It can potentially reflect an issuer’s transition journey and sustainability strategy to the wider world and position the issuer as a first mover in different markets.
It is necessary to highlight that a successful Green Bond Issuance will require the buy-in of the whole organization. Additionally, the process leading up to issuance needs to be carefully managed to make sure that the issue is both a financial and strategic success. It is, therefore, important to put in place a well-established Green Bond Project Team once the decision has been made with the issuance of a Green Bond. In other words, the issuer needs to assemble a team with sufficient expertise and knowledge of programs and systems to be able to conduct an audit of existing assets to determine the amount of potentially available eligible assets. The creation of such a team would significantly increase organizational cohesion and awareness around sustainability topics.
There are multiple positive outcomes for Financial Institutions to issue a Green Bond:
- Green bond issuance presents a significant endorsement of a bank’s sustainability strategy and commitment to its own transition journey and sustainability targets.
- It facilitates capital-raising and investment for new and existing projects with environmental benefits.
- It creates greater visibility by listing an issued bond on one of the dedicated green bond sections of a stock exchange.
- It reflects increasing the bank’s ESG risk awareness, transitioning business model, and restructuring its balance sheet.
- It expands the investor base and creates a dedicated increased supply of capital.
- And last but not least, the creation of an internal Green Bond Project Team enhances the focus on sustainability awareness throughout the organization.
There are currently four different ways to structure Green Bonds:
- Standard Green Use of Proceeds Bond (UoP): This is the most commonly issued green Bond, defined by International Capital Market Association (ICMA) as a standard recourse to the issuer debt obligation aligned with the Green Bond Principles (GBPs).
- Green Revenue Bond: This 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.
- Green Project Bond: This is a project bond for a single or multiple Green Project(s) for which the investor has direct exposure to the risk of the project(s) with or without potential recourse to the issuer and that is aligned with the GBP.
- Secured Green Bond: This is a secured bond where the net proceeds will be exclusively applied to finance or refinance either Green Projects of the issuer, sponsor, or originator Or Green Projects securing the specific Bond (“Secured Green Collateral Bond”). In this type of Green Bond, the cash flows of assets are available as a source of repayment, or assets serve as security for the bonds in priority to other claims.
What is the main difference between issuing a UoP Green Bond and an equivalent Non-Green Bond?
As a standard recourse to the issuer debt obligation, a UoP Green Bond can share the same financial characteristics as an equivalent non-Green Bond in terms of seniority, maturity rating, and interest rate. The key difference is in the alignment with GBPs. An issuer of UoP Green Bond considers which assets it will (re)finance with the proceeds, how the assets will be selected, how the proceeds will be managed, and how it will be reported on the allocation of funds and the impact of the chosen investments. It is important to point out that non-compliance with any of the commitments mentioned in the Green Bond Framework does not create a legal default on the part of the borrower (although such action may well cause significant reputational damage to the issuer).
For inquiries please contact:
RBI Regulatory Advisory
Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria | Tel: +43 1 71707 - 5923