Green bonds are debt securities issued by financial, corporate or public entities where the proceeds are used to finance green projects and assets.

They are just like regular “vanilla bonds” in structure and credit rating. The green label is a bonus feature to the bond from the investor’s perspective and a powerful market signal from the issuer’s perspective.

The green label for the bond refers to the projects and the assets associated with the green bond, rather than broader green credentials of the issuer. However, any issuer of a green bond is interested in how the issuance will assist its overall marketing efforts.

The green label is also valuable for asset managers, who buy green bonds as a service for investors higher up the investment food chain. Asset managers have a strong interest in demonstrating their green efforts and achievements so that they can further enhance their potential to win new mandates from their investor clients.

Building Momentum

Many organizations are moving to identify and highlight their green and sustainability credentials to their stakeholders. This is a very strong trend in most advanced economies and is growing quickly in emerging and developing economies.

The market is seeing a wide variety of sustainability reports and environmental, social, and governance (ESG) assessments from companies and a determined move to integrated reporting across financial and nonfinancial outcomes.

The use of green financing, through issuing green bonds or buying them, provides reinforcement to an organization’s green and sustainability efforts, and hence builds momentum for an organization that is on that journey.

Investors are often the most powerful stakeholder group for an organization. Reflecting green and sustainability ambitions through increased investor engagement, transparency, and labeling is a way to quickly build momentum in this area.

Media Formats and Channels

Green bond issuers are often motivated by the opportunity to attract media attention from their labeled transaction. This may be for capital market-focused media channels or information flows, or for broader media attention outside of the capital market.

Most green bond issuers create media attention through official media releases as well as discussions with relevant media outlets and reporters. Many use social media to amplify the reach of their media efforts.

The media attention that results from a green bond transaction can be used to enhance stakeholder awareness of the issuer’s green objectives and achievements.

Index Inclusion

Most green bond index providers currently get their base data from the Climate Bonds Initiative (CBI). The CBI’s Green Bond Database has been created over many years and has recently had an update to its methodology.

Many more organizations are creating robust information flows for sustainable finance market players and index providers. As the green bond market matures, there has been a shift from early data sources (e.g., the CBI, a non-for-profit, nongovernment organization) in the direction of more established service providers in the capital markets (e.g., Bloomberg).

Index providers have different criteria by which green bonds are included in their indices. Not all green bonds are included, so it is important to understand their criteria and methodologies.

There are at least five major green bond indices currently in place. More are being created as the sustainable finance market diversifies and matures. Each one has a published document available from its website that lays out the detailed approach for compiling the index.

One of the working groups under the Green Bond Principles has produced the report “Summary of Green – Social - Sustainable Fixed Income Indices Providers” that provides a structured summary as of June 2018.

Solactive has a range of green bond and sustainable finance indices. The Solactive Green Bond Index has the following definition of what is included in the “selection pool,” which comprises bonds that fulfill the following conditions:

Some indices may include bonds that are not actually labeled as green, particularly when there are unlabeled bonds issued by “green pure-play” companies. This includes examples such as Tesla, which issues bonds but does not label them green although most investors see Tesla as a very green company.

There is an increasing focus on the ESG and climate credentials of bond issuers. These credentials can be boosted by issuing a green bond that is included in market indices.

Listing Platforms

Many stock exchanges and securities exchange platforms around the world are creating green finance and sustainable finance products. This is a growing trend in Asia in particular.

The Sustainable Stock Exchange Initiative has around 100 partner exchanges, of which around 60 have a listing platform for small and medium-sized enterprises, and over 30 have ESG bond segments.

United Nations Sustainable Stock Exchange Initiative Members
among ASEAN+3 Stock Exchanges

Stock Exchange	Economy
Hong Kong Exchanges and Clearing Limited	People’s Republic of China
Shanghai Stock Exchange	People’s Republic of China
Shenzhen Stock Exchange	People’s Republic of China
Indonesia Stock Exchange	Indonesia
Japan Exchange Group	Japan
Korea Exchange	Korea, Republic of
Bursa Malaysia	Malaysia
Philippine Stock Exchange	Philippines
Singapore Exchange	Singapore
Stock Exchange of Thailand	Thailand
Hanoi Stock Exchange	Viet Nam
Ho Chi Minh Stock Exchange	Viet Nam

Note: ASEAN+3 refers to the 10 members of the Association of Southeast Asian Nations plus the People’s Republic of China, Japan, and the Republic of Korea.
Source: Sustainable Stock Exchanges Initiatives. https://sseinitiative.org/exchanges-filter-search/#

Listing a green bond on one or more exchanges or listing platforms creates greater awareness and increased access for potential investors. For smaller-scale green bonds, being listed can improve liquidity and expand the number of investors who can buy the bond.