Green Bond
Executive Summary
Key Takeaways
- ✓ A green bond is a use-of-proceeds debt instrument whose proceeds are contractually restricted to a defined list of eligible environmental projects, with eligibility typically drawn from a recognised green bond principles framework or a formal taxonomy.
- ✓ A green bond is structurally distinct from a sustainability-linked bond, whose proceeds are unrestricted but whose pricing is instead contingent on the issuer meeting defined ESG-linked performance KPIs.
- ✓ A green bond issuer typically carries incremental reporting obligations, an allocation report and an impact report, beyond what a standard, unrestricted bond requires.
- ✓ Proceeds should be tracked through a dedicated sub-ledger or register over the bond's full life, and any unallocated balance should be disclosed explicitly rather than presented as fully deployed.
Definition¶
A green bond is a use-of-proceeds debt instrument whose proceeds are contractually restricted to a defined list of eligible environmental projects.
Distinct From a Sustainability-Linked Bond¶
A green bond restricts its proceeds to specific eligible projects, while a sustainability-linked bond leaves proceeds unrestricted but ties the bond's pricing to the issuer meeting defined ESG-linked performance KPIs — a structurally different mechanism covered in Sustainable Finance.
Why It Matters to the Financial Model¶
See Green Finance for the full eligibility, proceeds tracking, and reporting mechanics a green bond and other green-labelled instruments carry.
Continue Reading¶
Related Pillars¶
Related Technical Guides¶
Related Glossary¶
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Frequently Asked Questions
What is a green bond?
A use-of-proceeds debt instrument whose proceeds are contractually restricted to a defined list of eligible environmental projects, with eligibility typically drawn from a recognised green bond principles framework or a formal taxonomy.
How does a green bond differ from a sustainability-linked bond?
A green bond restricts its proceeds to specific eligible projects, while a sustainability-linked bond leaves proceeds unrestricted but ties the bond's pricing to the issuer meeting defined ESG-linked performance KPIs — the two are structurally distinct mechanisms.
What reporting obligations does a green bond carry?
Typically an allocation report showing where proceeds were deployed against the eligible project list, and an impact report showing the environmental outcome achieved, both incremental to what a standard, unrestricted bond would require.
How should unallocated green bond proceeds be treated?
Disclosed explicitly, showing the unallocated balance and its expected deployment timeline, rather than presenting the bond as fully deployed to eligible projects when a material balance remains unallocated.
References
Related Articles
Climate Finance & Climate Financial Modelling
Climate finance is the mobilisation and allocation of capital toward mitigation, adaptation, and transition activity, and climate financial modelling is the discipline of representing that activity's cash flows, risk, and concessionality in a financial model. This page is the hub for the Knowledge Centre's climate finance content: how sustainable, green, and transition finance are distinct but related capital allocation frames, how a climate investment model differs from a standard project or corporate model in its treatment of concessional capital and additionality, how physical and transition climate risk are quantified at portfolio and entity level, and how carbon markets, climate-sector investment, and institutional governance practice build on these foundations as this domain expands.
Green Finance
Green finance is the use-of-proceeds subset of sustainable finance, capital raised through an instrument, most commonly a green bond or green loan, whose proceeds are contractually restricted to a defined list of eligible environmental projects. This guide covers how eligibility criteria are defined and applied, how proceeds tracking works in practice, and the reporting obligations a green-labelled instrument carries beyond a standard, unrestricted loan or bond.
Taxonomy Alignment
Taxonomy alignment measures whether an economic activity meets a defined green or sustainable taxonomy's technical screening criteria, a formal, codified eligibility standard rather than a general environmental claim. It has become the common reference point underpinning green bond eligibility, green asset ratio reporting, and increasingly sustainable finance disclosure more broadly, even for instruments that are not use-of-proceeds restricted.
Sustainable Finance
Sustainable finance is the broadest of the climate-adjacent capital allocation frames, financial activity that integrates environmental, social, and governance factors into investment and lending decisions generally, rather than restricting capital to a defined list of eligible green projects or a defined transition pathway. This guide sets out sustainable finance's scope, sustainability-linked instruments (where terms adjust to performance against ESG-linked KPIs rather than restricting use of proceeds), and its relationship to taxonomy-based disclosure.