provided by external reviewers.

8. What’s the difference between a certified, verified, and rated green bond?
Different approaches exist to provide external assessment of a green bond. The most common approaches are listed in the external reviews sections of the GBP and SBP. Different providers and types of reviews seek to achieve different objectives with differing scopes and differing levels of rigor. Providers of external review are encouraged to include their scope of work and to complete the template available at the Resource Centre. to describe their approach.


III. Use of proceeds

1. Do the GBP provide clear standards for defining what projects or activities qualify as green? Are the GBP project categories comprehensive?
The GBP only provide broad suggested green categories, but encourage issues to reference existing standards and taxonomies (such as labels and accreditations for a specific sector) and/or develop their own framework. Projects may also refer to several categories, or fall into categories that are not explicitly listed by the GBP.

2. Do all green bonds have to be climate related?
No, the GBP addresses four key areas of concern that are climate change, natural resources depletion, loss of biodiversity, and air, water or soil pollution. Any project that provides clear environmental benefits in these areas can be funded through green bonds.

3. Are all hydropower projects eligible for a green bond, regardless of size?
The GBP indicate that renewable energy projects, such as hydropower, are potentially eligible to be financed by a green bond, regardless of their size. Furthermore, the GBP recommend that issuers should clearly communicate to investors their environmental sustainability objectives overall, and how they will identify and manage potential environmental and social risks associated with the projects selected to be financed by a green bond. It is also recommended that issuers use an external review to advise on the environmental sustainability and expected impact of the projects to be financed.  It should be noted that investors, stock exchanges, index providers and other market participants consider Green Bonds against their own environmental assessment standards and investment criteria, including broader ESG requirements.

4. Would a project be eligible for inclusion in a green bond if it were to improve energy efficiency on projects associated with fossil fuel production or industrial processes linked to fossil fuel production?
They are potentially eligible, as long as the bond funding such projects is aligned with the four core components of the GBP. The GBP recommend that issuers should clearly communicate to investors their environmental sustainability objectives, and how they will identify and manage potential environmental and social risks associated with projects. It is also recommended that issuers use an external review to advise on the environmental sustainability and expected impact of the projects to be financed.  Investors, stock exchanges, index providers and other market participants also consider Green Bonds against their own environmental assessment standards and investment criteria that may set target thresholds for energy efficiency improvements and include broader ESG requirements. Some of these market participants and stakeholders exclude bonds funding fossil fuel-related projects, while others may, for instance, include energy efficiency investments that do not facilitate a long-term lock-in of high carbon infrastructure. Several organizations, including Multilateral Development Banks, Development Finance Institutions and the CBI have developed standards for energy efficiency in the fossil fuel sector that market participants are encouraged to reference.

5. How can issuers be transparent about the age of refinanced projects?
The GBP recommend that issuers clarify which projects are to be refinanced and disclose, to the extent relevant, the expected look-back period (i.e. the number of previous years that the issuer will look back to) for these refinanced projects.

6. Are intangible assets (such as education, monitoring, R&D, tax credits) or expenditures also eligible for green bonds? How can investors assess their eligibility?
The proceeds from a green bond may be used to finance or refinance other expenditures related to or in support of eligible green projects, as long as those are associated with clear environmental benefits. The GBP recommend that issuers use an external review to help investors assess the bond’s alignment with the four core components of the GBP, including the environmental benefits of projects to be financed.


IV. Social and sustainability bonds

1. When a bond finances projects that have both social and environmental benefits, such as sustainable social housing, sustainable public transport and access to clean water, can the issuer freely choose the designation of the bond as either green bond, social bond or sustainability bond?
Yes, (as long as the bond is aligned with the four core components of the GBP or SBP). The issuer should determine the designation depending on the primacy of the intended objectives of underlying projects. Where the issuer’s prime focus is on the intended environmental objectives of the project, they should label the bond a Green Bond.  Where the issuer’s prime focus is on the intended societal objectives of the project, they should label the bond a Social Bond. The Sustainability Bond Guidelines have been developed for bonds that include both social and green projects. An issue should fall under just one of the aforementioned three categories, and issuers should therefore refrain from using multiple designations for the same transaction, notwithstanding the fact that green projects may have social benefits and, conversely, social projects may have environmental benefits.

2. Can an issuer issue a green, social, or a sustainability bond where not all the proceeds are directed towards green and/or social projects?
No. Green, social, or sustainability bonds must have 100% of proceeds dedicated towards green and social projects. As projects may disburse over time, there may be temporarily unallocated bond proceeds, and issuers should explicitly state how unallocated proceeds will be/are temporarily invested.

3. Is there a difference between a social bond and a social impact bond?
Social impact bonds, also referred to as pay-for-perfomance instruments, typically refer to public-private partnerships  in which the cash flows of the transactions are dependent on the achievement of pre-defined non-financial performance metrics and which do not generally share the typical characteristics of a bond. In contrast, social bonds are any type of bond instrument where the proceeds will be exclusively applied to finance or re-finance in part or in full new and/or existing projects with positive social benefits and which are aligned with the 4 components of the Social Bond Principles.


V. Joining the GBP and SBP community

1. How can I become a member or observer of the GBP and SBP, and enter into active dialogue with the community?
Organizations that are involved in the green bond, social bond or sustainability bond market or more generally in green and social finance are invited to apply to join the GBP either as members or observers. For more details, please visit the Principles membership webpage.

2. How is the Executive Committee elected?
The Executive Committee is formed by 24 organizations comprising an equal distribution between investors, issuers and underwriter with 8 representatives from each category. Every year, half of the seats of the Executive Committee are renewed by a vote of the members before the AGM in line with the governance.

3. What Working Groups exist and how can I get involved?
There are currently four Working Groups (Green Projects Eligibility, Impact Reporting, Index and Database and Social Bonds). Members, observers and other market stakeholders who are interested in getting involved should contact the Secretariat at the following email Greenbonds@icmagroup.org, socialbonds@icmagroup.org, sustainabilitybonds@icmagroup.org


Appendix

1. Translations of the GBP, SBP and SBG

Several translations have now been made available of the Green Bond Principles (GBP), the Social Bond Principles (SBP) and the Sustainability Bond Guidelines (SBG). These can be accessed on their respective webpages. Further translations will be published in due course.

2. Translations of the Q&A
Translations of these questions and answers can be accessed here:


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