What are Green Bonds?
Bonds issued by companies, local governments, or other organizations to raise funds for domestic and overseas green projects are called Green Bonds.
- Proceeds are allocated exclusively to Green Projects
- Proceeds are tracked and managed in a reliable manner
- Transparency is ensured by reporting after the issuance of the bonds
Issuers of Green Bonds
- Corporations that raise funds for Green Projects
(including SPCs that only handle Green Projects)
- Financial institutions that raise investment funds and loans for Green Projects
- Local governments that raise funds for Green Projects.
- Institutional investors, such as pension funds and insurance companies that commit to ESG (environmental, social, and governance) investments
- Investment managers entrusted with the management of ESG investments
- Individual investors who focus on the use of the proceeds
Types of Green Bonds
In the Green Bond Principles (GBP) (Published by the International Capital Market Association: ICMA), the following four types are indicated as Green Bonds. There are differences among them in terms of repayment source, etc.
- 1Green Use of Proceeds Bond
- This bond is issued to raise funds for Green Projects. It constitutes recourse-to-the-issuer debt and its redemption does not depend on the cash flows of specific Green Projects.
- 2Green Use of Proceeds Revenue Bond
- This bond is issued to raise funds for Green Projects. It is a non-recourse-to-the-issuer debt and its redemption depends on the cash flows of public Green Projects such as use fees and special taxes on public facilities linked to Green Projects. For example, bonds whose proceeds are allocated to the development and operation of waste treatment sites by extra-governmental organizations and whose redemption is only possible via the revenue from the projects.
- 3Green Use of Proceeds Project Bond
- This bond is issued to raise funds for Green Projects. It is a project bond and its redemption depends on the cash flows of a single or multiple Green Projects. For example, the bonds in this category are issued by SPCs that exclusively engage in renewable energy generation projects whose proceeds are allocated to develop and operate facilities, and so on, and can be redeemed only by the revenue from the projects.
- 4Green Use of Proceeds Securitized Bond
- The bonds in this category usually have more than one asset linked to Green Projects (including loan claims, lease claims, and trust beneficiary rights) that are used as collateral and are redeemed using the cash flows from these assets. For example, ABS (Asset Backed Securities), backed by assets like loan claims linked to solar panels, energy efficient appliances, equipment, houses, and low-emissions vehicles, such as electric vehicles and hydrogen vehicles, belong to this category.
Benefits of Green Bonds
Benefits of Issuance
- 1Acquisition of public acceptance by demonstrating willingness to promote Green Projects
- Issuers can demonstrate that they are actively promoting Green Projects by issuing Green Bonds, which could possibly earn them public acceptance.
- 2Build relationships with new investors
- Issuing a Green Bond allows issuers to consolidate their funding base by building relationships with new investors, who value investment destinations that help to solve environmental problems such as global warming.
Benefits of Investment
- 1Contributing to the realization of a sustainable society
- By investing in Green Bonds, investors can support the realization of environmental and social benefits that contribute to creating a sustainable society by supplying funds while simultaneously gaining returns on their bond investments.
- 2Risk hedging via alternative investments
- Green Bonds issued as project bonds can serve as alternative investments that are regarded as not closely correlated with traditional assets, such as stocks and bonds, and can serve the role of an effective alternative to reduce risks through diversified investment.
Environmental and Social Benefits
- 1Reduce greenhouse gases and prevent the degradation of natural capital
- The introduction of private funds into green projects will expand, contributing to the reduction of greenhouse gas emissions and the degradation of natural capital.
- 2Raise individual awareness of green investments
- It will lead to increased personal interest in green investment and the use of money they have deposited or funded.
- 3Contribute to solving social and economic issues
- Promotion of green projects will contribute to energy cost reduction, regional reactivation, and enhancement of resilience in the event of disaster.