On Monday this week a consortium of thirteen investment banks announced their support for a set of “Green Bond Principles” that are intended as voluntary guidelines to encourage greater and more consistent transparency, disclosure and integrity in the development of the burgeoning Green Bond market.

Green Bonds are a category of debt instruments issued by multilateral development agencies and other commercial project development financiers the proceeds of which are applied exclusively to projects that promote climate or other environmental sustainability.  Projects that have tapped Green Bond funding include renewable energy projects, energy efficiency retrofits, clean water resources and sustainable waste management projects.  These instruments provide a vehicle for investors in fixed income securities to support clean energy and other sustainability initiatives.  According to a Reuters report, over $10 billion in Green Bonds were issued in 2013.

The Green Bond Principles issued this week provide specific guidelines for designating, disclosing, managing and reporting on the proceeds of a Green Bond.  For example, the principles call on Green Bond issuers to specify clearly:

  • the types of projects in which the proceeds may be invested,
  • the process that will be used for selecting and evaluating projects,
  • how the bond proceeds will be managed and tracked through the investments, and
  • the frequency and manner in which this information will be reported to the bond investors.

A copy of the Green Bond Principles appears here.

The new guidelines were developed with input from issuers, investors and environmental groups through a drafting committee led by Bank of America, Merrill Lynch, Citibank, Crédit Agricole and JPMorgan Chase and coordinated by the non-profit advocacy group Ceres.  Other investment banks that announced support for the Green Bank Principles include BNP Paribas, Daiwa, Deutsche Bank, Goldman Sachs, HSBC, Mizuho Securities, Morgan Stanley, Rabobank and SEB.