THE CERTIFICATION PROCESS
The Climate Bonds certification process works in parallel with the normal bond issuance process. It is divided into 2 phases:
- Pre - Issuance Verification: Before issuing the Bond. The period when the bond is formulated, confirmed, launched, registered, priced and marketed
- Post - Issuance Verification: Within 12 months after issuing the Bond. The period of allocating the bond proceeds to the nominated projects & assets.
Certification of a Climate Bond at the Pre-Issuance phase enables the issuer and underwriters to market the bond as Climate Bonds Certified Bond in their investor roadshow.
Further assurance and verification activities must be taken in the 12 months after issuance in order to confirm Post-Issuance Certification and maintain the Climate Bond Certification.
After the post issuance verification, the Certification must be maintained by the Issuer submitting annual reports throughout the tenor of the bond, up until it matures.
Although not mandatory, Issuers may also engage a verifier for regular assessment throughout the tenor of the bond. This would provide investors with additional assurance.
Pre - Issuance Verification
- Climate Bond Information Form
- Verifier’s Report for Pre-Issuance
- Certification Application & Agreement
We require the submission of these 3 documents in order to review a bond for Certification. Please send these to firstname.lastname@example.org.
1. The Climate Bond Information Form is a quick summary of the proposed bond.
2. The Certification Application & Agreement is a legal document which should be checked and signed by the issuer.
3. The issuer should engage an Approved Verifier (choose from list here), who will work with the Issuer to check that:
- The projects & assets to be financed by the bond proceeds are eligible under the Climate Bonds Standard
- The Issuer has established internal processes and controls to manage the bond proceeds
The Verifier provides a Pre-Issuance Verifier’s Report which states whether the bond conforms with the Pre-Issuance requirements of the Climate Bonds Standard.
The Climate Bonds Standard Board will review these documents and award Certification as appropriate. Upon approval, the issuer will receive a formal Certification Letter as well as a Certificate, which they can use to market their bond.
Post - Issuance Verification
- Climate Bond Information Form updated after bond issuance
- Verifier’s Report for Post-Issuance
1. After the bond has been issued and the bond proceeds have begun to be allocated to the projects and assets, the Issuer will update their Climate Bond Information Form to include any changes after the bond issuance.
2. The Verifier works with the issuer to provide a Post-Issuance Verifier’s Report to confirm that the bond conforms with the Post-Issuance requirements of the Climate Bonds Standard.
The Climate Bonds Standard Board reviews these two documents and if they meet the requirements of the Climate Bonds Standard, Post-Issuance Climate Bonds Certification is confirmed and it is valid for the term of the bond.
See the diagram below that explains post issuance. Post-Issuance assurance is just as important as Pre-issuance assurance.
Maintaining Certification and Ongoing Reporting
After the post issuance verification is completed and confirmed, the issuer will also need to provide annual internal reports to us and the market throughout the term of the bond. These reports are much simpler than the pre issuance and post issuance Verification Reports and their purpose is to provide confirmation that the bond is still in compliance with the requirements of the Climate Bonds Standard. Should anything material change to the nominated assets/projects or proceeds from the bond, these changes can be disclosed in this annual report.
A template for the Issuer to use and is available here.
These do not require any verification, however some issuers have chosen to engage the external Verifiers again, in order to give extra assurance for the market.
The issuer can release these Annual Reports to a schedule that is in line with their regular financial reporting.
There are two types of costs involved with Climate Bonds Certification: internal and external.
Internal costs are incurred by the Issuer when they establish the required internal processes and controls to meet the requirements of Certification. There may also be costs associated with tracking the performance of the projects & assets tied to the Climate Bond.
External costs include:
- Engagement of the Verifier for pre-issuance and post-issuance assurance procedures and reports, and perhaps periodic assurance as well. The cost is based on commercial negotiations between issuers and Verifiers.
- A certification fee equivalent to 1/10th of a basis point of the bond principal. For example, on a USD 500 million bond, the certification fee is USD 5,000. Certification fees contribute to funding the development of the Climate Bonds Standard and the operation of the Certification Scheme. This is paid only once and immediately after the issuance of the bond.
Programmatic Certification for Issuers who plan to issue at least two bonds per year
‘Programmatic Certification’ streamlines the Certification for issuers who plan to issue multiple Certified bonds against a large pool of assets. Rather than going through the process of Certification for each bond issuance, the whole pool is certified at the beginning, at the time of the first bond issuance. Afterwards, when the issuer issues more bonds against other parts of the same asset pool, each bond only requires post issuance verification. This method makes the process significantly simpler for the issuer.
How Programmatic Certification Works
There are four steps for issuers under the Programmatic Certification option:
- The issuer identifies a very large pool of eligible assets and projects, which are Certified by the Verifier. The first bond in the programme is Certified for pre-issuance and post-issuance in the normal way. This ensures that the issuer’s internal compliance framework is in place and that they have a large enough stack of eligible assets for future issuances.
- When the issuer comes to issue again under their programme, they must supply the Climate Bond Information Form and receive pre issuance Certification from the Board for each new bond, but the issuer does not need to involve the Verifier before the issuance and this step is generally very quick.
- After the issuance of each bond, the issuer must engage a Verifier to provide Post Issuance Assurance on the bond.
- Reporting obligations remain the same for each bond, including the submission of the Climate Bond Information Form before every issuance under their programme, and the annual report (which does not require the Verifier) on all bonds issued under the Program.
Note: The issuer may at any time add or subtract from the pool of assets which was originally Certified, as long as each bond drawing from this pool receives Post Issuance Assurance Verification.
For more information, please email Rob Fowler, Head of Certifications, at email@example.com