Establishing and implementing principles and standards for green bonds is a category of policy support that underpins a robust green bond market. Principles and standards around what is green are crucial for two main reasons:
- They help investors monitor and verify the climate effectiveness of their investments
- They help government to support green bond issuance in the market that aligns with green growth policies
Therefore, the policy support for principles and standards defining what qualifies as a green bond is a prerequisite for several of the other policy actions, to ensure that policy support is only applied to bonds that have robust green credentials.
Government can endorse and fund work on the development of principles and standards for green bonds by market actors, rather than develop them directly, to ensure that they will fit the needs of the market.
Currently, there are no common definitions of what makes a green bond in the market, but there are several developments relevant to principles and standards:
- The Green Bond Principles were issued early 2014, a set of voluntary guidelines developed around the design and reporting characteristics of green bonds. The Principles promote the idea of green bonds being about the use of proceeds for green assets –rather than for green “companies” – and the use of independent reviewers of both environmental credentials and financial ring fencing. However, importantly, the Green Bond Principles do not try to promote any one set of criteria to define ‘Green Projects’ relying on those already available in the market.
- Climate Bond Standards seek to provide common, science-referenced classification of what is green. This will be important to the next stage of growth as we see lower-rated issuers enter the market. At present there is no standardised approach for the issuance of a Green Bond. The Climate Bonds Standard involves a wide coalition of academic and industry experts preparing open access guidelines for which climate-related investments can be associated with green bonds.