The issuer of a green bond needs to have a document called a “Green Bond Framework,” or “Sustainable Finance Framework,” which lays out the information that is required to demonstrate the integrity of the green label.

This information is often presented using the four core components of the Green Bond Principles: (i) use of proceeds, (ii) selection of projects and assets, (iii) management of proceeds, and (iv) reporting and external review.

Bond issuers are usually very large organizations, so this framework will often describe how existing procedures or governance structures inside the issuer are used as well as any new procedures that have been created.

Expected Contents

Green bond frameworks can either be quite short (3–5 pages) or very long and detailed (20+ pages). Many examples are available from a wide variety of issuers from over 50 different countries.

Issuers need to ensure that their framework document includes:

Clarity of the Issuer’s Narrative

The statements on the objectives of the green bond and the issuer’s broader green objectives (items a. and b. in the list above) are usually included in the introduction or overview section of the green bond framework.

A wide variety of green objectives are possible. These can vary from increasing the installed capacity of low-carbon assets, such as solar power facilities, to having a specific objective focused on the operations or indirect effects of the projects and assets, such as emissions reductions.

This is a very important aspect of the green bond issuance process because it provides the issuer with the opportunity to directly explain to investors why and how green bonds fit within their long-term vision or corporate strategy.

Many green bonds issuers have already articulated their green or sustainability objectives in corporate sustainability reports or other statements on green topics. Using a green bond to raise money in the capital markets usually complements the issuer’s broader green objectives and narrative.

Many green bond investors consider the issuer’s profile and take into consideration the quality of the issuer’s overall profile and performance regarding environmental sustainability. In the presence of controversial issues—such as fossil fuels, extractive or nuclear-based activities, or limited overall sustainability credentials—investors, stock exchanges, index providers, and other market participants may also require additional transparency from the green bond issuer.

In particular, additional disclosure may be sought around the strategic importance of sustainability for the business, demonstration of the issuer’s transition strategy, and/or the sustainability benefits of the underlying projects that go beyond established sector norms and business as usual. It is important that green bond issuers are ready for these discussions.

Flexibility and Updating

A green bond issuer can create a framework that is just for the issuance of one green bond, or they can create a framework for a broader range and number of sustainable finance transactions than just green bonds. Many issuers have created an overarching Green Bond Framework, or Sustainable Finance Framework, with the potential to issue green bonds, social bonds, green sukuk, and sustainability-linked instruments.

Transparency is the most important part of the labeling of bonds and other debt instruments. The Green Bond Framework, or Sustainable Finance Framework, created by the issuer is the key channel for communicating to investors and other stakeholders the basis and integrity of the label. It is used by external reviewers and index providers, as well as a wide range of market participants.

Updating the framework should occur whenever there is a material change. This can include expanding the range of eligible projects and assets, shifting the focus from green to a broader range of labels, or reflecting a change in the issuer’s organization. Most issuers will notify investors and other stakeholders when their framework has been updated, and they often use the opportunity to highlight the progress or ambition of the issuer.

Leveraging Successful Examples

It is very useful to look at other Green Bond Frameworks, and broader Sustainable Finance Frameworks, to understand the level of detail and tone of voice that issuers provide in these documents. There is quite a lot of variety across the many framework documents that have been used for green bond and sustainable finance transactions.

Many examples are available from market information providers or from individual issuer websites.

Issuers will benefit from reviewing examples of frameworks that are similar to their own situation. For instance, useful insights can be gained from looking at examples from the same jurisdiction or for similar green projects and assets, organization structures, or targeted investors.