Green Bonds | Practical Law

Green Bonds | Practical Law

Green Bonds

Green Bonds

Practical Law Glossary Item 0-591-6765 (Approx. 3 pages)

Glossary

Green Bonds

Fixed income, liquid financial instruments that are sold by issuers to raise funds for environmentally friendly projects or investments. These include:
  • Renewable energy projects (for example, solar and wind).
  • Energy efficiency projects (including energy efficient or green buildings).
  • Sustainable waste management projects.
  • Sustainable land use projects (including sustainable forestry and agriculture).
  • Biodiversity conservation projects.
  • Clean transportation projects.
  • Clean water projects.
  • Drinking water projects.
There are four categories of green bonds:
  • Project Bonds. These are debt securities that are issued to finance the construction of a single asset, a portfolio of projects, or to refinance bank debt. These bonds are primarily repaid from the revenues generated by the asset or portfolio of projects.
  • Revenue Bonds. These are non-recourse debt securities that are repaid with the proceeds of cash flows that have been pledged to the bondholders. The proceeds of these bonds may be used for related or unrelated green projects.
  • Use of Proceeds Bonds. These are traditional senior debt securities that are full recourse to the issuer and that have special use of proceeds provisions. These bond proceeds are earmarked for environmentally friendly projects or investments.
  • Asset-Backed Bonds. These are securities that are collateralized by one or more specific projects. These bonds cover, for example, asset-backed securitizations of rooftop solar photovoltaic or energy efficiency assets.
These bonds are subject to a voluntary set of principles (the Green Bond Principles (GBPs)) that were established by a group of financial institutions. The GBPs:
  • Provide issuers the guidance on the key components involved in launching a credible green bond.
  • Aid investors by ensuring the availability of information necessary to evaluate the environmental impact of their green bond investments.
  • Assist underwriters by moving the market towards standardized disclosures which will facilitate transactions.
For more information on green bonds, see Practice Notes: