Frequently Asked Questions
- What is a Green Bond?
- How are Green Bonds different than traditional bonds?
- Who can issue green bonds?
- What organizations have issued Green Bonds?
- What do Green Bonds fund?
- What are issuance-sizes for green bonds?
- How can issuing Green Bonds benefit my organization?
- Is additional reporting required?
- What is the first step in issuing?
- Who underwrites Green Bonds?
- Who buys Green Bonds?
- Who is leading the industry?
- What are Green Bond maturities?
- What resources exist for further research?
1. What is a Green Bond?
Green bonds are debt instruments where proceeds are used exclusively to fund qualifying green investments.
The Climate Bonds Standards Board and other key stakeholder are collaborating on establishing a universal definition.
2. How are Green Bonds different than traditional bonds?
Green Bonds are similar or the same as traditional bonds in terms of deal structure, but they have different requirements for reporting, auditing and proceed allocations. These additional requirements also provide marketing and branding value absent from traditional bonds.
3. Who can issue green bonds?
Any organization with bonding authority may issue green bonds.
4. What organizations have issued Green Bonds?
A few examples include:
- The World Bank (who issued the first green bond, 2008)
- The Commonwealth of Massachusetts (the first state to issue green bonds, 2013)
- The City of Johannesburg
- Toyota Financial Services
- The Regency Centers Corporation
- The Environmental Defense Fund
- Export Development Canada
5. What do Green Bonds fund?
According to the Climate Bonds Initiative, eligible projects may generally be classified under Energy, Energy Efficiency, Transport, Water, Waste Management, Land Use or Adaptation Infrastructure. See the Taxonomy of Eligible Goods for further detail.
6. What are issuance-sizes for green bonds?
Historically, issuance size has varied, ranging from $10 million USD up to $1.75 billion.
7. How can issuing Green Bonds benefit my organization?
Green Bonds offer several benefits:
- Access to capital for sustainability-related projects
- such projects produce environmental and economic benefits
- help transition the economy away from fossil fuels
- New investors
- Positive publicity
- Leadership and branding opportunity
8. Is additional reporting required?
Issuers report on both use of proceeds and the impact achieved. However, specific reporting requirements are under development and currently non-standard. A coalition of several organizations including leading issuers and buyers are working together to establish reporting procedures. Anticipated reporting standards include third party review by an auditor of the sustainability of qualifying projects, and annual reporting on a universal template. In the interim before these rules are put in place, early issuers have flexibility as to how they report the projects financed by the bonds. The State of Massachusetts, for example, voluntarily provided a guide explaining the projects financed by the bonds.
9. What is the first step in issuing?
The first step in issuing is sourcing potential green projects that require funding to determine the size of issuance.
10. Who underwrites Green Bonds?
Although these bonds may be structured by typical underwriters, leading investment banks to date include SEB, Bank of America / Merrill Lynch, Morgan Stanley, Credit Agricole, Deutsche Bank, Rabobank and JP Morgan, though this list is expanding rapidly.
11. Who buys Green Bonds?
Green Bond purchasers are typically institutional investors, often with either an ESG (environment, social and governance) mandate or an environmental focus. Other buyers include investment managers, governments and corporate investors. In the case of Massachusetts, retail investors were able to put in small orders.
12. Who is leading the industry?
The Climate Bond Initiative is the first NGO in this space. Another important NGO is Ceres, which has coordinated much of the private sector involvement around green bonds. Thirdly, a growing coalition of banks have teamed to help accelerate the green bond market.
13. What are Green Bond maturities?
Terms are similar to those of traditional bonds, ranging from 3-25 years with a focus toward medium term bonds.
14. What resources exist for further research?
- CERES Green Bond Principles
- Climate Bonds: Bonds and Climate Change: The State of the Market in 2013
- EMMA: Electronic Municipal Market Access
- Green Cities Coalition
- MSRB.Org: Municipal Securities Rulemaking Board
- TD Economics Special Report: Green Bonds: Victory Bonds for the Environment
- World Bank Fact Sheet