Certification Framework
The Climate Bonds Standard is a voluntary labelling scheme designed to certify that debt instruments, including bonds, meet specific environmental criteria consistent with climate change mitigation efforts. The primary aim is to validate that investments contribute to achieving the climate targets outlined in the Paris Agreement.
Rigorous Scientific Criteria
The CBI utilizes scientifically robust eligibility criteria based on evidence and best practices in climate finance. This includes a requirement that at least 95% of the net proceeds from certified bonds finance projects aligned with these criteria, ensuring that the funded activities contribute meaningfully to carbon reduction or climate resilience. A small percentage (up to 5%) may be allocated to projects that do not fully meet the criteria but must still comply with broader environmental principles such as the ICMA Green Bond Principles.
Two-Phase Certification Process
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Pre-Issuance Certification:
This phase involves an initial assessment where issuers must demonstrate that their internal processes for selecting projects and tracking proceeds conform to the Climate Bonds Standard. The issuer prepares a Green Bond Framework that outlines compliance with the standard, which is then reviewed by an Approved Verifier. -
Post-Issuance Certification:
After the bond is issued, issuers undergo a verification process to assess whether the proceeds have been allocated as promised and that the funded projects continue to meet eligibility requirements. This ongoing verification helps maintain the integrity of the certification over the lifetime of the bond.
Role of Approved Verifiers
Independent Approved Verifiers play a crucial role in ensuring the credibility of the certification process. They are responsible for assessing compliance with the standard during both the pre- and post-issuance phases. Certification decisions are made by the Climate Bonds Standard Board based on the detailed reports provided by these verifiers, ensuring an unbiased evaluation of the bonds’ eligibility.
Alignment with International Standards
The Climate Bonds Initiative’s certification process is designed to align with international frameworks, particularly the ICMA Green Bond Principles, enhancing the credibility and market acceptance of certified bonds. This alignment ensures that investments are not only socially responsible but also contribute directly to climate action goals defined in global agreements like the Paris Agreement.
In summary, the Climate Bonds Initiative employs a systematic certification framework that integrates rigorous scientific criteria, independent verification, and alignment with international principles, thereby ensuring that certified bonds effectively contribute to global climate objectives outlined in the Paris Agreement.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-climate-bonds-initiative-ensure-that-certified-bonds-align-with-the-paris-agreement/
