To be considered valid by the Climate Bonds Initiative (CBI), external review documents must meet specific criteria that ensure they provide credible and robust assessments of a bond’s environmental claims. Here are the key requirements:
Types of External Reviews
- Third Party Assurance: This involves assurance reports stating that the green issuance aligns with established frameworks such as the Green Bond Principles (GBP) or Green Loan Principles (GLP). These reviews are typically performed by audit firms or professional service providers.
- Second Party Opinion (SPO): SPOs assess the issuer’s green bond framework and evaluate the “greenness” of the eligible projects or assets. They may also include a qualitative sustainability rating. Various ESG service providers and environmental consultants provide these assessments.
- Green Bond Rating: Rating agencies evaluate the bond’s compliance with the GBP and the integrity of its green credentials through ratings.
- Pre-issuance Verification: This confirmation, conducted against the Climate Bonds Standard, ensures that the use of proceeds adheres to the required sector-specific criteria.
- Post-issuance Reports: These include both assurance reports on the allocation of proceeds to eligible projects and impact reporting that quantifies the climate or environmental impact of the funded initiatives. They verify that the funds were allocated correctly and that the projects deliver the intended environmental benefits.
Key Criteria for Validity
- Alignment with Climate Bonds Taxonomy: The projects financed must align with the CBI’s Climate Bonds Taxonomy, which specifies the sectors and types of activities that can be considered green, contributing to climate mitigation or adaptation efforts.
- Transparency and Public Disclosure: Issuers must provide sufficient public information that allows stakeholders to evaluate whether the financed assets are genuinely green. This includes details such as the amount issued and the specific projects financed.
- Use of Proceeds (UoP): The proceeds from the bond must be allocated to eligible projects that meet predefined environmental criteria. Any significant diversion of funds for unrelated corporate purposes could lead to exclusion from validation.
- Independent Verification: External reviews must be conducted by independent verifiers approved by the CBI, ensuring an objective assessment of the bond’s environmental claims.
- Rigorous Development Process: The criteria themselves are developed through a multi-stakeholder process involving expert evaluations and public consultations, ensuring they remain relevant and robust against evolving environmental standards.
By fulfilling these criteria, external review documents contribute to maintaining a high standard of credibility in the green bond market, supporting transparency and accountability in financing environmentally beneficial projects.
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