External reviews play a crucial role in the green bond issuance process by enhancing credibility, transparency, and the overall integrity of green bonds. Here are key aspects of their role:
Types of External Reviews
- Second Party Opinion (SPO): Provided by entities with environmental and social expertise, SPOs assess the environmental and social benefits, alignment with international green bond frameworks, and evaluate potential environmental risks associated with projects financed by the bond.
- Third Party Assurance: This involves assurance reports confirming the alignment of the green issuance with reputable international frameworks, often conducted by accounting or audit firms.
- Certification: Certification, such as the Climate Bonds Certification, verifies that the bond adheres to specific green criteria and standards, ensuring compliance with the Paris Agreement.
Functions and Benefits
- Transparency and Credibility: External reviews increase transparency and credibility by providing independent validation that the bond proceeds are used for environmentally beneficial projects. This helps alleviate greenwashing concerns.
- Compliance with Standards: Reviews ensure that green bonds align with established guidelines like the Green Bond Principles (GBP) and Climate Bonds Standards, promoting consistency across the market.
- Investor Confidence: By providing a clear assessment of the bond’s green credentials, external reviews can enhance investor confidence, potentially leading to better financial terms for issuers.
- Regulatory Compliance: Depending on jurisdictions, obtaining an external review might be mandatory to label a bond as “green,” ensuring compliance with local or regional regulations.
Disclosure and Timelines
- Public Disclosure: External review reports are typically made publicly available on the issuer’s website or through other accessible channels, promoting transparency.
- Pre- and Post-Issuance Reviews: Best practices include conducting reviews both before and after the bond issuance to ensure the use of proceeds aligns with green objectives.
In summary, external reviews are essential for maintaining the integrity and credibility of green bonds by ensuring alignment with international standards and providing transparency to stakeholders.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-role-do-external-reviews-play-in-the-green-bond-issuance-process/
