Green & Sustainable Bonds

Definition and core components


– Green bonds are relatively new financial instruments. There are bonds which issuance is linked to climate and environmental projects participating to a positive impact on the environment.

– Sustainable bonds’ proceeds will be exclusively applied to finance or re-finance a combination of both Green and Social Projects.

– Green bonds are typically used for (non exhaustive list): Alternative energy sources/production, Energy efficiency, Sustainable use of land, Sustainable water & Pollution prevention.

– Finally, Green bonds are typically asset-linked and backed by the issuer’s balance sheet (they can also be referred to as “climate bonds”).

A fast growing market with large investment opportunities

Green bonds currently account for circa 3% of global bond issuances but the universe is growing fast (USD 167 bn in 2018, up with estimates for 2019 above USD 215 bn worth of new green bond issuances (Sources: HSBC, S&P, Unicredit CIB, 2019). The projections are even higher : annual green investments could surge to $1trn (€901.8bn) in the early 2020s, Green bonds issuances could reach USD 350/400bn in the 2020s.

Increasing variety of issuers (data as of 2018)

The initial green bonds came mainly from supranational financial institutions, such as the World Bank or the European Investment Bank. Progressively, new issuers arrived on the market as individual companies, municipalities and state agencies.

In recent years, a more significant expansion has been seen also thanks to the push given by the Paris COP21 and the climate agreements. Many countries, including China, are trying to balance the weight of fossil fuels in the energy mix with new investments to reduce greenhouse gas emissions.

Green bond issuances by country in 2018

The growth of the Green Bond market is mainly due to two factors: on one hand the entry into the market of green bonds by large companies from emerging countries (in particular China and India), by other is the growing attention of supranational institutions to the issue of environmental sustainability.

The data as of end of 2019 are not yet available but the Climate Bond Initiative (CBI) published some up-dates as of end of 2019 Q3 in which EU, US and China issuance added up to 73.5% of 2019 total.

Entities issuing Green and/or sustainable bond

Issuer types: Q3 2019 vs Q3 2018

On the individual Green bond issuers side, clean energy dominated the use of proceeds of green bonds at 31.5%, followed by low-carbon buildings at 29.3%, low-carbon transport at 20.2%, water at 9.3%, with land use and waste both at 3.5% (as of 2019Q3, CBI).

Currency allocation in 2018

Euro was the most popular currency by volume in 2018

The currency allocation shows India as one of the main developing countries’ issuers.

From the first data published for 2019; Europe is the region leading among global green bond issuers, reaching a 2019 issuance of $106.7bn (CBI Source)

Corporate bonds leads the way representing 45% of the market

A global market

From 2007 to 2018, the total of issuance amounted more than USD 520 bn.

From 2007 to 2018, the total of issuance amounted more than USD 520 bn.

Sources: Climate Bond Initiative 2018 Green Bonds report, Climate Bond Initiative (CBI) as of October 2019; Amundi, European commission website, borsa italiana. Source of all the charts: Green bonds the state of the market 2018, published in 2019. Amundi, European commission website, borsa italiana


1. Use of Proceeds: utilization of the proceeds of the bond for Green projects (clear environment benefits)

– Environmental objectives: climate change mitigation, climate change adaptation, natural resource conservation, biodiversity conservation, and pollution prevention and control.

– Eligible Green projects categories (not limited list): renewable energy, energy efficiency, pollution prevention and control, climate change, green building etc.

2. Process for Project Evaluation and Selection: the issuer should clearly communicate to investors:

– The environmental sustainability objectives

– The process followed by the issuer which determines how the project is eligible to the Green Projects

– The related eligibility criteria with (if existing) the exclusion criteria

3. Management of proceeds (high level of transparency): the investment method as well as the allocation of funds have to be verified and tracked.

4. Reporting: issuers should provide a clear, transparent and readily available reporting to investors on a regular basis.

Some mentions are required, such as the list of the projects the green Bond proceeds have been allocated to, including the description, amounts and their expected impact. The GBP gives recommendations not only in terms of content but also in terms of format (generic terms, aggregated portfolio basis…)

The Bloomberg MSCI Barclays Global Green Bond Index

The GIS Euro Sustainable & Green Bond’s index has defined some rules for inclusion. The Green analysis is independently done by MSCI ESG Research.

The index selects Green bonds whose proceeds will be exclusively and formally allocated to projects or activities that promote climate or other environmental sustainability purposes.

Green bonds are considered eligible if the issuer is considered pure-play, defined as a legal entity with more than 90% of activities within one or more (up to 6) of the eligible environmental categories.

The specific criteria and process that determine eligible projects or investments have to be clearly defined by the issuer within adequate documentation (prospectus…)

The 6 eligible environmental categories defined by MSCI ESG Research are:

– Alternative energy

– Energy efficiency

– Pollution prevention and control

– Sustainable water

– Green building

– Climate adaptation

MSCI ESG Research attaches great importance to reporting. Issuers must report annually and regularly reviews its list on this basis. Issuers must report annually and regularly reviews its list on this basis. If a report has not been published 18 months after the issuance of the last annual report, the Green bond will be removed from the index.