Green Bonds


Over the past few decades, there has been a growing recognition of the urgent need to address environmental challenges, such as climate change and resource depletion. In response to these pressing concerns, the concept of green bonds has gained significant traction as a means of financing projects and initiatives with a focus on environmental sustainability. This innovative financial tool has sparked a revolution in the world of finance by channeling capital towards projects that promote environmental protection, renewable energy, and sustainable practices. In this insight, we will explore the origins, evolution, and key features of green bonds, shedding light on their crucial role in driving a more sustainable and environmentally conscious global economy.

The history of Green bonds

The idea to move capital towards eco-friendly industries and businesses is a relatively recent phenomenon that has gained international recognition when institutions, such as the United Nations Agency, first provided evidence that linked human actions to climate change. 

Even if the concept of green bonds can be traced back to the early 2000s, when a few pioneering organizations began to experiment with non-standardized, environmentally oriented bonds, it wasn’t until 2007 that the European Investment Bank (EIB) introduced its Climate Awareness Bond (CAB). The World Bank soon followed in 2008, issuing the first green bond as part of the Strategic Climate Fund. As noted by the World Bank, “the issuance of “ the [first green] bond created the blueprint for today’s green bond market” and contributed to raising awareness “for the challenges of climate change and demonstrated the potential for investors to support climate solutions through safe investments without giving up financial returns. It formed the basis for the Green Bond Principles coordinated by ICMA, the International Capital Markets Association. In the years that followed, the momentum of green bonds grew significantly, thanks in part to the global focus on the Paris Agreement in 2015 and the United Nations Sustainable Development Goals (SDGs). These international agreements underlined the urgency of addressing climate change and sustainability, elevating green bonds to a prominent position as a financing tool for environmentally responsible investments. The market for green bonds continued to expand beyond Europe and North America, reaching regions like Asia. Governments, corporations, and financial institutions embraced green bonds as a means to fund a wide range of environmentally sustainable projects, including renewable energy, green infrastructure, and sustainable development initiatives. As the green bond market evolved, it set numerous records in terms of issuances, attracting a diverse array of investors committed to aligning their portfolios with environmental responsibility. The interested reader can refer to A look through Environmental, Social and Governance (ESG) metrics, our insight that specifically analyzes how investors’ asset demand is more and more sustainably oriented.

Green Bond Principles

As noted in the “Green Bond Principles, Voluntary Process Guidelines for Issuing Green Bonds”, “The Principles are a collection of voluntary frameworks with the stated mission and vision of promoting the role that global debt capital markets can play in financing progress towards environmental and social sustainability. The Principles outline best practices when issuing bonds serving social and/or environmental purposes through global guidelines and recommendations that promote transparency and disclosure, thereby underpinning the integrity of the market. The Principles also raise awareness of the importance of environmental and social impact among financial market participants, which ultimately aims to attract more capital to support sustainable development. The GBP seeks to support issuers in financing environmentally sound and sustainable projects that foster a net-zero emissions economy and protect the environment.

In other words, the GBP serve as a framework that helps issuers, investors, and other stakeholders understand what constitutes a green bond and to provide a level of standardization and assurance in the green bond market. 

The key feature of the Green Bond Principles include:

  1. Use of Proceeds: The GBP require issuers of green bonds to clearly specify how the proceeds from bond issuances will be used. This transparency ensures that the capital raised is directed towards projects and initiatives that have a positive environmental impact, such as renewable energy, energy efficiency, sustainable transportation, or climate adaptation projects.
  1. Process for Project Selection: Issuers are encouraged to outline the process by which they select and manage projects to be financed by green bonds. This includes criteria for project evaluation and ongoing reporting on the progress and impact of the projects.
  1. Transparency and Reporting: Issuers are expected to provide regular and detailed reporting on the use of proceeds, the environmental impact of funded projects, and other relevant information. This helps investors and stakeholders track the effectiveness of the green bonds.
  1. Independent Review: To enhance credibility, the GBP recommend that issuers consider obtaining external reviews or certifications of their green bond issuances. This can be done by third-party organizations, which assess whether the bonds align with the principles and the use of proceeds is consistent with environmental objectives.
  1. Ongoing Communication: Issuers are encouraged to maintain open lines of communication with investors and other stakeholders to keep them informed about the progress and impact of green bond-funded projects.
  1. Alignment with International Standards: The GBP are designed to align with broader international standards and frameworks, such as the Climate Bonds Standard and the United Nations Sustainable Development Goals. This alignment ensures that green bonds contribute to global environmental and sustainability goals.

Types of Green Bonds

The expansion of the green economy has contributed to creating different types of green bonds, with different characteristics:

  1. Standard Green Use of Proceeds Bond: an unsecured debt obligation, solely aligned with the GBP.
  2. Green Revenue Bond: a non-recourse-to-the-issuer debt obligation in which the credit exposure in the bond is to the pledged cash flows of the revenue streams, and the use of proceeds of the bond goes to related or unrelated green projects. Green revenue bonds provide investors with a source of income tied to sustainable initiatives, and the issuer’s obligation is limited to the specified revenue streams.
  3. Green Project Bond: Investors in these bonds have direct exposure to the risks and rewards of the project(s). These bonds can have recourse to the issuer, meaning that the issuer is responsible for repayment in case the project does not generate sufficient revenue. However, some green project bonds may not offer recourse to the issuer, in which case investors bear the full risk. These bonds are aligned with the GBP and are often used for large-scale, project-specific financing.
  4. Secured green bonds are structured as secured debt instruments where the net proceeds are exclusively allocated to finance or refinance green projects. There are two variations:
  1. Secured Green Collateral Bond: In this type, the bond’s proceeds are tied specifically to the green project(s) that secure the bond. If the project(s) perform well, the bondholders are repaid. If not, the bondholders may have recourse to the project collateral for repayment.
  2. Secured Green Standard Bond: These bonds are issued by an issuer, originator, or sponsor, and the proceeds can be used to finance green projects of that entity. The green projects may or may not secure the bond in part or in whole. This type allows flexibility in terms of how the proceeds can be used while still aligning with the GBP. It can also be a specific class or tranche within a larger bond issuance.


As the Planet transitions towards more environmentally sustainable societies, the world of finance moves accordingly, promoting more and more environmentally sound projects and businesses. Green bonds are an example that marks the growing commitment to more responsible practices by market agents, both businesses and retail and institutional investors. These bonds provide a powerful means to channel capital into projects that contribute to environmental protection, renewable energy, and sustainable practices. They represent a financial revolution that aligns profit with purpose, and in doing so, they help drive the global shift towards a more eco-conscious and resilient future.

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