Energy Transition Handbook - Flipbook - Page 16
Hogan Lovells
16
The emergence of green finance
Whilst not a novel concept, the increasing standardisation of the market and the surge in
transaction volumes has led to a recent “green finance boom”, a trend likely to continue.
The role of green finance
Financial institutions, and the products and
services they offer, have a vital role in delivering
key climate sustainability developmental goals and
policies such as the United Nations Framework
Convention on Climate Change, the United
National Sustainable Development Goals and
the Paris Agreement (to name a few), and it is
increasingly evident that this is not a task for the
public sector alone. The private financial sector is
central to mobilising capital to meet the current
significant shortfall. Green finance is vitally
needed to support long-term sustainable growth
and build a low-carbon, climate-resilient and
circular economy by channelling funds towards
well-governed responsible and ethical enterprises.
Green bonds and green loans
Green bonds are debt capital market instruments,
first issued in 2007 by international development
banks, but now widely adopted by corporate
issuers. They tend to be medium-term, highly-rated
instruments ranking pari passu with the issuer’s
conventional senior vanilla bonds.
Green loans are any type of loan instrument
(whether structured on corporate or project
finance) made available exclusively to finance or
refinance, in whole or in part, new and/or existing
eligible Green Projects.
Market Standards
Green bond standards:
Growth in the green bond market in particular has
been facilitated by the development of Green Bond
Principles (GBP) by the International Capital
Markets Association (ICMA) and the Climate
Bond Initiative’s (CBI) Climate Bond Standard
(the “Standard”).
The GBP are the most widely recognised green
financing principles and they seek to enhance
transparency and integrity in the green bond
market. They establish a voluntary high-level
framework of market standards and guidelines
based around four key components:
• Use of proceeds: proceeds must be used for
green projects with clear environmental benefits;
• Process for evaluation and selection:
issuers must disclose processes for determining
green finance eligibility and environmental
risk management;
• Management of proceeds: issuers must
implement a formal tracking process and
ensure ring-fencing of the proceeds;
• Reporting: issuers must maintain up-to-date
information on the use of proceeds.
The GBP provides a non-exhaustive definition
of “Green Projects” which must meet five highlevel environmental objectives (climate change
mitigation, climate change adaptation, natural
resource conservation, biodiversity conservation,
and pollution prevention & control). Examples of
Green Projects include:
•
renewable energy (including production,
transmission, appliances and products);
•
energy efficiency (e.g. in new and refurbished
buildings, energy storage, district heating,
smart grids, appliances and products);
•
pollution prevention and control (including
reduction of air emissions, greenhouse gas
control, soil remediation, waste prevention,
waste reduction, waste recycling and energy/
emission-efficient waste to energy);
•
clean transportation (e.g. electric, hybrid,
infrastructure for clean energy vehicles and
reduction of emissions); and
•
eco-efficient and /or circular economy adapted
products, production technologies and
processes (e.g. development of environmentally
sustainable products with an eco-label or
environmental certification).