Green Bond Principles

The International Capital Markets Association (ICMA) created the Green Bond Principles (GBP) as voluntary process guidelines to support disclosure and promote integrity in the development of the green bond market. They clarify the approach for issuance of a green bond and seek to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.

The four core components for alignment with the GBP are:

1. Use of Proceeds
2. Process for Project Evaluation and Selection
3. Management of Proceeds
4. Reporting

In addition to the latest version of the Green Bond Principles published in June 2021, ICMAS has also developed guidance in a number of related areas such as their Sustainability-Linked Bond Principles and the Climate Transition Finance Handbook, as well as the Social Bond Principles and Sustainability Bond Guidelines also published in 2021.

Why it matters 

• The Green Bond Principles provide a clear process and disclosure recommendations for issuers, which investors, banks, underwriters, arrangers, placement agents, and others may use to understand the characteristics of any given green bond.
• The Green Bond Principles emphasize the required transparency, accuracy and integrity of the information that will be disclosed and reported by issuers to stakeholders through core components and key recommendations

The 2021 edition of the GBP identifies key recommendations regarding green bond frameworks and external reviews alongside the four core components of the GBP. It recommends heightened transparency for issuer-level sustainability strategies and commitments, and encourages information, if relevant, on the degree of alignment of projects with official or market-based taxonomies.

The Green Bond Principles provide high level categories for eligible green projects, based on the ongoing development in the understanding of environmental issues and consequences, while referring when needed to other parties that provide complementary definitions, standards, and taxonomies for determining the environmental sustainability of projects.

Main areas of work related to climate mainstreaming:

The Green Bond Principles published in December 2020 the Climate Transition Finance Handbook, which provides guidance for issuers seeking to utilise green bonds, sustainability bonds or sustainability-linked bonds as part of their climate transition strategy. It provides guidance to capital markets participants on the practices, actions and disclosures to be made available when raising funds in debt markets for climate transition-related purposes, whether through (i) Use of Proceeds instruments, defined as those aligned to the Green and Social Bond Principles or Sustainability Bond Guidelines or, (ii) General Corporate Purpose instruments, aligned to the Sustainability-Linked Bond Principles.

There are four main areas of recommendations:

• Issuer’s climate transition strategy and governance;
• Business model environmental materiality;
• Climate transition strategy to be ‘science-based’ including targets and pathways; and,
• Implementation transparency.