Green Bond

From Open Risk Manual

Definition

Green Bond. Bond issued specifically to fund climate or environmental projects

These bonds are typically asset-linked and backed by the issuer's balance sheet. Green bonds finance projects aimed at energy efficiency, pollution prevention, sustainable agriculture, fishery and forestry, the protection of aquatic and terrestrial ecosystems, clean transportation, sustainable water management and the cultivation of environmentally friendly technologies, and often include incentives such as tax exemption.

Examples

Green standards currently have been developed by[1]

  • The International Capital Market Association (ICMA) (established standards for green bonds, transparency and disclosure) and
  • The Climate Bonds Initiative (established certification scheme for green bond label based on climate standard). Some
  • Banks and Rating Agencies have also constructed indices to allow investors to benchmark the performance of green bonds.
  • The TEG published its Report on EU Green Bond Standard proposing that the European Commission creates a voluntary, non-legislative EU Green Bond Standard to enhance the effectiveness, transparency, comparability and credibility of the green bond market and to encourage the market participants to issue and invest in EU green bonds.

References

  1. Sustainable Finance Market Practices EBA Staff Paper Series, Jan 2020

Disclaimer

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