​​​Green BONDs

NSE Regulation
Green Bonds are any type of bond instrument where the proceeds are exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible green projects that align with the four core components of the Green Bond Principles (GBP). 
 
Types of Green Bonds
There are currently four types of Green Bonds (additional types may emerge as the market develops and these will be incorporated in annual GBP updates): 
  • Standard Green “Use of Proceeds” Bond: a standard recourse-to-the-issuer debt obligation aligned with the GBP. 
  • Green Revenue Bond: a non-recourse-to-the issuer debt obligation aligned with the GBP in which the credit exposure in the bond is to the pledged cash flows of the revenue streams, fees, taxes etc., and whose use of proceeds go to related or unrelated green project(s). 
  • Green Project Bond: a project bond for a single or multiple green project(s) for which the investor has direct exposure to the risk of the project(s) with or without potential recourse to the issuer, and that is aligned with the GBP. 
  • Green Securitized Bond: a bond collateralized by one or more specific green project(s), including but not limited to covered bonds, ABS, MBS , a​nd other structures; and aligned with the GBP. The first source of repayment is generally the cash flows of the assets.
Benefits
Green bonds provide all the benefits that regular bonds provide such as low risk, fixed regular income, tradability, tax savings and capital appreciation.

Benefits to Issuers
Diversification and/or expansion of the investor base
  • Access to new investors such as sustainable funds (which consider Environmental, Social, and Governance issues - ESG), investors with a specific mandate to buy green bonds or with long-term goals (such as pension funds and insurance companies).
  • Potential to attract new investments at cheaper costs, on account of the huge demand for bankable green projects over their supply.
​Reputational gains
  • More visibility for the green projects.
  • Positive marketing instrument differentiating the issuance of green bonds from conventional issuances. 
  • Recognition of Issuer’s commitments related to environmental conservation and to mitigation and prevention of the risks posed by climate change.
  • Improve issuer’s sustainability goals and develop closer relationships between finance and sustainability professionals.
Benefits to Investors
More transparency in the use of resource
  • The projects funded by green bond proceeds are often structured within the company’s long-term strategy and should be aligned with its policy for social and environmental responsibility and governance model for sustainability issues.
  • The clarity and demonstration of the use of proceeds in green projects as well as its monitoring may reduce the risks associated with investments.
​Convergence with voluntary commitments​
  • For specialist investors with sustainability mandates, the availability of green bonds facilitates the identification of projects and target assets in the fixed income market.
  • Investments in green bonds facilitate the fulfilment of commitments for asset managers that are signatories to the PRI2 (Principles for Responsible Investment) and IIGCC3 (Institutional Investors Group on Climate Change). These commitments which were undertaken by close to 2,000 organizations in international markets direct investment in projects that promote sustainable environmental and social development. 
Benefits to Financial Market
  • Green bonds enhance the reputation of institutions that offer green bonds and also promote interests in investments that deliver sustainable development;​
  • Green bonds attract investors outside the domestic financial markets;​
  • Green bonds foster a greater level of transparency and institutional accountability in the delivery of sustainable development.
​​Green Bond Principles​
The Green Bond Principles (GBP) are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond. The Green Bond Principles recommend a clear process and disclosure for issuers, which investors, banks, underwriters, placement agents and others may use to understand the characteristics of any given Green Bond. The GBP have four core components:
  • Use of Proceeds
  • Process for Project Evaluation and Selection​
  • Reporting​
  • Management of Proceeds

This is the cornerstone of a Green Bond which requires that utilisation of the proceeds of the bond are exclusively for Green Projects. All designated Green Projects should provide clear environmental benefits, which will be assessed and, where feasible, quantified by the issuer.​
Process of Project Evaluation
The issuer of a Green Bond is required to clearly communicate to investors​
​ ​​
- ​the environmental sustainability objectives; ​
​- the process by which the issuer determines how the projects fit within the eligible Green Projects categories identified above; ​ ​
​- the related eligibility criteria, including, if applicable, exclusion criteria or any other process applied to identify and manage potentially material environmental and social risks associated with the projects​
​ 

​ ​​​​​​​

​​ ​ ​​
​​