ASIANDEVELOPMENTBANKDETAILEDGUIDANCEFORISSUINGGREENBONDSINDEVELOPINGCOUNTRIESDECEMBER2021ASIANDEVELOPMENTBANKDETAILEDGUIDANCEFORISSUINGGREENBONDSINDEVELOPINGCOUNTRIESDECEMBER2021CreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)©2021AsianDevelopmentBank6ADBAvenue,MandaluyongCity,1550MetroManila,PhilippinesTel+63286324444;Fax+63286362444www.adb.orgSomerightsreserved.Publishedin2021.ISBN978-92-9269-284-1(print);978-92-9269-285-8(electronic);978-92-9269-286-5(ebook)PublicationStockNo.TIM210521-2DOI:http://dx.doi.org/10.22617/TIM210521-2TheviewsexpressedinthispublicationarethoseoftheauthorsanddonotnecessarilyreflecttheviewsandpoliciesoftheAsianDevelopmentBank(ADB)oritsBoardofGovernorsorthegovernmentstheyrepresent.ADBdoesnotguaranteetheaccuracyofthedataincludedinthispublicationandacceptsnoresponsibilityforanyconsequenceoftheiruse.ThementionofspecificcompaniesorproductsofmanufacturersdoesnotimplythattheyareendorsedorrecommendedbyADBinpreferencetoothersofasimilarnaturethatarenotmentioned.Bymakinganydesignationoforreferencetoaparticularterritoryorgeographicarea,orbyusingtheterm“economy”inthisdocument,ADBdoesnotintendtomakeanyjudgmentsastothelegalorotherstatusofanyterritoryorarea.ThisworkisavailableundertheCreativeCommonsAttribution3.0IGOlicense(CCBY3.0IGO)https://creativecommons.org/licenses/by/3.0/igo/.Byusingthecontentofthispublication,youagreetobeboundbythetermsofthislicense.Forattribution,translations,adaptations,andpermissions,pleasereadtheprovisionsandtermsofuseathttps://www.adb.org/terms-use#openaccess.ThisCClicensedoesnotapplytonon-ADBcopyrightmaterialsinthispublication.Ifthematerialisattributedtoanothersource,pleasecontactthecopyrightownerorpublisherofthatsourceforpermissiontoreproduceit.ADBcannotbeheldliableforanyclaimsthatariseasaresultofyouruseofthematerial.Pleasecontactpubsmarketing@adb.orgifyouhavequestionsorcommentswithrespecttocontent,orifyouwishtoobtaincopyrightpermissionforyourintendedusethatdoesnotfallwithintheseterms,orforpermissiontousetheADBlogo.CorrigendatoADBpublicationsmaybefoundathttp://www.adb.org/publications/corrigenda.Notes:Inthispublication,“$”referstoUnitedStatesdollars.ADBrecognizes“HongKong”asHongKong,China;“Korea”astheRepublicofKorea;and“Hanoi”asHaNoi.CoverdesignbyJasperLauzon.ContentsTable,Figures,andBoxesvAcknowledgmentsviAbbreviationsviiIntroduction1AboutThisGuidanceNote3OutlineoftheLabelingProcess3TwoParallelTracks4TheFirstTimeIsChallengingbutWorthIt4IdentifyingGreenProjects,Assets,andExpenditures6SelectinganAppropriateSetofGreenDefinitions6CreatingtheList8TrackingandInformationFlows9ManagingtheGreenPortfolioOverTime9DevelopingaGreenBondorSustainableFinanceFramework10ExpectedContents10ClarityoftheIssuer’sNarrative10FlexibilityandUpdating11LeveragingSuccessfulExamples12ConfirmingInternalProcessesandControls13LeveragingExistingArrangements13CreatingNewGroupsandConversations13DocumentationofProcedures14Decision-Making,Disclosure,andGovernance15ReportingonAllocationsandGreenCredentials16SatisfyingGreenEligibilityRequirements16InvestorandMarketExpectations18ReportingFormatsandChannels18ivDetailedGuidanceforIssuingGreenBondsinDevelopingCountriesSettingUpforImpactReporting19Input–Output–Outcome–ImpactFrameworks19ExamplesofImpactIndicators19ExPostversusExAnteReporting21DataandSystems21EngagingtheExternalReviewer22ScopingOutWhatYouNeed22EngagementContracts22Pre-IssuanceandPost-IssuanceAssessments24PricingandTimingExpectations25ManagingtheExternalReviewProcess26SharingInformationwiththeExternalReviewer26ExternalReviewProcedures26DraftReportsandClose-OutProcesses27FormandUseofFinalReports27SeekingCertificationorRecognition28InvestorandMarketExpectations28InternationalversusRegionalversusNationalApproaches29PathwaysforRecognition30KeyDecisionPoints31Media,Stakeholders,Indices,andListings32BuildingMomentum32MediaFormatsandChannels32IndexInclusion33ListingPlatforms34Post-IssuanceReportingandDisclosure35ReportingFormatsandChannels37FurtherIssuanceofLabeledInstruments38StrongInvestorAppetite38Green,Social,andSustainablePortfolios38TrackingtheStacks39EfficienciesandTransactionCosts39Table,Figures,andBoxesTableUnitedNationsSustainableStockExchangeInitiativeMembersamongASEAN+3StockExchanges34Figures1IssuanceofASEAN-LabeledBondsbyCountry(USDMillion)12IssuanceofASEAN-LabeledBondsbyCategory(USDMillion)13LabelingProcess34Projects,Assets,andExpendituresEligibleforInclusioninaGreenBond65GreenDefinitions76CreatingtheListofGreenProjectsandAssets87RequiredComponentsofaGreenBondFramework118KeyAspectsoftheSelectionProcessforGreenBondIssuance149TwoApproachestotheAllocationofProceeds1710ExamplesofGreenDefinitions1711Input–Output–Outcome–ImpactFrameworks2012ExamplesofImpactIndicators2013TheFourTypesofExternalReview2314KeyConsiderationsforExternalReview2515Pre-IssuanceExternalReviewProcess2716VariousApproachesAroundtheWorldandatDifferentLevelsofCoverage2917CaseStudiesforSelectingPathwaysforRecognition3018AllocationReporting3519EligibilityReporting3620ImpactReporting3621DifferentApproachestoTrackingGreenBondsandGreenProjects39Boxes1ExperienceofBTSGroupHoldingsPCL,aregulargreenbondissuerfromThailand52ExperienceofPublicDebtManagementOffice,MinistryofFinance,Thailand283SolactiveGreenBondIndex33AcknowledgmentsTheAsianDevelopmentBank(ADB)iscollaboratingcloselywiththeAssociationofSoutheastAsianNations(ASEAN),thePeople’sRepublicofChina,Japan,andtheRepublicofKorea—collectivelyknownasASEAN+3—topromotethedevelopmentoflocalcurrencybondmarketsandregionalbondmarketintegrationthroughtheAsianBondMarketsInitiative(ABMI).ABMIwasestablishedin2002tobolstertheregionalfinancialsystem’sresiliencebydevelopinglocalcurrencybondmarketsasanalternativesourcetoforeigncurrency-denominated,short-termbankloansforlong-terminvestmentfinancing.DetailedGuidanceforIssuingGreenBondswasdevelopedinaccordancewiththeABMIMedium-TermRoadMap,2019–2022,whichwasendorsedatthe22ndASEAN+3FinanceMinistersandCentralBankGovernorsMeetingin2018.TheroadmapcalledforincreasedsupportforthedevelopmentofthegreenbondmarketforinfrastructureinvestmentinASEAN+3.ThisreportwasundertakenthroughADBtechnicalassistanceonCreatingEcosystemsforGreenLocalCurrencyBondsforInfrastructureDevelopmentinASEAN+3andfinanciallysupportedbytheGovernmentofthePeople’sRepublicofChina.ThisguidancenotewaspreparedbyRobFowlerunderthedirectionofKosintrPuongsophol,financialsectorspecialist,EconomicResearchandRegionalCooperationDepartment(ERCD).Specialthankstothefollowingstafffortheiradviceandcomments:SatoruYamadera,advisor,ERCD;ShuTian,economist,ERCD;RichardSupangan,senioreconomicsofficer,ERCD;OthMarulouM.Gagni,senioroperationsassistant,ERCD;AlitaLestorandYvonneOsonia,ADBconsultants.ABMIAsianBondMarketsInitiativeADBAsianDevelopmentBankASEANAssociationofSoutheastAsianNationsASEAN+3ASEANplusthePeople’sRepublicofChina,Japan,andtheRepublicofKoreaCBIClimateBondsInitiativeESGenvironmental,social,andgovernanceEUEuropeanUnionGHGgreenhousegasPRCPeople’sRepublicofChinaAbbreviationsThegreenbondmarketinASEAN+3hasexpandedtremendouslyinrecentyears.1ThePeople’sRepublicofChina(PRC)hasthelargestgreenbondmarketinASEAN+3andishometooneoftheworld’slargestmarkets.GreenbondsissuedbyPRC-basedissuerstotaledmorethan$22billioninthefirsthalfof2021,withnearly100transactions,followedbytheRepublicofKoreaandJapan.2Simultaneously,ASEANmembershavemadesignificantprogressindevelopingdomesticsustainablecapitalmarkets.NumerousinitiativeshavealreadybeenimplementedbyASEANgovernments,includingtheadoptionoftheASEANGreen,Social,andSustainabilityBondStandards,aswellasothersignificantinitiativessuchastheadoptionoftheASEANCapitalMarketsForum’s(ACMF)strategicdirectionsfordevelopingASEANsustainablecapitalmarketsandtheASEANTaxonomyforSustainableFinance.SincetheintroductionofASEANGreen,Social,andSustainabilityBondStandardsbytheACMFin2017,green,social,andsustainabilitybondissuance—allofwhichhasbeenbasedonause-of-proceedsapproach—hasgrownrapidlyamongASEANissuersastheyseekdirectfinancingtofundinvestmentsinresponsetolong-termenvironmentalandsocialchallenges.AsofSeptember2021,thecumulativevalueofASEAN-labeledgreen,social,andsustainabilitybondshadreached$16.4billion(Figures1and2).31ASEAN+3comprisesthemembersoftheAssociationofSoutheastAsianNations(ASEAN)plusJapan,thePeople’sRepublicofChina,andtheRepublicofKorea.2ClimateBondsInitiative.2021.SustainableDebtMarketH12021.https://www.climatebonds.ent/files/bi_susdebtsum_h12021_02b.pdf.3SecuritiesandExchangeCommission,Philippines.SustainableFinanceMarketUpdate.https://www.sec.gov.ph/investors-education-and-information/sustainable-finance-market-update/.Figure1:IssuanceofASEAN-LabeledBondsbyCountry(USDmillion),,,,,,,MalaysiaPhilippinesSingaporeThailandFigure2:IssuanceofASEAN-LabeledBondsbyCategory(USDmillion),,,,,,,GreenSocialSustainabilitySources:SecuritiesandExchangeCommission,Philippines;andAssociationofSoutheastAsianNations(ASEAN)CapitalMarketsForum.Introduction2DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesBuildingonthisrecentgrowth,ASEANhassignificantopportunitiestoexpanditssustainablefinancemarkets,aswellasforprivatesectorissuerstoincorporateenvironmental,social,andgovernance(ESG)considerationsintotheiroperations.Itisalsocriticaltosimultaneouslystrengthenthecapacityofcapitalmarketintermediariestoexpandthepooloftalentinthisarea.Asaresult,theAsianDevelopmentBank(ADB)haspreparedthisguidancenotetoassistcorporatebondissuersandtheiradvisorstounderstandtheprocessandkeyconsiderationsforasuccessfulgreenbondissuance.AboutThisGuidanceNoteThisdetailedguidancenotewascreatedtoassistbondissuersandtheiradvisorstounderstandtheprocessandkeyconsiderationsforasuccessfulgreenbondissuance.Demandforgreenbondsandothersustainablefinanceproductsisincreasingrapidly.Issuersareseeinganopportunitytobepartofthegreenbondmarket,butareoftennotsureabouthowitworks,whattheyneedtodo,andthekeydecisionstobemadealongtheway.Theguidancenotecoversallofthestepsrequiredtofollowbestpracticesinlabelingbondsasgreen.Thesectionsoneachstepincluderelevantexamples,linkstofurtherdetails,andkeyresourcesforgreenbondissuersandtheirdealteams(Figure3).OutlineoftheLabelingProcessThereisoftenconfusionamongissuersandadvisorsonthedifferencesbetweenasustainabilitybondandasustainability-linkedbond.Itisimportanttoclarifytheuse-of-proceedsmodelcomparedtosustainability-linkedarrangements,asthisguidancenoteonlycoverstheuse-of-proceedsmodel.Therearecurrentlytwomajorapproachestoidentifyingbondsanddebtinstrumentsashavingpositivegreenorsustainabilityvalue.Greenbonds,climatebonds,socialbonds,andsustainabilitybondsallrelyontheuse-of-proceedsapproach.Thisisthemostcommonapproachusedbybondissuers.Itidentifiesspecificgreenprojects,assets,andexpendituresthatareassociatedwiththegreenbond.Figure3:LabelingProcessIdentifyingGreenProjectsandAssetsAboutthisGuidanceNoteManagingtheExternalReviewProcessSeekingCertificationorRecognitionMedia,Stakeholders,Indices,andListingsPost-IssuanceReportingandDisclosureFurtherIssuanceofLabeledInstrumentsConfirmingInternalProcessesandControlsReportingonAllocationsandGreenCredentialsSettingUpforImpactReportingEngagingtheExternalReviewerDevelopingaGreenBondorSustainableFinanceFrameworkSource:Authors’Illustration.4DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesRecently,therehasbeenasurgeinthealternativeapproach,whichlinkssustainabilityoutcomesforthebondissuertotheamountofinterest(couponrate)thatispaidtoinvestors.Thisusuallyinvolvesastep-uporstep-downincouponratestriggeredbytheachievement(ornot)ofspecificsustainabilitytargets.1.Use-of-proceedsapproach.PertheGreenBondPrinciples,thisrefersto“anytypeofbondinstrumentwheretheproceedswillbeexclusivelyappliedtofinanceorre-finance,inpartorinfull,newand/orexistingeligiblegreenprojects,assets,andexpenditures,andwhicharealignedwiththefourcorecomponentsoftheGreenBondPrinciples.”2.Sustainability-linkedapproach.PertheSustainability-LinkedBondPrinciples,thisrefersto“anytypeofbondinstrumentforwhichthefinancialand/orstructuralcharacteristicscanvarydependingonwhethertheissuerachievespredefinedsustainabilityor(environmental,social,orgovernance)objectives.Inthatsense,issuersaretherebycommittingexplicitly(includinginthebonddocumentation)tofutureimprovementsinsustainabilityoutcome(s)withinapredefinedtimeline.Sustainability-linkedbondsareaforward-looking,performance-basedinstrumentandarealignedwiththeSustainability-LinkedBondPrinciples.”TwoParallelTracksTherearetwotracksofworktoconsiderwhenlabelingabond,loan,orsukuk(Islamicbond)as“green.”Thesetwotracksareequallyimportanttoinvestorswhentheyareconsideringthelabeledinvestment.Thefirsttrackisfortheeligibilityoftheprojects,assets,andexpenditures.Thisinvolvestheissuerdemonstratingthattheprojects,assets,andexpendituresassociatedwiththegreenbondarealignedwithasetofgreendefinitions,ora“taxonomy.”Selectingwhichtaxonomytouse,orwhennottouseone,isdescribedinIdentifyingGreenProjects,Assets,andExpenditures.Thesecondtrackisfortheintegrityoftheissuer’sinternalsystemsandcontrolswhenitcomestotheprocessesinvolvedinlabelingabond.Thisincludesproceduresandgovernanceforselectinggreenprojects,assets,andexpenditures;managementofthebondproceeds;andregularreportinganddisclosureinlinewiththeissuer’sGreenBondFramework.Theguidancenotehighlightsbestpracticesforbothoftheabovementionedtracks.Issuerscanachievebestpracticesinthesecondtrackofwork,nomatterwhichgreendefinitionsareused.Theseinternalsystemsandcontrolscansupportabroadrangeoflabelingactivitiesforanissuer(e.g.,green,social,orsustainable).TheFirstTimeIsChallengingbutWorthItIssuersofgreenbondshavedescribedtheextraeffortrequiredforlabelingasbeingsignificantforthefirstlabeledtransactionbutmuchlesssoforfutureactivities.SubsequentgreentransactionsusethesameGreenBondFramework,internalprocesses,andcontrolsandtrackingofproceedsasforthefirstgreentransaction,soitismucheasierandfastercomparedtothefirsttime(Box1).Treasurersfromgreenbondissuershavedescribedtheirstrongintentiontoissuefurthergreenandlabeleddebtinstruments,eventhoughtherewasextraeffortrequiredtolabelthefirsttransaction.AboutThisGuidanceNote5Therearesubstantialbenefitsforgreenbondissuersiftheycanbethefirsttoissueagreenbondinaparticularjurisdictionoranewsector,orbyusinganewstructure.Thisamplifiesthepotentialforthegreenbondtoprovidepositivemomentumfortheissuer’ssustainabilitycredentials.Box1:ExperienceofBTSGroupHoldingsPCL,aregulargreenbondissuerfromThailandBTSGroup’ssecondseriesofgreenbondsissuedinNovember2020with3.3xoversubscriptionindicatedinvestors’confidenceandgoodwilltowardsthecompanyandourgreenprojects.Onthebackofstrongdemand,BTSGroupdecidedtoexercisetheTHB3,600milliongreenshoeoption,bringingthetotalissuesizetoTHB8,600million.Theproceedswillbeusedtofundtwonewmonorailprojects(Pinkline:34.5kilometers,Yellowline:30.5kilometers)inBangkok,whicharetargetedtooperateduring2021–2022.BothareanchoredprojectsthatwillelevateBangkok’selectricmasstransitnetworkthatwilllessentheuseoffossil-fueledvehicles,resultinginthereductionofcarbonemissionsandfinedustparticlesintheBangkokmetropolitanarea.Itisestimatedthatbothprojectswillhelpreducecarbondioxideemissionsby28,000tonsperyearandwillplayanimportantroleinbringingcleanerairqualitytothecity.AlthoughissuingagreenbondrequiredadditionalworkandresourcestocomplywithourGreenBondFramework,wefeltitistrulyworthwhile.Itisalsoworthmentioningthatsincethisisoursecondissuance,ourteamhadquiteasteeplearningcurveandwasabletoworkmuchfaster.Source:SurayutThavikulwat,ChiefFinancialOfficer,BTSGroupHoldingsPCL.IdentifyingGreenProjects,Assets,andExpendituresTheinitialstepforabondissuerlookingtousethegreenlabelforthefirsttimeistoidentifywhattheycanincludeintheirgreenbond.Themostcommonapproachistoidentifyhardassetsthathavegreencredentials,butthereisactuallyalotofflexibilityintermsofwhatcanbecountedasagreenproject,asset,investment,orexpenditure.Avarietyofprojects,assets,activities,refinancing,newcapital,andrelevantexpendituresarealleligibletobeassociatedwithagreenbond.Thetypesofprojects,assets,andexpendituresthatcanbeincludedinagreenbondinclude(i)ownedprojectsandassets,(ii)financingarrangementsforprojectsandassets,and(iii)relatedsupportingexpenditures(Figure4).SelectinganAppropriateSetofGreenDefinitionsOncetheunderlyingprojects,assets,andexpendituresareidentified,greenbondissuersneedtodeterminewhichsetofgreendefinitionsisgoingtobeusedfortheirselectionofgreenprojectsandassets.Thereareafewoptionsavailable,anditisimportanttounderstandthekeyconsiderationsforthisimportantchoice.Manyinthegreenbondmarkethaveadoptedtheword“taxonomy”todescribeasetofgreendefinitions(Figure5).Figure4:Projects,Assets,andExpendituresEligibleforInclusioninaGreenBondFinancingArrangementsforProjectsandAssets•Capitalexpenditureundertakentoincreasethevalueand/orlifetimeofthephysicalassetsorprojects•Acquisitioncostsorpurchasepriceforanentity(e.g.,company,divisionorsimilar)•Longleaseholdsonland,buildings,andinfrastructure;orleasingstructuresresultinginright-of-useassetsandliabilities•Loansandmortgages•Subsidies,taxesandotherincentives,creditschemesandgrants,andothersimilararrangementsprovidedbypublicentitiesoragencies,includinglocalandnationalgovernmentsRelatedandSupportingExpenditures•Relevantinstallationandroutinemaintenanceexpenditureandupgradesundertakentomaintainthevalueand/orlifetimeoftheasset•Relevantperformancemonitoringcostswithrespecttotrackingclimatecredentials(e.g.,GHGemissions)andclimateinformationservices•Relevantresearchanddevelopment,training,andprogramimplementationcostsandexpendituresOwnedProjectsandAssets•Physicalassets:Existingandoperationalequipment,machinery,infrastructure,buildings,orland•Projects:Equipment,machinery,infrastructure,and/orbuildingsinconstruction,redevelopment,(e.g.,upgrades,expansion);andsimilarasset-valuecreationorenhancementactivityGHG=greenhousegas.Source:ClimateBondsStandardversion3.0.IdentifyingGreenProjects,Assets,andExpenditures7Figure5:GreenDefinitionsCURRENTOPTIONSFORGREENDEFINITIONSKEYCONSIDERATIONSFORCHOOSINGASETOFGREENDEFINITIONSGREENBONDPRINCIPLESHIGHLEVELLISToVerybroadrangeofhigh-levelcategoriesforgreenprojectsandassetsoSeenastheminimumlevelofgreenambitionoFurtherexplanationofgreencredentialsisusuallyincludedbyissuersASEANGREENBONDSTANDARDoAdoptedinandupdatedinbytheASEANCapitalMarketsForumoUseshigh-levellistfromGreenBondPrinciplesoAdditionalconditionthatfossilfuelpowergenerationprojectsmustbeexcludedoIssuersmusthaveageographicoreconomicconnectiontoASEANNATIONALORREGIONALTAXONOMIESORGUIDELINES(e.g.,Japan,Indonesia,thePRC)oThePRChasaGreenProjectCatalogue(updatedin).oJapanhasGreenBondGuidelines(updatedin).oOtherASEANcountriesarelookingtodeveloplocallyrelevanttaxonomies.CLIMATEBONDSINITIATIVETAXONOMYoMostcommonlyusedinternationalsetofdefinitionswithafocusonclimateoUsedbymostgreenbondindexprovidersandadoptedbysomeexternalreviewersoAlsohassector-specificcriteriathatareusedforcertificationundertheClimateBondsStandardEUROPEANUNION’SSUSTAINABLEFINANCETAXONOMYoVerycomplexapproachwithadditionalchecksbeyondjustgreencredentialsoWillbeexpandedbeyondclimateissuestodealwithothersustainabilitytopicsoMaybenecessaryforgreenbondissuerstoclarifyalignmentiftheyarelookingtoissuetheirbondinanEUjurisdictionorattractinvestorsfromtheEULegend:MinimumlevelComplexlevelLABELINGREQUIREMENTSINTHEJURISDICTIONWHERETHEISSUANCEWILLOCCURoSomejurisdictionsrequireissuersoflabeledbondstofollowveryspecificregulationsandapprovalpathways(e.g.,thePRC).oOtherjurisdictionshavevoluntaryguidelinesthataddtoinvestorconfidence.MARKETSANDINVESTORSBEINGTARGETEDFORTHEBONDISSUANCEoIftheissueristargetinglocalinvestor,thenlocaldefinitionsareusuallyenough.oForinternationalinvestors,itmaybenecessarytouseinternationaldefinitions.LOCATIONSOFTHEGREENPROJECTSANDASSETSoTherelevantjurisdictionsmayhavespecificgreendefinitionsthatneedtobeused.oDefinitionsusedinadvancedeconomiesmaynotberelevantforothermarkets,especiallyemergingmarketsinAsia.TYPESOFGREENPROJECTSANDASSETSAVAILABLETOTHEGREENBONDISSUERoGreenprojectsandassetscanusedefinitionswithmoregreenambition.oSomesectorsorsubsectorsarenotcoveredbyexistingtaxonomies.INVESTORANDMARKETPERSPECTIVESONTHELEVELOFAMBITIONOFGREENDEFINITIONSoSomeinvestorsareconcernedthatdefinitionswithlowambitionareriskierfromagreenwashingperspective.oMostinvestorsarecomfortablewiththeGreenBondPrinciples’high-levellistwithextraexclusionsforfossilfuelsectors.ASEAN=AssociationofSoutheastAsianNations,EU=EuropeanUnion,PRC=People’sRepublicofChina.Source:Authors’compilation.8DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesInvestorswanttoseethedetailsofthegreenprojectsandassetsassociatedwiththebond,buttheyoftendonothavethetechnicalbackgroundtojudgetheirmerits.Externalreviewsofgreenbondscanprovideinvestorswithconfidencebasedonanumberofdifferentproprietaryapproachesandreassuringnarrativesongreencredentials.CreatingtheListOncetheissuerhasconsideredthetypesofassets,investments,andexpendituresthatcanbeused—andselectedanappropriatesetofgreendefinitions—alistofgreenprojectsandassetscanbecreatedbytheissuer(Figure6).Thesedocumentsandproceduresshouldalignwithexistingprocessesandgovernancestructuresinsidetheissuer’sorganization.Manyexistingstructuresfordecision-makingandtrackingovertimecanbeused.Thiswillminimizethenumberofnewinternalproceduresandprocessesthatneedtobecreatedbytheissuer.Issuersshouldseektoclarifyanyrelatedeligibilityandexclusioncriteria,aswellasanyotherpoliciesorprocessesbywhichtheissueridentifiesandmanagesperceivedsocialandenvironmentalrisksassociatedwiththeselectedprojectsandassets.Usefullinks•GreenBondPrinciples•ASEANGreenBondStandards•ClimateBondsTaxonomy•ASEANTaxonomyforSustainableFinance•ThePRC’sGreenProjectCatalogue(updatedin2020)•Japan’sGreenBondGuidelines•EuropeanUnion’sSustainableFinanceTaxonomy•InternationalPlatformonSustainableFinance’sCommonGroundTaxonomyFigure6:CreatingtheListofGreenProjectsandAssetsCREATINGTHELISTIdentifythegreenprojectsandassetsthatareproposedtobeassociatedwiththegreenbondandthathavebeenassessedaslikelytobeeligible;Theissuerneedstopreparedocumentsandinternalprocedurestodothefollowing:Establishalistofgreenprojectsandassetsthatcanbekeptup-to-dateduringthefulltermofthegreenbond;Establish,document,andmaintainadecision-makingprocesstodeterminetheeligibilityofthegreenprojectsandassetsinthelist;andEstablish,document,andmaintainaprocesstoidentifyandmanagepotentiallymaterialsocialandenvironmentalrisksassociatedwiththeprojects.Source:Authors’compilation.IdentifyingGreenProjects,Assets,andExpenditures9Theissuer’sprocessesshouldseektoensurethattherelevantproject(s)donotcausesignificantharmtootherenvironmentalandsocialobjectives.Theissuershouldalsocommunicateitsanalysis,anymitigationmeasuresenacted,andthemonitoringtobeundertakenincaseswhentheissuerassessesthepotentialriskstobemeaningful.TrackingandInformationFlowsManygreenprojectsandassetswillbeeligiblejustbasedonwhattheyare.Forexample,solarorwindpowerfacilitiesandelectrifiedtransportareall“greenenough”basedontheirroleinafuturegreeneconomy.Othergreenprojects,assets,andexpendituresneedtodemonstratetheireligibilitythroughperformancemeasures.Forexample,greencommercialbuildingsorenergyefficiencyinitiativesneedtobegreenenoughsothattheymakearealcontributiontoachievingafuturegreeneconomy.Buildingsthatareslightlycleanerthantheaverage,orsmallimprovementsinenergyuse,arenotalignedwithwhatinvestorswanttoseeinbondslabeledasgreen.Sometimesthisgreenperformanceinformationisnottracked,oritisnotreadilyavailabletothegreenbondissuer.Forexample,abankwithaloantoacommercialbuildingownermaynotreceiveanygreenperformanceinformationaspartoftheloanarrangements.Issuersneedtoestablishprocessestotracktherelevantinformationfortheirgreenprojectsandassetssothattheycandemonstratetheirgreeneligibilityaswellastherelevantimpactmetrics.Thismaymeanestablishingnewinformationflowswithintheorganizationorbetweenentitiesinvolvedwithgreenprojectsandassets.Issuersneedtoensurethattheinformationflowsfromrelevantsourcestothegroupwithintheissuingentitythatisresponsibleforreportingareestablishedandworkingasintended.Thisisoftenmorecomplexwithinagovernmentorpublicsectorstructurecomparedtocorporations,butitisequallyimportantfortheintegrityofthegreen.ManagingtheGreenPortfolioOverTimeTheuse-of-proceedsapproachrequiresspecificgreenprojectsandassetstobeassociatedwiththegreenbond.However,thegreenprojectsandassetsidentifiedpriortotheissuanceofthebondmaynotbeavailabletotheissuerorlargeenoughforthefulltermofthebond.Additionalgreenprojects,assets,andexpenditurescanbeaddedto—orusedtosubstituteorreplenish—theportfolioofgreenprojects,assets,andexpendituresassociatedwiththegreenbond,aslongastheadditionalprojects,assets,andexpendituresareeligibleundertheissuer’sgreenbondframework.Mostissuersofgreenbondswillregularlyupdatetheirlistofgreenprojects,assets,andexpenditures,andtheneachyeardisclosethechangesintheirregularreportingtobondholders.Issuersofmultiplegreenbondsorotherlabeleddebtinstrumentscanmanagetheirlabelsonaportfoliobasis.Thismeansthatmultiplegreenbondscanbe“stackedup”andassociatedwithalargepoolofgreenprojectsandassets.MoreinformationonthisapproachisprovidedinFurtherIssuanceofLabeledInstruments.DevelopingaGreenBondorSustainableFinanceFrameworkTheissuerofagreenbondneedstohaveaGreenBondFramework,oraSustainableFinanceFramework,thatlaysouttheinformationrequiredtodemonstratetheintegrityofthegreenlabel.ThisinformationisoftenpresentedusingthefourcorecomponentsoftheGreenBondPrinciples:(i)useofproceeds,(ii)selectionofprojectsandassets,(iii)managementofproceeds,and(iv)reportingandexternalreview.Bondissuersareusuallyverylargeorganizations,sothisframeworkwilloftendescribehowtheissuer’sexistingproceduresorgovernancestructuresareusedaswellasanynewproceduresthathavebeencreatedforthepurposeofagreenbondissuance.ExpectedContentsGreenbondframeworkscaneitherbequiteshort(3–5pages)orverylonganddetailed(20+pages).Manyexamplesareavailablefromawidevarietyofissuersfromover50differentcountries.Figure7liststheitemsthatmustbeincludedinanissuer’sframeworkdocument.ClarityoftheIssuer’sNarrativeThestatementsintheobjectivesofthegreenbondandtheissuer’sbroadergreenobjectives(Figure7,itemsa.andb.)areusuallyincludedintheintroductionoroverviewsectionofthegreenbondframework.Awidevarietyofgreenobjectivesarepossible.Thesecanvaryfromincreasingtheinstalledcapacityoflow-carbonassets,suchassolarpowerfacilities,tohavingaspecificobjectivefocusedontheoperationsorindirecteffectsoftheprojectsandassets,suchasemissionsreductions.Thisisaveryimportantaspectofthegreenbondissuanceprocessbecauseitprovidestheissuerwiththeopportunitytodirectlyexplaintoinvestorswhyandhowgreenbondsfitwithintheirlong-termvisionorcorporatestrategy.Manygreenbondsissuershavealreadyarticulatedtheirgreenorsustainabilityobjectivesincorporatesustainabilityreportsorotherstatementsongreentopics.Usingagreenbondtoraisemoneyinthecapitalmarketsusuallycomplementstheissuer’sbroadergreenobjectivesandnarrative.Manygreenbondinvestorsconsidertheissuer’sprofileandtakeintoconsiderationthequalityoftheissuer’soverallprofileandperformanceregardingenvironmentalsustainability.Inthepresenceofcontroversialissues—suchasfossilfuels,extractiveornuclear-basedactivities,orlimitedoverallsustainabilitycredentials—investors,stockexchanges,indexproviders,andothermarketparticipantsmayalsorequireadditionaltransparencyfromthegreenbondissuer.DevelopingaGreenBondorSustainableFinanceFramework11Inparticular,additionaldisclosuremaybesoughtaroundthestrategicimportanceofsustainabilityforthebusiness,demonstrationoftheissuer’stransitionstrategy,and/orthesustainabilitybenefitsoftheunderlyingprojectsthatgobeyondestablishedsectornormsandbusinessasusual.Itisimportantthatgreenbondissuersarereadyforthesediscussions.FlexibilityandUpdatingAgreenbondissuercancreateaframeworkthatisjustfortheissuanceofonegreenbond,ortheycancreateaframeworkforabroaderrangeandnumberofsustainablefinancetransactions.ManyissuershavecreatedanoverarchingGreenBondFramework,oraSustainableFinanceFramework,withthepotentialtoissuegreenbonds,socialbonds,greensukuk,andsustainability-linkedinstruments.Transparencyisthemostimportantpartofthelabelingofbondsandotherdebtinstruments.TheGreenBondFramework(ortheSustainableFinanceFramework)createdbytheissueristhekeychannelforcommunicatingtoinvestorsandotherstakeholdersthebasisandintegrityofthelabel.Itisusedbyexternalreviewersandindexproviders,aswellasawiderangeofmarketparticipants.Figure7:RequiredComponentsofaGreenBondFrameworkGREENBONDFRAMEWORKAAstatementonthegreenobjectivesofthegreenbond;BHowthegreenobjectivesofthegreenbondarepositionedwithinthecontextoftheissuer’soverarchingobjectives,strategy,policyand/orprocessesrelatingtoenvironmentalsustainability;CConfirmationthatthebondsthatwillbeissuedunderthegreenbondframeworkarealignedwithoneormoreestablishedapproachestolabeling.ThismayincludestatementsofalignmentwithapplicablestandardssuchastheGreenBondPrinciples,theAssociationofSoutheastAsianNationsGreenBondStandards,theClimateBondsStandard,orlocalorregionalregulationsorguidelines;FAdescriptionofthedecision-makingprocessthathasbeenusedtoselectthegreenprojectsandassets;DAsummaryofthegreenprojectsandassetsthatwillbeassociatedwiththegreenbondsuchassectorscoveredorgeographicdistribution;Thelistofproposedgreenprojectsandassetsassociatedwiththegreenbond(ifthisisavailableand/orcanbedisclosedpriortoissuanceofthegreenbond);EAsummaryoftheapproachtothemanagementofunallocatedproceedsfromthegreenbondandtheexpectedtimelineforgreenbondproceedstobefullyallocated;GTheintendedapproachtoprovidingupdatereportswhilethegreenbondremainsoutstanding.IAnestimateoftheshareofthegreenbondproceedsthatwillbeusedforfinancingnewgreenprojectsandassetsandtheshareusedforrefinancingexistinggreenprojectsandassets,includingtherelevantgreenprojectsandassetsorinvestmentareasthatmayberefinancedandhowlongsincethosegreenprojectsandassetswereoriginallyfinanced;andHSource:Authors’compilation.12DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesUpdatingtheframeworkshouldoccurwheneverthereisamaterialchange.Thiscanincludeexpandingtherangeofeligibleprojectsandassets,shiftingthefocusfromgreentoabroaderrangeoflabels,orreflectingachangeintheissuer’sorganization.Mostissuerswillnotifyinvestorsandotherstakeholderswhentheirframeworkhasbeenupdated,andtheyoftenusetheopportunitytohighlighttheprogressorambitionoftheissuer.LeveragingSuccessfulExamplesItisveryusefultolookatotherGreenBondFrameworks,andbroaderSustainableFinanceFrameworks,tounderstandthelevelofdetailandtoneofvoicethatissuersprovideinthesedocuments.Thereisquitealotofvarietyacrossthemanyframeworkdocumentsthathavebeenusedforgreenbondandsustainablefinancetransactions.Manyexamplesareavailablefrommarketinformationprovidersorfromindividualissuerwebsites.Issuerswillbenefitfromreviewingexamplesofframeworksthataresimilartotheirownsituation.Forinstance,usefulinsightscanbegainedfromlookingatexamplesfromthesamejurisdictionorforsimilargreenprojectsandassets,organizationstructures,ortargetedinvestors.ConfirmingInternalProcessesandControlsTheissuerofagreenbondorotherlabeleddebtinstrumentneedstoestablishandmaintaininternalprocessesandcontrols.Thesemustenabletheissuertoreliablyundertakeproceduresandmakedecisionsontheselectionofgreenprojects,assets,expenditures,themanagementofgreenbondproceeds,andreporting.Asummaryoftheissuer’sapproachneedstobeprovidedinitsGreenBondFramework;theissueralsoneedstodevelopinternalproceduresthatguidetheactionsanddecisionsoftheissuer.Theexternalreviewerwillassesstheissuer’sinternalcontrolsandprocessesaspartoftheexternalreviewprocess.LeveragingExistingArrangementsTheactualextentofinternalcontrolsandprocessesforthegreenbondwilldependontheissuer’sorganizationandtheexistingcomplexityaroundinformationflowsanddecision-making.Forexample,apure-playsolarpowercompanyislikelytohavesimpleprocedures,whileagovernmentissuermayhavequitecomplexinformationflowsanddecision-makingstructurestosupportitsgreenbondorsustainablefinancetransactions.Mostissuersofgreenbondsalreadyhavecomprehensiveinternalcontrolsandprocessesformakinginvestmentdecisions,trackingfundswithinthebusiness,andsigningoffonexternalstatements.Thekeyrequirementsforgreenbondscanbemetbyusingoradjustingtheexistingarrangementswithintheissuerorganization.CreatingNewGroupsandConversationsWhilemanyexistingarrangementscanbeleveraged,theinformationrequiredforeligibilityoftheprojects,assets,andexpendituresmayrepresentnewarrangementsforsourcingandcompilinginformationaswellasrequiringnewgroupstobeformed.Manysupportersofgreenbondshavehighlightedthesenewgroupsandconversationswithintheissuerasbeingoneofthemostvaluableoutcomesfromtheefforttousethegreenlabel.Theyprovidenewchannelsfordiscussionandimprovedunderstandingofgreenopportunitiesandrisksacrosstheissuer’sorganization.Forexample,manyissuerswillsetupagreenselectioncommitteeconsistingofseniormembersofstafffromrelevantdepartments(e.g.,finance,engineering,andoperations).Thecommitteeistaskedwithscreeningtheunderlyingprojects,assets,andexpendituresaccordingtothegreendefinitionsandcriteriabeingused.Thecommitteeprovidesrecommendationsfortheselectionofprojects,assets,andexpendituresthatisthenconfirmed(i.e.,“signedoff”)bytheissuer’srelevantdecision-makingbodyorkeyperson.14DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesSimilarly,sovereignissuersofgreenbondsoftendescribetheirnewlycreatedgovernanceprocessesfortheselectionofgreenprojects,assets,andexpenditures.Forexample,relevantprojects,assets,andexpendituresarescreenedbyajointcommitteeconsistingofrepresentativesofthefinanceministry,environmentministry,transportministry,andotherrelevantministries.Selectiondecisionsarethensenttoanappropriatebodyorgovernmentministryforformalapproval.DocumentationofProceduresWhileeachissuermighthaveadifferentwayofselectinggreenprojects,assets,andexpenditures,orofmanagingtheproceedsfromthegreenbond,thekeypointisthattheissuershouldbeastransparentaspossibletoprovideinvestorswithcomfortthattheissuer’sinternalprocessesandcontrolsarerobust.Theinternalprocessesandcontrolsthattheissuerusesforitsgreenbondneedtobedocumented.TheseneedtoincludethefollowingitemsasdetailedinFigure8.Figure8:KeyAspectsoftheSelectionProcessforGreenBondIssuanceSelectionofgreenprojectsandassetsTheselectionprocessdetermineswhetherthegreenprojectsandassetsmeettherelevanteligibilityrequirementsofthechosensetofgreendefinitionsortaxonomy.Thisshouldincludeanygreenstandardsorcertificationsreferencedintheselectioncriteria.Itcanalsorefertoexclusioncriteriaoranyotherprocessappliedtoidentifyandmanagepotentiallymaterialenvironmental,social,orgovernancerisksassociatedwiththeprojectsandassets.Reportingonallocations,eligibility,andimpactThisreferstoprocessestobringtogetheralloftherelevantinformationandproviderobustreportsforinternalandexternalaudiences.SeefurtherdetailsonreportinginPost-issuanceReportingandDisclosure.ManagementofthegreenbondproceedsTheseneedtocoverthreekeyaspectswithrespecttomanagementofproceeds:TrackingofproceedsTheproceedsofthegreenbondcanbecreditedtoasub-account,movedtoasub-portfolio(oftencalled“ring-fencing”ofproceeds),orotherwisetrackedbytheissuerinanappropriatemanneranddocumented(oftencalled“earmarking”ofproceeds).EarmarkingfundstogreenprojectsandassetsAnearmarkingprocesscanbeusedtomanageandaccountforfundingtothegreenprojectsandassetsandenablesestimationoftheshareofthegreenbondproceedsbeingusedforfinancingandrefinancing.ManagingunallocatedproceedsThebalanceofthegreenbondproceedsthathavenotyetbeenallocatedtogreenprojectsandassetscanbemanagedsothattheproceedsarenotbeingusedfornongreenprojectsandassets.Thisusuallyinvolvesholdingcashorcash-equivalentinstrumentsaspartofabroaderTreasuryfunction.Source:Authors’compilationConfirmingInternalProcessesandControls15Decision-Making,Disclosure,andGovernanceLabelingabondasgreen(oranyotherlabel)requirestheissuertomakedecisions,disclosetoinvestorsandthepublic,andprovideconfidencethatthelabelisrobust.Mostissuersofgreenbondsalreadyhavethesecapabilitiesinternallybasedontheirexistingbusinessorpublicsectoroperations.Theseshouldbeusedasmuchaspossiblebytheissuer.Investorsandmarketplayerswanttohaveconfidencethattheseaspectsoftheissuer’sgreenbondofferingarerobustandtransparent,eveniftheyarenotofteninterestedinthedetails.Externalreviewerswillassesstheissuer’sinternalprocessesandcontrolsaspartoftheirreviewprocedures.SeeEngagingtheExternalReviewerandManagingtheExternalReviewProcessforfurtherdetails.ReportingonAllocationsandGreenCredentialsTheuse-of-proceedsapproachisdescribedintheGreenBondPrinciples’definitionofagreenbond:4Thus,thevalueofthegreenprojects,assets,andexpendituresmustbeequaltoorhigherinvaluethantheamountofthebondtobeissued.Soifa$100milliongreenbondisissued,thentheissuerneedstohaveatleast$100millionworthofgreenprojects,assets,andexpenditures.Mostissuerswillincludeabufferso,forexample,theymayassociate$120millionofgreenprojects,assets,andexpenditureswiththegreenbondinthisexample.Theissuerneedstoestablishinternalmechanismsthatallowsittoeffectivelytrackandallocateproceedsfromthelabeledbondtoeligibleprojects,assets,andexpenditures(Figure9).ThesemechanismsaredescribedinthewordingoftheGreenBondPrinciplesonthetopicofmanagementofproceeds(footnote4):SatisfyingGreenEligibilityRequirementsTheeligibilityrequirementsfortheissuer’sgreenprojects,assets,andexpendituresdependonthesetofgreendefinitions,ortaxonomy,thattheissuerisusing.Thechoiceoftaxonomyhasamajorimpactonwhetherprojects,assets,andexpenditureswillbe“greenenough”tobeassociatedwithagreenbond.Someofthetaxonomiesareveryprescriptiveinwhatisneededtodemonstrateeligibility,butthisalsodependsonthetypesofprojects,assets,andexpendituresbeingconsidered.Forexample,forassetssuchassolarfarms,windfarms,orelectrifiedpublictransport,greeneligibilityisbasedonthecorepropertiesoftheassetsthemselves.Nofurtherevidenceisrequiredbeyondtheirexistenceandthevalueascribedtothemintheissuer’slist.Forotherassetssuchasgreenbuildingsorhydropowerfacilities,thereisamuchbroaderrangeofeligibilityrequirementscontainedinthevarioustaxonomies.Thismeansthatinvestorswilloftenrequiremoredetailed4InternationalCapitalMarketAssociation.GreenBondPrinciples.https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-bond-principles-gbp/.Anytypeofbondinstrumentwheretheproceedswillbeexclusivelyappliedtofinanceorrefinance,inpartorinfull,newand/orexistingeligiblegreenprojects,assets,andexpendituresthatarealignedwiththefourcorecomponentsoftheGreenBondPrinciples.Thenetproceedsofthegreenbond,oranamountequaltothesenetproceeds,shouldbecreditedtoasub-account,movedtoasub-portfolio,orotherwisetrackedbytheissuerinanappropriatemanner…ReportingonAllocationsandGreenCredentials17informationaboutprojects,assets,andexpendituresinthesecategories,whichflowsthroughtotheissuerneedingtoobtainandprovidethatinformation.Thiscouldincludecertificationsforgreenbuildingsoractualperformancedataifthatistheformofaneligibilitythreshold.ForgreendefinitionsthatonlyapplytotheGreenBondPrincipleshigh-levelcategories,thereismuchmoreflexibilityfortheissuertodefineitsowngreeneligibilityrequirements.Issuersneedtoensurethattheyaretransparentontheeligibilityofthegreenprojects,assets,andexpendituresassociatedwiththeirgreenbonds.Thismayincludedemonstratingtheeligibilityofexistingprojects,assets,andexpenditures,ordefiningcriteriafornewprojects,assets,andexpenditures(Figure10).Figure10:ExamplesofGreenDefinitionsExample.CommercialbuildingsunderClimateBondsTaxonomyaredefinedasbeinginthetopofthebuildingsinthatcityintermsofgreenhousegasperformancepersquaremeterofnetlettablearea.TheGreenBondPrinciples’high-levelcategorieshavenothresholdsforgreenbuildings,sotheissuercanchooseanyapproachtoeligibility,suchas“betterthanbuildingcode”or“betterthanaverage.”Example.Hydropowerisasourceofrenewableenergy,butisalsocontroversialformanyinvestorsbasedonthesocialandenvironmentalimpactsofhydropowerdevelopment.UndertheASEANGreenBondStandard,allrenewableenergyiseligible;whileundertheClimateBondsStandard,therearesubstantialrequirementsforhydropowerassets.Furthermore,undertheClimateBondsStandard,anyhydropowerassetmustmeetathresholdbasedonitsgreenhousegasemissionsfootprintaswellasundergoasite-specificassessmentusingtheEnvironmental,Social,andGovernanceGapAnalysisTool.ASEAN=AssociationofSoutheastAsianNations.Source:Authors’compilation.Figure9:TwoApproachestotheAllocationofProceedsRingfencing.Thisoccurswhentheissuerdecidestoseparatetheproceedsfromitsbusiness-as-usualoperationsbyputtingtheproceedsintoaspecificsub-accountorsub-portfolio.Forinstance,ringfencingcouldhappenwhenaportfolioofsolarfarmsisbeingfinancedandtheproceedsareheldinaspecialpurposevehicleforeachofthewindfarms.Earmarking.Theproceedsenterthebalancesheetoftheissuerandarematchedup,or“allocated,”totheissuer’slistofgreenprojectsandassetssothattheproceedsare“trackedbytheissuerinanappropriatemanner.”Thereisnosegregationofproceedsinseparatesub-accounts.Thisiscommonpracticeamongissuersofgreenbonds(includingsovereignissuers)andiswidelyusedtofinancefuturecapitalinvestmentortorefinanceinvestmentsinlonger-termprojects.Source:Authors’compilation.18DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesInvestorandMarketExpectationsPriortoissuanceofthegreenbond,theissuer’sGreenBondFrameworkplaysanimportantroleinprovidingtransparencyforpotentialinvestorson•whatgreenprojects,assets,andexpenditureswillbeassociatedwiththegreenbond;•whethertheselectedprojects,assets,andexpendituresaregreenenough;and•howtheissuerwillreportonthesethingsduringthetermofthegreenbond.Afterthegreenbondhasbeenissued,theissuerisexpectedtoprepareanupdatereportatleastannually,whilethegreenbondremainsoutstanding,andonatimelybasisifthereareanymaterialdevelopmentsinthebond’sgreenlabel.Theupdatereportincludesinformationontheallocationofproceeds;eligibilityofgreenprojects,assets,andexpenditures;andimpactreporting.SeePost-IssuanceReportingandDisclosureforfurtherdetails.Materialdevelopmentscouldincludeearlyrepaymentofthebond;changeofcontroloracquisition;changeofname;changestotheeligibilityofassetsorprojects;aswellasanymaterialamendments,supplements,andotherupdatestodealdocuments.Theissuerneedstomaketheupdatereportavailabletoholdersofthegreenbondandisstronglyencouragedtomakethereportavailabletothepublic.Iftheupdatereportcannotbemadeavailabletothepublic,thenthegreenbondmaynotbealignedwithsomeofthemorestringentapproachestoidentifyinggreenbondsthatrequirepublicdisclosureofannualreports.ReportingFormatsandChannelsGreenbondissuersprovidetheirinformationinawidevarietyofformats.Sometimes,theinformationisincludedinabroadersustainabilityreportfortheorganization.Often,thegreenbondreportisprovidedbytheissuerasaseparatedocument.Fornewissuersofgreenbonds,itisgoodtolookatexamplesofwhatotherissuershavedonetounderstandthelevelofdetailandtoneofvoiceinsimilarcircumstances.Mostgreenbondissuersprovidetheirgreenbonddocumentsona“sustainability”or“greenbonds”pageontheirwebsite.Thisenablesinvestorstoeasilyaccesstheinformationonaregularbasis.Thetimingofprovidingtheupdatereportcanbealignedwiththeissuer’sscheduleofregularreportinganddoesnotneedtofollowtheanniversaryoftheissuanceofthegreenbond.OtherchannelsincludevariousmarketinformationproviderssuchasAsianBondsOnline,EnvironmentalFinance,theClimateBondsInitiative(CBI),andstockexchanges.Issuersareencouragedtomaketheupdatereportsavailablethroughexistingreportingchannelsforthecapitalmarkets,suchastheissuer’swebsite,astockexchangeinformationdisseminationportal,oralocalgreenbondplatform.Thisstreamlinestheinformation-gatheringprocessforinvestorsandanalysts,furtherstrengtheningthevalueofthegreenlabelandreducingtransactioncosts.SettingUpforImpactReportingGreenprojects,assets,andexpenditureshaveawidevarietyofenvironmentalimpacts.Thisisnotsurprisinggiventhediverserangeofgreensectors,subsectors,andsupportinginfrastructurethathavealreadybeensupportedbygreenbonds.Thereismuchfocusonimpactreportingbygreenbondinvestors.Thisisoftenthefocusofassetmanagerswhobuygreenbondsinthemarketandthenselltheirgreeninvestmentproductstoinvestors.Theywanttohavequantifiedgreenimpactsfromeachofthegreenbondstoassistwithdemonstratingthegreencredentialsoftheirfundsorproducts.However,theimpactsrecognizedbygreenbondinvestorsareactuallyindicatorsthatcovertheoutputs,outcomes,andimpactsfromgreenprojects,assets,andexpenditures.Therefore,thefocusforgreenbondissuersshouldbeonimpactindicatorsthatcanbereadilyderivedfromtheinformationtheyalreadyhaveavailabletothem.Input–Output–Outcome–ImpactFrameworksManyprojectsaredesignedandevaluatedbasedonaframeworkthatcoverstheprogressionfrominputsandactivitiesthroughtoimpacts.Figure11illustratesthisframework.BasedontheframeworkinFigure11,impactreportinginthegreenbondmarketcouldperhapsbebetterdescribedasindicatorreporting,wheretheindicatorsreportedbygreenbondissuersincludeavarietyofoutputs,outcomes,andimpacts.Keyindicatorsforspecificgreensectors,subsectors,andsupportinginfrastructurehavebeensuggestedandcompiledbyaworkinggroupundertheGreenBondPrinciples.Thegrouphaspublishedandcontinuestoupdatethehandbook,HarmonizedFrameworkforImpactReporting,whichprovidesusefulsuggestionsforindicatorsfromagrowinglistofsectors.ExamplesofImpactIndicatorsTheflowfromoutputs,suchasrenewableenergycapacityinstalled,throughtoimpacts,suchasgreenhousegas(GHG)emissionsavoided,canoftenrequiremanyassumptionsanddetailedmethodologies(Figure12).Forexample,inthecaseofawindfarm,theoutputistheinstalledcapacity.TheoutcomeistheproductionofelectricitywithzeroGHGemissions.TheimpactisGHGemissionsavoided,basedonthepotentialdisplacementoffossilfuelelectricitysourcesfromthesamegridcomparedtowhatwouldhavehappenedifthewindfarmwerenotoperating.20DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesFigure11:Input–Output–Outcome–ImpactFrameworksIMPACTEectspartlyorexclusivelyattributabletotheprojectOUTCOMESWelfareeectsontargetgroupdirectlyattributabletotheprojectOUTPUTSPhysicalgoodsandservicesproducedbytheprojectACTIVITIESActionsandtaskscarriedouttotransforminputsintooutputsINPUTSFinancial,human,andmaterialresourcesrequiredSource:Authors’compilation.Figure12:ExamplesofImpactIndicatorsExamplesoftheimpactindicatorsforgreenprojectsandassetsincludethefollowing:RenewableenergyoenergycapacityinstalledoelectricitygeneratedogreenhousegasemissionsreducedoravoidedonumberofhouseholdsprovidedwithaccesstocleanpowerGreenbuildingsogreenhousegasemissionsperformanceofbuildingsocertificationsunderrecognizedbuildingratingsystemsCleantransportationonumberofpassengerscarriedbypublictransportonumberofelectricvehiclesmanufacturedoreductioninnumberofcarsrequiredduetopublictransportoptionsbeingavailableSustainablewaterinfrastructureovolumeofwastewatertreatedonumberofnewaccesspointsforcleanwaterodecreaseinwaterusefrominvestmentsinbetterwatermanagementassetsSource:Authors’compilation.SettingUpforImpactReporting21Themethodsusedbytheissuerformeasuringorestimatingtheimpactsofgreenprojects,assets,andexpendituresneedtobedisclosedintheimpactreport.Methodsincludetheframeworkusedandthecalculationmethodology,includingifmetricsareannual,annualized,and/orlifetimecalculations.Bothproprietaryandinstitutionalframeworksmaybeused,institutionalframeworksmaybereferenced,andproprietaryandnewframeworksshouldbedescribedinsufficientdetailtoallowassessment.ExamplesofinstitutionalandproprietaryframeworksaretheHarmonizedFrameworkforImpactReporting(institutional)andtheNordicPublicSectorIssuers:PositionPaperonGreenBondImpactReporting(proprietary).ExPostversusExAnteReportingTheexpectedimpactsfromgreenprojects,assets,andexpenditures(knownasexante)areusuallyestimatedaspartoftheformulationofthegreenbond,andtheestimatesareoftenreportedaspartofthepre-issuancedisclosurefromagreenbondissuer.Gatheringexpostinformationontheactualperformanceandimpactsofgreenprojects,assets,andexpenditurescancreateasubstantialworkloadforissuers.Thisisakeyconsiderationforgreenbondissuers,especiallyiftheirportfolioofgreenprojects,assets,andexpenditurescoveravarietyofgreensectors.Thereisusuallyalotofeffort,cost,andpotentialriskinvolvedwiththeissuerprovidingexpostinformationinreports,butthisisgreatlyapplaudedbyinvestors.Theuseofexanteinformation(estimatesofimpact)canbeeasierforissuers,anditisusuallyenoughtosatisfyinvestorswhenlookingforrelevantimpactindicators.TheGreenBondPrinciplesrecommendtheuseofqualitativeindicatorsand,wherefeasible,quantitativeperformancemeasuresofexpectedimpact.Issuerswiththeabilitytoreportachievedimpactsareencouragedtoincludethosealsointheirregularupdatereporting.DataandSystemsMoreandmorecompaniesandpublicorganizationsareusingpurpose-builtsystemstocapturerelevantgreenandsustainabilitydataandproducetheinformationtheyneedforreporting.Thesesystemsmakeiteasierforexternalreviewerstoverifyinformationflowsanddataintegrity,aswellasprovideup-to-dateinformationformanagementreporting.Greenbondissuerswithlargeportfoliosofgreenprojects,assets,andexpendituresareencouragedtoadoptthesesystemstoensuretheintegrityoftheirgreenportfoliosovertimeandsimplifytheirregularprocessesforcompilingandconfirmingreports.Thisisparticularlyimportantfordynamicgreenportfolios,whereprojects,assets,andexpendituresareenteringandleavingthegreenlistinbetweentheannualallocationreportsbeingprovided.EngagingtheExternalReviewerAlloftheprinciplesandguidelinesforlabelingagreenbondincludestrongrecommendationsthatissuersengageanexternalreviewertoprovideanopiniononthegreenlabel.Inmanyjurisdictions,itismandatoryforgreenlabelstobeaccompaniedbyanopinionfromanexternalreviewer.ThemostcomprehensivelistofexternalreviewersisprovidedbytheCBI,whichhasanapprovedverifierprogramtoensurethequalityoftheserviceproviders.ThereisalsoalistavailablefromtheGreenBondPrincipleswebsite.ScopingOutWhatYouNeedTherearefourdifferentexternalreviewproductsthatareusedinthegreenbondmarket(Figure13).Themostcommonapproachisasecond-partyopinion(or“secondopinion”),whilethereisincreasinguseofcertificationapproachesthatrelyonnational,regional,orinternationalstandardsorguidelines.Mostexternalreviewerproviderswilloffermultipletypesofexternalreviewsoitisuptotheissuertochoosewhichisthemostappropriatefortheirsituation.Thetypeofexternalreviewselectedbythegreenbondissuerwilldependonafewkeyconsiderations:•Jurisdictionofissuance.Arethereregulationsorguidelinesthatspecifywhattypeofexternalreviewmustbeused?•Investorpreference.Someinvestorshaveverystrongpreferencesforthetypeofexternalreviewthatshouldbeundertaken.Dothetargetinvestorshavethesepreferences?•Bestpracticenarrative.Istheissuerclaimingtheyareusingbestpracticeinformulatingtheirgreenbond?Ifso,thencertificationorastrongsecond-partyopinionaremorealignedwiththoseclaims.EngagementContractsTheexternalrevieweristraditionallyengaged(contracted)bythegreenbondissuer,althoughthisisnotalwaysthecase.Sometimes,adifferententityinvolvedinthegreenbondtransactionmayhaveaneasierpathwaytoengagingaserviceprovider.Forexample,inthemunicipalbondmarketintheUnitedStates,theissuerisrestrictedbyregulationsonwhatcanbeincludedinthetransactioncostsforthebondissuance.Inthiscase,thearrangingbankorsecuritiesfirmsupportingtheissuancecanengagetheexternalreviewer.EngagingtheExternalReviewer23Thecontractwiththeexternalreviewershouldspecifythefollowing:•scopeofthework;•formoftheopinionbeingprovided,includinganyformalalignmentorconformancewiththeGreenBondPrinciples,ASEANGreenBondStandards,orClimateBondStandard;•expectedtimelineforthework;•approachbeingusedbytheexternalreviewertoformulateitsopinion,includinganystandardsorotherprofessionalservicescodesofconduct;•obligationsofeachpartytoprovideinformationandundertaketheassessment;and•expecteduseoftheexternalreviewer’sreport.Bestpracticeistohaveasingleengagementcontractthatcoversthepre-issuanceactivitiesaswellasthepost-issuanceassessment.Figure13:TheFourTypesofExternalReviewSecondPartyOpinion(SPO)Whatisit:Reportfromaspecializedconsultantwhichprovidesanopinionontheframework,thebond’slabelandtheissuer’ssustainability/greennarrative.Whodoesthem:CICERO,Sustainalytics,VigeoEiris,ISSoekom,DNVGL,etc.Pros:-Mostcommonlyusedapproachinthemarket.-ConfirmalignmentwiththeGBPs.-Wellacceptedaccrossthespectrumofinvestors.Cons:-Onlyprovidesacheckpriortothebondissuances.-Nofollowupafterissuanceandallocationshaveoccured.-Manydierentapproachesusedbyfirms,includingproprietarymethodsandassessmentframeworks.Verification/Assurance:Whatisit:Reportfromanassuranceproviderwhichprovidesaformalizedassurancestatementonthelabeledbondsalignmentwiththeissuer’sstatedapproach,whichmayincludeexternalcriteria.Whodoesthem:Auditfirms,EY,Deloitte,KPMG,etc.Oftenlinkedwithotherauditservicesfortheissuer.Pro:-MoreformalizedapproachtoassessingthesituationandprovidinganopinionthanSPO.-OftenconfirmsalignmentwiththeGBPs.-Leveragesexistingauditrelationships.Cons:-Thecriteriausedfortheassessmentaredefinedbytheissuer,ratheranexternalstandard.-Reportsoftenprovideverylittledetail.Certification:Whatisit:Formalendorsementofthebond’scredentialsandconsistencywithnational/regionalregulationsoranacceptedstandard.Requirementsareclearlystatedinthestandardorrelevantregulations.Whodoesthem:Approvedverifiers,suchasunderChineseregulations,EUstructures,orCBI’slist.Pros:-Includesaformalindependentcheckpriortoandaftertheissuanceandallocationofproceeds.-Confirmsalignmentwithatransparentstandard.-Seenasbestpracticebyinvestors.Cons:-Lessflexibleduetoclearandspecificrequirements,ratherthanguidingprinciples.-Maynotcoverallgreenassetsduetolimitedsetofdetailedcriteriawhicharecurrentlyavailable.Scoring/Rating:Whatisit:Reportfromaratingsagencyorspecializedfirmwhichscorestheissuer’sframeworkorbondagainstanestablishedrange.Usuallyinvolvesproprietarymethodsanddatasetsfortheassessment.Whodoesthem:S&PRatings,Moody’sSustainalyticsPros:-OftenconfirmsalignmentwiththeGBPs.-LeveragesexistingcreditratingorESGscoringrelationships.-Providesascorewithinarange,ratherthanbinary.Cons:-Thecriteriausedandthescoringmethodsareproprietarywithlimitedtransparencyforinvestors.-Serviceisoftenexpensivecomparedtootherexternalreviewoptions.-Usuallyjustpre-issuance,withnofollow-up.CBI=ClimateBondsInitiative;ESG=environmental,social,andgovernance;EU=EuropeanUnion;GBP=GreenBondPrinciples.Source:Author’scompilation.24DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesTheexternalreviewerwilloftenasktoseedraftversionsoftheissuer’skeydocumentsbeforetheycandeterminetheirlevelofeffortand,hence,thepricefortheengagement.Pre-IssuanceandPost-IssuanceAssessmentsBestpracticeentailshavinganexternalreviewpriortotheissuanceofthegreenbondandatleastoneexternalreviewafterthegreenbondhasbeenissued.Pre-Issuanceexternalreviewinvolvestheassessmentandconfirmationofthebondissuer’sgreenbondframeworkandinternalprocesses,includingthe:•selectionprocessforprojectsandassets,•systemsforinternaltrackingofproceeds,•allocationsystemforfunds,and•reportingarrangements.Thisresultsinanexternalreviewer’sreportthatcanbeprovidedtopotentialinvestorsandotherstakeholderspriortotheissuanceofthegreenbond.Apublicversionoftheexternalreviewer’sreportisoftendisclosedtothepublicafterthebondhasbeenissued,usuallyviatheissuer’swebsite.Thisdisclosureoftheexternalreviewer’sreportisalsoakeyrequirementformanymarketinformationandindexproviders.Post-Issuanceexternalreviewinvolvestheassessmentandconfirmationofthegreenbond’slabel,whichmustbeundertakenaftertheallocationofbondproceedsisunderway.Theexternalreviewerundertakesproceduressothatitcanprovideconfirmationthattheissuerandthebondactuallymeetsallofthenominatedrequirements(e.g.,GreenBondPrinciples,ASEANGreenBondStandards,orClimateBondsStandard,amongothers).Thepost-issuanceexternalreviewprocessisfocusedon•confirmingthatthegreenbondthathasbeenissuedisinlinewiththegreenbondframeworkprovidedpriortoissuance;•confirmingthattheinternalprocessesexaminedduringthepre-issuanceexternalreviewareworkingasexpected;•examiningtheallocationsofnetproceedsthathavebeenmadesofarandtheinformationprovidedoneligibility(andimpacts)forthoseprojectsandassets;and•assessinganyupdatereportsthathavebeenprovidedbytheissuer,ortheinternalprocessestogeneratethosereports.Theexternalreviewerprovidesafinalizedreporttotheissuer,whothenprovidesthereporttothebondholdersandotherstakeholders,suchasregulatorsorcertificationsystems,aspartoftheirregularreportinganddisclosureonthegreenbond.EngagingtheExternalReviewer25PricingandTimingExpectationsMostgreenbondissuersdescribethecostsoftheexternalrevieweraslowcomparedtotheothertransactioncostsassociatedwithissuingabondsuchascreditratings,legalsupport,investorroadshows,andleadmanagerfees.However,thetimelineforexternalreviewisamajorconsiderationfortheissuer’sapproachtoraisingcapitalviaabondissuance.Someleadtimeneedstobebuiltintotheissuer’stimelineforgoingtomarketwiththebondoffering.Sixweeksisacommontimeframeforanexternalreviewtogofromcontractingtodeliveryofthefinalreport.Figure14showsthethreekeyconsiderationsthatdeterminethetimingandcostsoftheexternalreviewforagreenbondlabel.Manyjurisdictionsareofferingsupporttoissuerswhoengageexternalreviewers.Thiscomesintheformofcappedsubsidiesorothercontributions,andarecurrentlyinplaceinanumberofASEAN+3markets.Figure14:KeyConsiderationsforExternalReviewoIfthisistheissuer’sfirstgreenbond,thentheframeworkandprocessesmayneedfurtherrefinementpriortofinalization.Thistakesmoretimeandconsumesbillablehoursfortheexternalreviewers.oAmorematuresituationislikelytohaveallofthesupportinginformationandevidencethattheexternalreviewerneedstoworkquickly.oAsimplesituationwithoneortwotypesofgreenprojectsandassetswheretheeligibilityisveryobviouswillminimizecostsandtimelines.oAverycomplexportfoliowithalargenumberofdierentprojectsandassets,whereeligibilitymustbedemonstratedviaongoingperformanceorexpertanalysis,willresultinmuchhighercostsandlongertimelines.oSomeexternalreviewershaveveryreasonablehourlyratesfortheworktheydo,particularlywhenlocalprovidersarebeingusedbylocalissuers.oSomeexternalreviewershavehighhourlyrates,evenforveryjuniorsta,whichcreatesmuchhighertotalcostsfortheservicesprovided.Maturityoftheissuer’sgreenbondframeworkandinternalprocessesComplexityoftheportfolioofgreenprojectsandassets,includingeligibilityassessmentsaccordingtothresholdsorcriteriaHourlyrateoftheexternalreviewersundertakingtheworkSource:Authors’compilation.ManagingtheExternalReviewProcessTheearlyyearsofthegreenbondmarketsawalotofissuersuse“self-labeling.”Thiswasacceptedbymanyinvestorsbecauseatthattimeallgreenbondissuerswereeithermultilateraldevelopmentbanksorotherverytrustedentities.Asthediversityofgreenbondissuersgrew,investorswantedtohavemoreconfidencethatthegreenclaimsbeingmadebytheissuerwerevalid.Theinvestorsalsorecognizedthevalueofhavinganexpertprovideanopinionwhentheinvestor’sowngreenunderstandingwaslimited.Intoday’sgreenbondmarket,therearestillafewentitieswhouseself-labeling,butthisnumberisshrinking.Thevastmajorityofgreenbondshaveanexternalreviewpriortoissuance.Asmallernumberofissuershaveanexternalreviewaftertheissuance,butthistrendisincreasing.Externalreviewersareessentiallyprovidinganauditfunction,butthefocusisnotlikeweseeinfinancialauditing.SharingInformationwiththeExternalReviewerTheexternalreviewerneedstheissuertoproviderelevantinformation.Oftentheexternalreviewerwillhavetemplateinformationrequeststhatitusesatvariousstagesoftheprocess.Thisfirstoccursduringtheengagementprocess,wheretheexternalreviewerneedstounderstandtheissuer’ssituationandgreenbondplanssothattheycanprepareaquoteandexpectedtimelinefortheengagementcontract.Usually,itinvolvestheissuerprovidingadraftgreenbondframeworkdocumentandsomesupportinginformation.Duringtheexternalreview,theissuerwillthenneedtoprovideamoreformalizedpackageofinformationtosupportthestatementsinitsgreenbondframeworkandtodemonstrategreeneligibility.ExternalReviewProceduresExternalreviewersuseavarietyofprocedurestounderstandthesituationandarriveatanopinion.Theactualproceduresusedrangefromformalinformationrequeststotelephoneinterviews,useofexternaldatasources,sitevisits,andclarificationrequests.Generally,thepre-issuanceexternalreviewprocessfollowstheeightstepsoutlinedinFigure15.ManagingtheExternalReviewProcess27DraftReportsandClose-OutProcessesTheexternalreviewerwillprovideadraftreportwhentheyhavecompletedthemainbodyofassessmentwork.Thedraftreportwillhighlightanygapsthatstillneedtobefilledandprovideapreliminaryopinion.Theissuerneedstorespondtothereport,clarifyanyremainingtopics,andthenconfirmthattheywantthereportfinalized,usuallyinaclose-outmeetingwiththeexternalreviewer.Theexternalreviewerwilloftenhaveinternalprocessesandqualitycontrolthatwillbepartofmovingfromthedraftreporttothefinalopinionandreport.FormandUseofFinalReportsThereportfromtheexternalreviewerisseenasakeycomponentofanygreenbondoffering,alongwiththeissuer’sgreenbondframeworkdocument.Oftenthedraftreportprovidedtotheissuerwillhavemuchmoredetailthanacut-downreportthatcanbeusedbytheissuerforitsgreenbondmarketingandthenbepublishedaftertheissuanceofthebond.Thefinalreportandopinionaresometimesverybrief(e.g.,afewpages)eventhoughtherehasbeenalotofworkcompletedtoreachthatfinalopinion.Figure15:Pre-IssuanceExternalReviewProcessTheissuerprovidesitspackageofkeydocumentsandaccesstorelevantpeopleforinterviews,usuallybasedonaninformationrequestfromtheexternalreviewer.Theexternalreviewerassessesthereadinessoftheissuerandtheproposedbondtomeetallofthenominatedrequirements(e.g.,GreenBondPrinciples,AssociationofSoutheastAsianNationsGreenBondStandards,orClimateBondsStandard,amongothers).Theexternalreviewerpreparesachecklistortemplatethattheexternalreviewerusestodocumentitsfindings.Theexternalreviewerconductsdesk-basedreviewofdocuments,interviewswithrelevantpeoplefromtheissuer,confirmationofassertionsbasedonexternalsources(e.g.,governmentapprovals,satelliteimagery),follow-upquestions,andclarificationonspecifictopics.Procedurescanalsoincludesitevisitstospecificprojectsandassets,butthisisnotverycommon.Theexternalreviewerprovidesadraftreporttotheissuer,whothenprovidesfeedbackonthepreliminaryfindingsandanyfurtherinformationorclarificationrequired.Theissuerandexternalreviewerhaveaclose-outcall.Theissuerprovidestheexternalreviewer’sreporttothepotentialinvestorsandotherstakeholders,suchasregulatorsorcertificationsystems,priortoissuanceofthegreenbond.Theexternalreviewerfinalizesthereportandprovidesittotheissuer.Source:Authors’compilation.SeekingCertificationorRecognitionTheprocessofissuingagreenbondcanhelpthefinancingfunctionoftheissuingorganizationandenableseniormanagementtothinkmoreactivelyabouthowsustainabilityrelatestotheirbusinessandoperations.Issuershaveaccesstonewinvestorsandawiderrangeofinvestorsiftheycanlabeltheirbondasgreen.Deeperinvestorengagementisalsoakeybenefitforgreenbondissuers,creatingmoreenduringinvestorrelationships.Formanyissuers,thereisabenefitintermsofpricingfortheirgreenbondcomparedtootherbondsthatarenotlabeled.Thispricedifferential,whichisoftencalleda“greenium,”isusuallydrivenbythelargedemandforgreenbondscomparedtotheemergingsupply.InvestorandMarketExpectationsAsgreenbondmarketshavegrownandattractedincreasedattention,thereismoremainstreamingofinvestorswhobuyintotheseinstruments.WhileacertaingroupofinvestorsarethosewithgreenmandatesandESGinvestingactivities,thereisalsoincreaseduptakebyso-called“vanillainvestors.”Largepensionfundsandassetmanagersareincreasinglylookingforsustainabilityandlow-carboninvestments;often,thesegreenbondsareexactlywhattheyarelookingfor.Box2:ExperienceofPublicDebtManagementOffice,MinistryofFinance,ThailandPatriciaMongkhonvanit,Director-General,PublicDebtManagementOfficeannouncedthatonthe13August2020,bookbuildingwasheldfortheKingdomofThailand’sinauguralsustainabilitybondissuance,whichisfirstofitskindinASEAN.ThegroundbreakingtransactionwashighlysuccessfulwithexceptionallystrongdemandfromtheinvestorswithamountsubmittedtotalingTHB60,911million,3.05timestheannouncedoffering,andattractinganinterestrateof1.585%,whichislowerthanthemarketyieldoftheexisting15-yearbenchmarkbond.Moreover,thesustainabilitybondattractedadiversifiedgroupofinvestorsincludingbanks,assetmanagementcompanies,financialinstitutions,insurancecompanies,andoffshoreinvestors.Source:GovernmentofThailand,PublicDebtManagementOffice.SeekingCertificationorRecognition29Therearesubstantialclimatechangeriskstoinsurers,andtheyarebecomingincreasinglyawareofthislong-termchallenge.Raisingtheamountoflow-carboninvestmentsintheirportfolioispartofthatlong-termriskmitigation.Investors,stockexchanges,indexproviders,andothermarketparticipantsalsoconsidergreenbondsagainsttheirownenvironmentalassessmentstandardsandinvestmentcriteriathatmaysettargetthresholdsforenergyefficiencyimprovementsandincludebroaderESGrequirements.Someofthesemarketparticipantsandstakeholdersexcludebondsfundingfossilfuel-relatedprojects,whileothersmay,forinstance,includeenergyefficiencyinvestmentsthatdonotfacilitatealong-termlock-inofhigh-carboninfrastructure.InternationalversusRegionalversusNationalApproachesTherearedifferentapproachestogainingrecognitionorcertificationofagreenbond.Thissituationisevolvingquicklyasthemarketgrowsandcoversawidervarietyofsectorsandjurisdictions.Moreandmoreregionalandnationalapproachesarebeingdefinedbygovernmentsandregulators.Thisisasignthatmanyseegreatpotentialingreenbondsasawaytodriveimprovedclimateoutcomesintheirownjurisdictionsaswellasontheinternationalstage(Figure16).Internationalbestpractices,suchascertificationundertheClimateBondsStandard,willalwaysbewellreceivedbyinvestorsandmarketcommentators.However,demandforgreenbondsissostrongthatlessstringentapproaches,suchasalignmentwiththeGreenBondPrinciples,willbesufficientformostpotentialinvestors.Figure16:VariousApproachesAroundtheWorldandatDifferentLevelsofCoverageGLOBALAPPROACHES:GreenBondPrinciples,ClimateBondsInitiativeREGIONALAPPROACHES:ASEANGreenBondStandard,EUGreenBondStandardNATIONALAPPROACHES:Japan,India,Indonesia,Mexico,People'sRepublicofChina,SouthAfrica,etcASEAN=AssociationofSoutheastAsianNations,EU=EuropeanUnion.Source:Authors’compilation.30DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesPathwaysforRecognitionThereareanumberofdifferentpathwaysforrecognitionforagreenbondlabel(Figure17).Eachofthemhasspecificrequirements,butallofthemarebasedontheplatformprovidedbytheGreenBondPrinciples.Therecognitionofthegreenlabelcancomeindifferentforms:•alignmentwithGreenBondPrinciples,•conformancewiththeASEANGreenBondStandards,•certificationundertheClimateBondsStandard,or•alignmentwithspecificnationalguidelinesorlistingrequirements.Figure17:CaseStudiesforSelectingPathwaysforRecognitionRECOGNITIONPATHWAYCertificationundertheClimateBondsStandardConformancewithASEANGreenBondStandardConformancewithASEANGreenBondStandardPRCregulatoryrequirements,pluscertificationundertheClimateBondsStandardAlignmentwithGreenBondPrinciplesUSD-denominatedissuancewillattractinternationalinvestors;simpleandobviouslygreenassetsmakeiteasiertousebestpracticesCurrencyandstructurelikelytofocusonlocalinvestors;projectsarealignedwiththeASEANrequirements(i.e.,location,nofossilfuels)Localcurrencyissuancewillattractmostlylocalinvestors;projectsarealignedwithASEANrequirements(i.e.,location,nofossilfuels)AllPRC-basedissuersneedapprovalsfromdomesticregulatorstousethegreenlabel;scaleandcurrencywillattractmainstreaminternationalinvestorsSolarcompanywithportfolioofsolarassetsinIndiaissuesaUSD-denominatedbondforrefinancingMunicipalityinanAssociationofSoutheastAsianNations(ASEAN)membercountryissuesasukuk(Islamicbond)inthelocalcurrencytofinanceflooddefensesPropertydevelopmentcompanywithgreenbuildingsinamultipleASEANcitiesissuesabondinthelocalcurrencyBankbasedinthePeople’sRepublicofChina(PRC)withawide-ranginggreenloanportfolioinmultiplecountriesissuesabenchmarkbondineurosandUSdollarsAustralianfoodproduceradoptingsustainablepracticesacrossitsoperationsissuesabondinJapaneseyenJapaneseyenissuancewillattractinternationalinvestors;complexmixofgreenprojectsmeansthatdetailedcriteriaandthresholdsdonotyetexistKEYCONSIDERATIONSITUATIONASEAN=AssociationforSoutheastAsianNations,US=UnitedStates,USD=USdollar.Source:Authors’compilation.SeekingCertificationorRecognition31KeyDecisionPointsSelectingwhichisthemostappropriatepathwayforrecognitionofaparticulargreenbondandgreenbondissuerisbasedonanumberofkeyconsiderations:•Wherethebondisbeingissued.Aretherelocalorregionalregulationsorguidelinesforgreenlabelinginthejurisdictionwherethebondisbeingissued?•Wheretheprojectsandassetsarelocated.Aretherespecificrequirementsforgreenprojectsinthatjurisdiction?•Typeofinvestorbeingtargeted.Whatsortofrecognitionispreferredbythetargetedinvestors?Dotheyhavesmootherduediligenceprocessesforcertifiedofferings?•Currencyoftheissuance.IstheissuanceinlocalcurrencyoraG3currency(i.e.,UnitedStatesdollars,euros,orJapaneseyen)?Iftheissuanceisinlocalcurrency,areinternationalinvestorslikelytoparticipate?•Typesofgreenprojectsandassetsassociatedwiththebond.Aretherecriteriaorthresholdsfortheprojectsandassets?Whateffortisrequiredbytheissuertomeetthecriteriaorthresholds?Themostappropriaterecognitionorcertificationforagreenbonddependsonhowwellthegreenlabelisreceivedbythepotentialinvestorsinthegreenbond.Thegreenlabelisamarketingtool;therefore,itcomesdowntowhatlabelthecustomersaccept,respect,anddesire.Issuersshoulddiscussthesepreferenceswiththeirexistinginvestorsandotheradviserstogetearlyguidanceonwhattheyshoulddo,andnotdo,inseekingrecognitionfortheirgreenlabel.Media,Stakeholders,Indices,andListingsGreenbondsaredebtsecuritiesissuedbyfinancial,corporate,orpublicentitieswheretheproceedsareusedtofinancegreenprojectsandassets.Theyarejustlikeregularvanillabondsinstructureandcreditrating.Thegreenlabelisabonusfeaturetothebondfromtheinvestor’sperspectiveandapowerfulmarketsignalfromtheissuer’sperspective.Thegreenlabelforthebondreferstotheprojectsandtheassetsassociatedwiththegreenbond,ratherthanbroadergreencredentialsoftheissuer.However,anyissuerofagreenbondisinterestedinhowtheissuancewillassistitsoverallmarketingefforts.Thegreenlabelisalsovaluableforassetmanagers,whobuygreenbondsasaserviceforinvestorshigheruptheinvestmentfoodchain.Assetmanagershaveastronginterestindemonstratingtheirgreeneffortsandachievementssothattheycanfurtherenhancetheirpotentialtowinnewmandatesfromtheirinvestorclients.BuildingMomentumManyorganizationsaremovingtoidentifyandhighlighttheirgreenandsustainabilitycredentialstotheirstakeholders.Thisisaverystrongtrendinmostadvancedeconomiesandisgrowingquicklyinemerginganddevelopingeconomiesaswell.ThemarketisseeingawidevarietyofsustainabilityreportsandESGassessmentsfromcompaniesandadeterminedmovetowardintegratedreportingacrossfinancialandnonfinancialoutcomes.Theuseofgreenfinancing,throughissuinggreenbondsorbuyingthem,providesreinforcementtoanorganization’sgreenandsustainabilityefforts,andhencebuildsmomentumforanorganizationthatisonthatjourney.Investorsareoftenthemostpowerfulstakeholdergroupforanorganization.Reflectinggreenandsustainabilityambitionsthroughincreasedinvestorengagement,transparency,andlabelingisawaytoquicklybuildmomentuminthisarea.MediaFormatsandChannelsGreenbondissuersareoftenmotivatedbytheopportunitytoattractmediaattentionfromtheirlabeledtransaction.Thismaybeforcapitalmarket-focusedmediachannelsorinformationflows,orforbroadermediaattentionoutsideofthecapitalmarket.Mostgreenbondissuerscreatemediaattentionthroughofficialmediareleasesaswellasdiscussionswithrelevantmediaoutletsandreporters.Manyusesocialmediatoamplifythereachoftheirmediaefforts.Media,Stakeholders,Indices,andListings33Themediaattentionthatresultsfromagreenbondtransactioncanbeusedtoenhancestakeholderawarenessoftheissuer’sgreenobjectivesandachievements.IndexInclusionMostgreenbondindexproviderscurrentlygettheirbasedatafromtheCBI.TheCBI’sGreenBondDatabasehasbeencreatedovermanyyearsandhasrecentlyhadanupdatetoitsmethodology.Manymoreorganizationsarecreatingrobustinformationflowsforsustainablefinancemarketplayersandindexproviders.Asthegreenbondmarketmatures,therehasbeenashiftfromearlydatasources(e.g.,theCBI,whichisanonprofit,nongovernmentalorganization)inthedirectionofmoreestablishedserviceprovidersinthecapitalmarkets(e.g.,Bloomberg).Indexprovidershavedifferentcriteriabywhichgreenbondsareincludedintheirindices.Notallgreenbondsareincluded,soitisimportanttounderstandtheircriteriaandmethodologies.Thereareatleastfivemajorgreenbondindicescurrentlyinplace.Morearebeingcreatedasthesustainablefinancemarketdiversifiesandmatures.Eachonehasapublisheddocumentavailablefromitswebsitethatlaysoutthedetailedapproachforcompilingtheindex.OneoftheGreenBondPrinciplesworkinggroupsproducedareportinJune2018,SummaryofGreen–Social–SustainableFixedIncomeIndicesProviders,thatprovidesastructuredsummaryasofthedateofpublication.Inaddition,Solactivehasarangeofgreenbondandsustainablefinanceindices.Box3describestheSolactiveGreenBondIndexandthedefinitionofwhatisincludedinitsselectionpool.Someindicesmayincludebondsthatarenotactuallylabeledasgreen,particularlywhenthereareunlabeledbondsissuedby“greenpure-play”companies.ThisincludesexamplessuchasTesla,whichissuesbondsbutdoesnotlabelthemgreenalthoughmostinvestorsseeTeslaasaverygreencompany.ThereisanincreasingfocusontheESGandclimatecredentialsofbondissuers.Thesecredentialscanbeboostedbyissuingagreenbondthatisincludedinmarketindices.Box3:SolactiveGreenBondIndexSolactivehasarangeofgreenbondandsustainablefinanceindices.TheSolactiveGreenBondIndexhasthefollowingdefinitionofwhatisincludedintheselectionpool,whichcomprisesbondsthatfulfillthefollowingconditions:a.definedasagreenbondbytheClimateBondsInitiative;b.amountoutstandingofatleast$100million;c.timetomaturityofatleast6months;andd.excludesinflation-linkedbonds,convertiblebonds,UnitedStatesmunicipalbonds,andasset-ormortgage-backedsecuritiesandotherstructuredsecurities.Source:Solactive.2018.GuidelineRelatingtoSolactiveGreenBondIndex,Version4.2.34DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesListingPlatformsManystockexchangesandsecuritiesexchangeplatformsaroundtheworldarecreatinggreenfinanceandsustainablefinanceproducts.ThisisagrowingtrendinAsiainparticular(Table).TheSustainableStockExchangeInitiativehasaround100partnerexchanges,ofwhicharound60havealistingplatformforsmallandmedium-sizedenterprises,andover30haveESGbondsegments.Listingagreenbondononeormoreexchangesorlistingplatformscreatesgreaterawarenessandincreasedaccessforpotentialinvestors.Forsmaller-scalegreenbonds,beinglistedcanimproveliquidityandexpandthenumberofinvestorswhocanbuythebond.Table:UnitedNationsSustainableStockExchangeInitiativeMembersamongASEAN+3StockExchangesStockExchangeEconomyHongKongExchangesandClearingLimitedPeople’sRepublicofChinaShanghaiStockExchangePeople’sRepublicofChinaShenzhenStockExchangePeople’sRepublicofChinaIndonesiaStockExchangeIndonesiaJapanExchangeGroupJapanKoreaExchangeRepublicofKoreaBursaMalaysiaMalaysiaPhilippineStockExchangePhilippinesSingaporeExchangeSingaporeStockExchangeofThailandThailandHanoiStockExchangeVietNamHoChiMinhStockExchangeVietNamASEAN=AssociationofSoutheastAsianNations.Note:ASEAN+3referstothe10membersoftheAssociationofSoutheastAsianNationsplusthePeople’sRepublicofChina,Japan,andtheRepublicofKorea.Source:SustainableStockExchangesInitiatives.http://sseinitiative.org/exchanges-filter-search/#.Post-IssuanceReportingandDisclosureGreenbondissuersareexpectedtoprovideregularreportingtoinvestorsandthemarketaftertheirgreenbondhasbeenissued.Theseupdatereportsareimportantaspectsofinvestorcommunicationsandtheissuer’sgreenobjectives.Theformatandfrequencyoftheupdatereportwilldependonthespecificcircumstancesoftheissuerandtherelevantbond,loan,orotherdebtinstrument,aswellastheprogramofbondissuances.Updatereportsusuallycontainthreedifferenttypesofreporting,andoftenthefirsttwotypesofreportingarecombinedintotheallocationssectionoftheupdatereport:1.Allocationreporting.Thisconfirmstheallocationofthebondproceedstogreenprojectsandassets(Figure18).2.Eligibilityreporting.Thisconfirmsthecharacteristicsorperformanceofgreenprojectsandassetsthatsupporttheireligibilitytobeassociatedwiththegreenbond(Figure19).3.Impactreporting.Thisdisclosesthemetricsorindicatorsthatreflecttheexpectedoractualimpactofgreenprojectsandassets(Figure20).Figure18:AllocationReportingTheallocationreportingpartoftheupdatereportshouldincludethefollowing:•confirmationthatthegreenbondisalignedwithoneormoreestablishedapproachestolabeling,includingstatementsofalignmentwithotherapplicablestandardssuchastheGreenBondPrinciples,theASEANGreenBondStandard,theClimateBondsStandard,domesticregulationsinthePeople’sRepublicofChina,JapaneseGreenBondGuidelines,orotherapproaches;•astatementontheobjectivesofthegreenbond;•thelistofgreenprojectsandassetstowhichproceedshavebeenallocated(orreallocated);•theamountsallocatedtothegreenprojectsandassets;•anestimateoftheshareofthegreenbondproceedsusedforfinancingandrefinancing,whichgreenprojectsandassetshavebeenrefinanced,andthelook-backperiodforrefinancedprojectsandassets;and•thegeographicaldistributionofthegreenprojectsandassets.ASEAN=AssociationofSoutheastAsianNations.Source:Authors’compilation.36DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesSomebondshaveaverystableallocationofproceedsanddonotneedtotrackanyperformanceindicatorstomaintaintheeligibilityoftheprojectsandassets(e.g.,financingforasinglelarge-scalesolarfacility).Thismeansthattheupdatereportprovidedbytheissuereachyearcanbeveryconciseandsimplyrestatetheinformationfrompreviousreports.Iftherearelimitstotheamountofdetailthatcanbemadeavailableintheupdatereportaboutspecificgreenprojectsandassets,thentheissuercanprovidesummaryinformationsuchasthesectorscoveredbythegreenprojectsandassets,ortheregionswheretheyarelocated.Whileimpactreportingisstronglyencouragedbyinvestors,greenbondissuersneedtoweighthebenefitsandcostsoftheeffortsrequiredtotrackandquantifyimpactsoverthetermofthebond.Figure19:EligibilityReportingTheeligibilityreportingpartoftheupdatereportshouldincludethefollowing:•confirmationthatthegreenprojectsandassetscontinuetomeettherelevanteligibilityrequirementsthataredescribedinthegreenbondframework,and•informationontheenvironmentalcharacteristicsorperformanceofgreenprojectsandassetsthatarerelevanttotheeligibilityrequirements.Source:Authors’compilation.Figure20:ImpactReportingTheimpactreportingpartoftheupdatereport(ifitcoversimpactreporting)shouldincludethefollowing:•expectedoractualoutcomesorimpactsofthegreenprojectsandassetswithrespecttotheobjectivesofthegreenbond;•qualitativeperformanceindicatorsand,wherefeasible,quantitativeperformancemeasuresoftheoutcomesorimpactsofthegreenprojectsandassets;and•methodsandthekeyunderlyingassumptionsusedinpreparationoftheperformanceindicatorsandmetrics.Source:Authors’compilation.Post-IssuanceReportingandDisclosure37ReportingFormatsandChannelsGreenbondissuersprovidetheirinformationinawidevarietyofformats.Theinformationissometimesincludedinabroadersustainabilityreportfortheorganization.Thegreenbondupdatereportisoftenprovidedbytheissuerasaseparatedocument.Mostgreenbondissuersprovidetheirgreenbonddocuments,includingupdatereports,onasustainabilityorgreenbondspageontheirrespectivewebsite.Thisenablesinvestorsandmarketanalyststoeasilyaccesstheinformationonaregularbasis.Thetimingofprovidingtheupdatereportcanbealignedwiththeissuer’sscheduleofregularreportinganddoesnotneedtofollowtheanniversaryoftheissuanceofthegreenbond.Issuersareencouragedtomaketheupdatereportavailablethroughexistingcapitalmarketreportingchannelssuchastheissuer’swebsite,stockexchange’sinformationdisseminationportal,orlocalgreenbondplatform.Thisstreamlinestheinformationgatheringprocessforinvestorsandanalysts,furtherstrengtheningthevalueofthegreenlabelandreducingtransactioncosts.ChannelsforissuerreportingincludevariousmarketinformationproviderssuchasAsianBondsOnline,EnvironmentalFinance,theCBI,andstockexchanges.FurtherIssuanceofLabeledInstrumentsThereismoredemandforgreenbondsandsustainablefinanceproductsthanthereissupplyacrossallgeographies,sectors,andratingsbands.Thissupply–demandimbalanceislikelytocontinueandperhapsbecomeevenmorestark.Manycitethissupply–demanddynamicasdrivingtherelativelylowerfundingcostsforsomegreenbondswhencomparedwithsimilarconventionalbonds.StrongInvestorAppetiteInvestorengagementisakeypartoflabelingabondandtheincreasedtransparencyenjoyedbylabeledbondinvestorsislikelytobealastingshiftresultingfromtheriseofgreen,social,andsustainablebonds.Manyissuersofgreenbondshavefoundthattheyhavemuchmoremarketpowerintheirlabeledtransactionscomparedtonormalissuancedynamics.Somehaveusedinvestorselectionprocessestoassistwithaligningissuancedistributionswithinvestorcredentials.Somegreenbondissuershavebenefitedfromreverseinquiriesfrominvestorswhoarelookingtoprovidecapitaltotheissueroutsideofthedefinedbondissuancetransactions,withresultinglowtransactioncostsfortheissuer.Green,Social,andSustainablePortfoliosMostinvestorsingreenbondsalsohavemandatestoinvestinbondslabeledassocialorsustainable.Investorsareveryencouragingofissuerstoexploretheseotherlabelsaswell.Thereisimportantguidanceavailableonlabelingbondsaseithersocialorsustainable,similartotheuseoftheGreenBondPrinciplesforgreenlabeling,basedontheSocialBondPrinciplesandtheSustainableBondGuidelinesavailableontheInternationalCapitalMarketAssociationwebsite.Manygovernmentshaveawidevarietyofprojects,assets,andexpendituresthatcoverabroaderrangeofprioritiesthanjustenvironmentalaspects(i.e.,green).Abroaderlabelingregime—includinggreen,social,andsustainableprojects,assets,andexpenditures—hasbeensuccessfullyusedbyavarietyofgovernmentissuers.FurtherIssuanceofLabeledInstruments39TrackingtheStacksManygreenbondissuershavelargeportfoliosofgreenprojects,assets,andexpenditures,andtheywillissuemultiplegreenbonds(orgreenloans)overtime.Whentrackingthenetproceedsfromthegreenbondsandthevalueofthegreenprojects,assets,andexpenditures,mostissuershavetwostacksintheirtrackingsystem(Figure21).Thisistoensurethatthetotalvalueofthegreenprojects,assets,andexpendituresisalwaysmorethanthetotaloutstandingvalueofthegreenbondsissued.Someissuerswillallocatespecificprojects,assets,andexpenditurestoparticulargreenbonds,whileotherissuerswilllookatthebroaderportfolioofgreenprojects,assets,andexpendituresasasinglepiece.EfficienciesandTransactionCostsAsdescribedintheoverview,thefirstgreenbondissuanceischallengingformostissuersbutworththeeffort.Followinganinitialissuance,thevastmajorityofgreenbondissuerssaythattheywilldefinitelyissueanothergreenbond.Issuersthatpresentaprogramofgreenbonds(orotherlabeledinstruments)areinherentlymoreattractivetoinvestors,astheyholdtheprospectofreducedduediligenceforfuturetransactions.Figure21:DifferentApproachestoTrackingGreenBondsandGreenProjectsBondBondBondAllProjectsGreenProjectsGreenBondsGreenProjectsGreenBondsIndividualGreenBondsarealignedwithspecificGreenProjectsAllGreenBondsarealignedwiththeentireportfolioofGreenProjectsBondBondBondProjectProjectProjectProjectProjectSource:Authors’compilation.40DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesThecostsandresourcesrequiredtoestablishthenecessaryframeworksandinternalprocessesaregenerallyfront-loaded,meaningthattheeffortrequiredforthesecondgreenbondissubstantiallylessthanforthefirst,whiletheeffortforthethirdislessthanforthesecond,andsoon.Asfurthergreenissuanceoccurs,theextraeffortfromtheissuerforlabelingcontinuestodecline.TheClimateBondsStandardincludesaformalapproachtothissituationcalled“programmaticcertification.”Thisstreamlinedapproachisbeingusedbyavarietyoffrequentissuersinthegreenbondmarket.DetailedGuidanceforIssuingGreenBondsinDevelopingCountriesThisguidancenoteaimstohelpbondissuersandtheiradvisorstounderstandtheprocessandkeyconsiderationsforasuccessfulgreenbondissuance.Demandforgreenbondsandothersustainablefinanceproductsisincreasingrapidly,andissuersareseeinganopportunitytobepartofthegreenbondmarket.Thispublicationcoversallthestepsrequiredtofollowbestpracticesinlabelingbondsasgreen.Itincludesexamples,linkstofurtherdetails,andkeyresourcesforgreenbondissuersandtheirdealteams.AbouttheAsianDevelopmentBankADBiscommittedtoachievingaprosperous,inclusive,resilient,andsustainableAsiaandthePacific,whilesustainingitseffortstoeradicateextremepoverty.Establishedin1966,itisownedby68members—49fromtheregion.Itsmaininstrumentsforhelpingitsdevelopingmembercountriesarepolicydialogue,loans,equityinvestments,guarantees,grants,andtechnicalassistance.ASIANDEVELOPMENTBANK6ADBAvenue,MandaluyongCity1550MetroManila,Philippineswww.adb.org