The issuance process of green bonds differs from regular bonds primarily through the emphasis on transparency, governance, and the specific use of proceeds. Here are key differences:
Steps Unique to Green Bond Issuance
- Green Bond Framework (GBF): The GBF is a crucial document that outlines how the issuer plans to use the bond proceeds for sustainable projects. It details the green characteristics, project selection criteria, and reporting processes. This framework is not required for traditional bonds.
- Eligibility Criteria: Green bonds involve identifying and selecting projects that meet specific environmental criteria. This means issuers must have a clear process for evaluating and choosing eligible projects.
- Use of Proceeds: Unlike regular bonds, green bonds require that proceeds are specifically earmarked for environmentally beneficial projects. This necessitates setting up distinct financial management and reporting systems.
- External Review and Verification: Green bond issuance often includes obtaining external reviews to verify compliance with green bond principles and standards. This provides assurance to investors about the green credentials of the bond.
- Impact Reporting: While not mandatory, green bond issuers are increasingly expected to report on the environmental impact of their projects. This ongoing reporting differs from traditional bonds, where such reporting is not typical.
Additional Considerations
- Reputational Risk: Green bonds carry the risk of ‘greenwashing’ allegations if the issuer fails to meet environmental standards, which can damage the issuer’s reputation.
- Compliance with Standards: Issuers must adhere to guidelines like the Green Bond Principles or the Climate Bonds Standard to ensure their bonds are recognized as genuinely green.
Overall, while the core steps of bond issuance remain similar, the additional emphasis on environmental sustainability, transparency, and accountability sets green bonds apart from traditional bonds.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-issuance-process-of-green-bonds-differ-from-regular-bonds/
