Preparation: from strategy to a project portfolio
A credible green bond starts from the company's strategy, not from a desire to obtain a label. Investors will ask how the financed projects fit into the issuer's overall environmental objectives and whether the rest of its business contradicts the green message.
The first concrete step is to take stock of existing and planned projects that could be eligible: investments in renewable energy, energy efficiency, water or clean transportation. For each project, you estimate the cost, the timeline and the measurable environmental benefits.
The steps of an issue
- 1. Internal decision and project teamManagement approves the initiative and sets up a team from finance, sustainability, legal and operations. It is decided who determines project eligibility (usually an internal committee).
- 2. Identifying eligible projectsProjects that match the green categories are selected and the required amount is estimated, including any refinancing of completed projects, with a disclosed look-back period.
- 3. Drafting the green financing frameworkThe document is drafted to explain the eligibility criteria, exclusions, management of proceeds and the impact indicators that will be reported.
- 4. External reviewAn independent reviewer analyzes the framework and issues an opinion on its alignment with market principles and the credibility of the environmental benefits.
- 5. Issue documentation and approvalsThe prospectus or offering document is prepared, with a reference to the green framework, and the approvals required by the capital market legislation applicable to the issuer are obtained.
- 6. Placement with investorsThe issuer and intermediaries present the issue to investors, explaining both the credit profile and the green projects.
- 7. Allocation of proceeds and reportingProceeds are tracked separately and allocated to projects, and the issuer periodically publishes allocation and impact reports.
External review and the second-party opinion
Under the voluntary principles, an external review is usually not mandatory, but it is strongly recommended: for many investors, its absence is a red flag. The most common form is the second-party opinion (SPO), an opinion issued by an institution with sustainability expertise that is independent of the advisers who prepared the framework.
| Type of review | What it provides | When it usually happens |
|---|---|---|
| Second-party opinion | Assesses the framework's alignment with the principles and the relevance of its environmental objectives | Before the issue |
| Verification | Confirms, against set criteria, aspects such as allocation of proceeds or impact data | Before or after the issue |
| Certification | Attests compliance with a recognized external standard | Before and often after the issue |
| Scoring or rating | Assigns a score or grade to the framework or the issue, using its own methodology | Before or after the issue |
After issuance: allocation and impact
The issue does not end once the money is received. Investors follow two types of reports: the allocation report, which shows how much money went to each project category and how much remains unallocated, and the impact report, which shows the environmental results achieved or expected, together with the calculation methodology.
Key takeaways
- A credible green bond starts from the company's strategy and a clear portfolio of eligible projects.
- The green financing framework publicly describes the criteria, selection, management of proceeds and reporting.
- The second-party opinion assesses the framework's alignment with market principles before the issue.
- After issuance, allocation and impact reports are published together with the calculation methodology.
- Failing to honor green commitments creates reputational risk even when the bond is paid on time.
Check your knowledge
Answer all the questions. If you answer all of them correctly, the lesson is marked as completed automatically.
Explanation: The green financing framework (Green Bond Framework) publicly sets out how the issuer applies the components of the principles.
Explanation: 45 / 60 × 100 = 75%.
Explanation: The impact report presents the environmental benefits, such as energy saved or emissions avoided, together with the calculation methodology.
Educational material only. It does not constitute investment, legal or tax advice. Numerical examples are hypothetical.