Jacqueline Heng, Norton Rose Fulbright Jacqueline Heng, Norton Rose Fulbright

An analysis of the updated Green Bond PrinciplesComment

Channels: Green Bonds, Policy

Companies: International Capital Markets Association, ICMA, Norton Rose Fulbright

People: Jacqueline Heng

The second iteration of the Principles, issued in March, extends the number of suggested project categories and explicitly allows refinancing, says Jacqueline Heng

Flood protection is one of the newly allowed uses for green bond proceeds. Photo by David Iliff

In the summer of 2014, the International Capital Markets Association (ICMA), as Secretariat of the Green Bond Principles (GBPs), conducted a consultation to update the principles.

The Secretariat received 39 responses from both members and observers representing a cross-section of organisations: ten issuers, six investors and 13 underwriters. Following the conclusion of the consultation, the GBPs were updated and published in March 2015.

As a result of the update, the GBPs – which are voluntary guidelines that encourage transparency and disclosure and promote integrity in the development of the green bond market - continue to be based on four pillars:

  1. Use of proceeds;
  2. Process for project evaluation and selection;
  3. Management of proceeds; and
  4. Reporting.

There continues to be strong emphasis on the “necessary transparency, accuracy and integrity of environmentally sustainable information that will be disclosed and reported by issuers to stakeholders and that may be increasingly used for strategic decision making by investors”.

There are two new eligible project categories which are explicitly recognised, being climate change adaptation and sustainable water management. These two categories now compliment the original categories, which are: renewable energy; energy efficiency; sustainable waste management; sustainable land use; biodiversity conservation; clean transportation; and clean and/or drinking water. This means that the proceeds of green bonds may now be used, by way of illustration, for flooding or coastal protection, development of drought-resistant crops or development of infrastructure such as buildings and railways which will be able to cope with climate change and for efforts in obtaining, using and recycling water sustainably.

In addition, the financing spectrum for green bonds has further broadened. Green bonds can now be used for re-financing (and not solely for initial financing) of eligible green project. The updated GBPs recommend that issuers provide an estimate of the proportion of financing versus re-financing and where appropriate, also clarify which investments or project portfolios may be refinanced.

In addition to information disclosed by an issuer on its green bonds process, criteria and assurances, investors may also take into consideration the quality of the issuer’s overall framework and performance regarding environmental sustainability. The updated GBPs however, provide this as merely soft guidance and any such investment consideration is ultimately in the purview of investors.

The updated GBPs continue to recommend that issuers provide at least annually the list of projects to which proceeds of the green bonds have been applied, amounts disbursed and expected environmentally sustainable impact. They also expressly state that information can be presented in generic terms where confidentiality agreements or competition issues limit the amount of detail that can be made available.

The updated GBPs maintain a “soft” recommendation that the issuer’s process need only be publicly available at the issuer’s discretion, although this is highly encouraged.  There has been no requirement for assurance providers to be transparent about their own criteria, although this was considered as part of the consultation process.

The updated GBPs acknowledge that there are currently no established standards for impact reporting on green projects, and welcome and encourage initiatives, including those by leading green bond issuers, to help establish a model for impact reporting that others can adopt and/or adapt to their needs. Until more harmonisation is achieved, it is thought that transparency is of particular value including disclosure of methodologies and key underlying assumptions.

In conclusion, the updated GBPs represent an incremental evolution in terms of an increased breadth in the use of green bonds’ proceeds (reflected by the additional categories of recognised eligible green projects, and additional use for re-financing) and further development of best practices surrounding transparency and disclosure. As the market continues to develop and mature, we expect to see some harmonisation and further development in best practice with regard to impact reporting.


Jacqueline Heng is a London-based senior associate at Norton Rose Fulbright LLP