Markets working to support sustainable development

Green Bond Principles

Green Bonds are investment tools for projects with environmental benefits. The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and disclosure in the development of the Green Bond market.

The GBP have four components:

  1. Use of proceeds - the proceeds should go towards projects that provide environmental benefits. Where possible, the projects should provide data as evidence or be assessed. The GBP recognise certain categories that qualify, including: renewable energy, energy efficiency (including efficient buildings), sustainable waste management, sustainable land use (including sustainable forestry and agriculture, biodiversity conservation, clean transportation, and clean water and/or drinking water.
  2. Process for project evaluation and selection - the decision-making process behind any investment must be transparent. Where possible, the issuer (of the bonds) should review the project's environmental impact and asses direct/indirect objectives. Reviews should also be carried out by multilateral/bilateral agencies or other international finance institutions, as well as the issuer, on the allocation of funds.
  3. Management of proceeds - the net proceeds of the Green Bonds should be tracked by the issuer and attested to by a formal internal process. The issuer should make their chosen method of managing proceeds clear and publicly available. The GBP also recommend that an external auditor is used to verify the flow of funds.
  4. Reporting - issuers should report on project performance, for example via newsletters or website updates. The data should be updated atleast once a year and should include specific details of each project as well as the precise amount of money invested. The GBP recommend the use of indicators to measure the impact of each project. For this, issuers are recommended to use impact reporting standards.
  5. Assurance - issuers are encouraged to assure in one of three ways: second party consultation, publically available reviews and audits, or third party verification/certification.
Market coverage: 

The GBP has 66 issuers and banks as members that have signed up to the framework. The GBP were launched at the beginning of 2014 so it is unclear exactly how big its market coverage is, although its list of members includes the World Bank which has issued $6.7billion in green bonds and the International Finance Corporation which has issued $3.6 billion in green bonds. There are also 26 observers which are interested organisations who are not currently in the market for green bonds, such as NGOs, academic institutions, auditors and service providers.

Green Bonds in general are estimated to be worth $40billion by the end of 2014.

Background information: 

 principles were launched in January 204 and were drafted by four banks: the Bank of America Merrill Lynch, Citi, Crédit Agricole Corporate and Investment Bank, and JPMorgan Chase. 

Funding source: 

Funding is not clear. 

Notable information: 

The principles are not-legally binding and are voluntary. It is not clear what would happen to a member should it be non-compliant, although it stated that where the principles clash with local laws, regulations and statutes, the legal requirements are adhered to rather than the principles.

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