The key components of a Green Bond Framework are based on the Green Bond Principles (GBP), which provide guidance to issuers on aligning their Green Bond issuance with best practices. Here are the four core components that make up a Green Bond Framework:
- Use of Proceeds:
- This component specifies that the proceeds from a Green Bond must be used exclusively to finance or refinance projects with clear environmental benefits.
- Eligible projects typically fall within categories like renewable energy, energy efficiency, pollution prevention, sustainable management of resources, biodiversity conservation, and climate change adaptation.
- Process for Project Evaluation and Selection:
- Issuers are required to clearly communicate the environmental sustainability of their projects and the process used to evaluate and select these projects.
- This process should include transparency on how environmental objectives are met and how potential environmental or social risks are managed.
- Management of Proceeds:
- Issuers must manage the proceeds from Green Bonds in a transparent manner, often using a separate account or sub-account or a formal internal process linked to lending or investment for green projects.
- The goal is to ensure that funds are accurately tracked and used only for eligible projects.
- Reporting:
- Regular reporting is essential to provide stakeholders with updates on the allocation of Green Bond proceeds and the environmental impact of the funded projects.
- Reporting often includes quantitative performance measures and may be guided by the Harmonised Framework for Impact Reporting.
These components are essential for maintaining the credibility and transparency of Green Bond issuances. A Green Bond Framework document will typically outline these components, ensuring alignment with the Green Bond Principles and providing necessary information to investors and market participants.
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