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Green bond

Category — ESG
Green bonds are debt securities issued to raise investments in projects aimed at improving the environmental situation or at least minimizing environmental damage. Proceeds from the bonds placement are used to implement green projects, which should be properly described in the issue documentation. All of these green projects must bring environmental benefits to be assessed by the issuer with regard to qualitative and, if possible, quantitative aspects.

The green bond principles explicitly provide for several general categories of admissible green projects that contribute to environmental objectives such as climate change mitigation, adaptation to climate change, natural resource conservation, biodiversity conservation, as well as pollution prevention and control. The main reason for issuing this type of bonds is the global trend to preserve the environment and reduce human impact on it.

The net proceeds from green bond placement or the amount equal to these net proceeds must be credited to a separate account, formed into a separate portfolio or otherwise separately accounted for by the issuer. The accounting method shall be fixed by the issuer as a separate internal procedure related to credit and investment operations in respect of green projects.

Types of Green Bonds:
• Direct issue bonds;
• Securitized bonds. Prior to their issue, pledged assets are aggregated, providing a guarantee for future bond payments.

Sub-Types of Direct Issue Bonds:
• State (municipal) general obligation bonds and general obligation bonds issued by international banks and financial organizations; they provide for payments on obligations and maturity usual for this type of bonds
• Corporate general obligation bonds; these are issued to finance an oranisation’s own "green" projects. Corporations guarantee payment on bonds with their balances
• Project bonds; payments are guaranteed by the cash flow of the infrastructure project and by banks and subnational authorities if they provide such guarantees
• Income bonds; payments are made at the expense of sale of goods and services produced as a result of project implementation

Sub-Types of Securitized Green Bonds:
• Bonds are secured by a separate pool of assets; payments are guaranteed by the cash flow of the project
• Covered bonds; payments are guaranteed by the project cash flow. They are secured by assets retained on the issuer’s balance sheet
Terms from the same category