A step-by-step guide to issuing a green bond

The Green Bond Handbook is a step-by-step guide on how to prepare and execute a successful Green Bond issue for Financial Institutions. Since the market is already well-served by pertinent and timely research, this living document is intended to be a practical guide for potential issuers. The Green Bond Handbook is designed as a tool through which to disseminate Best Practices. The Handbook has been compiled by market practitioners with deep practical experience of working with issuers and investors and will be updated periodically to reflect innovation in practice in the Green Bond market. This Handbook focuses on structuring a Green Bond which is compliant with the International Capital Market
Association (ICMA) Green Bond Principles which is adopted by 95% of issuers.

“Green Bonds are any type of bond instrument where the proceeds or equivalent amount will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects and which are aligned with the four core components of the Green Bond Principles” (ICMA, Green Bond Principles, 2021 Edition). Green Bonds can be issued in different structural formats. There are Green Revenue Bonds, Green Project Bonds and Green Securitised Bonds. But by far the most commonly issued Green Bond is the Standard Green Use of Proceeds Bond, defined by ICMA as ‘a standard recourse to the
issuer debt obligation aligned with the Green Bond Principles (GBPs). Throughout the Handbook we will focus on this type of Use of Proceeds Bond (“UoP Bond”).
It is important to note that the GBPs are not a set of ‘rules’. They are a set of ‘Voluntary Process Guidelines for Issuing Green Bonds’. As ‘guidelines’ rather than ‘rules’ they have allowed the Green Bond market the flexibility to grow while establishing a framework of market integrity around which issuers, underwriters, investors, and other market participants can coalesce. As a ‘standard recourse to the issuer debt obligation’ a UoP Green Bond can share the same financial characteristics as an equivalent non-Green Bond in terms of seniority, maturity, ratings and interest rate. As such, it can be issued off an issuer’s existing documentation platform. The difference is in the ‘alignment with the GBPs’. Through a separate document, the Green Bond Framework, an issuer of a UoP Green Bond articulates which assets it will (re)finance with the proceeds of issue, how it will select those assets, how it will manage the proceeds of issue and how it will report on the allocation of funds and the impact of the chosen investments. These additional commitments are structured around the guidelines of the GBPs. However, it is also important to note that non-compliance with any of the commitments articulated in the Green Bond Framework does not constitute a legal default on the part of the borrower (although such action may well cause considerable reputational damage to the issuer). Acts of default will be as defined in the legal documentation of the bond.

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