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Green Bond Principles: What Issuers Need to Know

Posted on June 1, 2023

Morningstar Sustainalytics
Morningstar Sustainalytics


What Is the Green Bond Market?

The green bond market is a portion of the larger debt market that enables and mobilizes funding for projects that contribute to environmental sustainability. Green bonds facilitate capital raising and investments for new and existing projects which have environmental benefits and can mitigate risks associated with climate change. In 2022, green bond issuances totaled US$487.1 billion, accounting for more than half of all green, social, sustainability, sustainability-linked and transition bonds issuances.1 Historically, over US$2 trillion of green bonds have been issued globally to date, with the potential to grow to US$5 trillion by 2025.2

What Are the Green Bond Principles?

As a way to promote integrity and transparency in the green bond market, the International Capital Markets Association (ICMA) introduced The Green Bond Principles, a voluntary process that provides guidance to issuers (governments, banks, or corporate entities selling bonds or other debt instruments to raise money) on the key components needed to issue a green bond. Issuers who intend to launch a green bond are required to build a green bond framework, which should align to the following four components as specified under the Green Bond Principles.

Use of proceeds: At the core, it is imperative that the proceeds (associated funds) of a green bond are used to finance or re-finance green projects. The Green Bond Principles explicitly define the eligible categories under which projects can be labeled green. These projects should contribute to environmental objectives such as climate change mitigation, natural resource conservation, and pollution prevention and control.

Process for project evaluation and selection: Green bond issuers should clearly communicate the environmental sustainability of the projects to their investors. This includes the environmental objectives of the project, the process by which an issuer determines the green eligibility of the project and the process to manage any potential material, environmental or associated social risks. A high level of transparency into the issuer’s overall objectives, strategy and policy is also encouraged.

Management of proceeds: The Green Bond Principles specify that proceeds (funds) are managed properly in a sub-account, a sub-portfolio, or the issuer demonstrates this in a formal internal process. This process should be linked and aligned to the lending or investment operations for green projects. The Green Bond Principles recommend a high level of transparency, and an issuer should, to the best of its ability, articulate the process by which it is managing the proceeds.

Reporting: It’s an integral part of an issuer’s green bond framework. Issuers are required to report on the allocation of proceeds to eligible green projects. This is usually communicated in an annual report where the issuer can specify the list of green projects, provide a brief description of the projects, and stipulate the respective allocations. The issuer may also report on the expected impact of its green bonds.

What is a Green Bond Framework?

A green bond framework is a document created by the issuer that clearly articulates the company’s proposed use of proceeds for the bond. The framework should include information on the eligible categories (as per the Green Bond Principles) under which the projects being financed or re-financed fit. This disclosure enables investors to better assess the green eligibility of the projects and make more informed investment decisions. It is advised that issuers obtain a second-party opinion (SPO) on their green bond framework from an external review provider to confirm its alignment with the four components of the Green Bond Principles. This step adds credibility to the issuer’s proposal to issue a green bond and was upgraded from a “recommendation” to a “key recommendation” by ICMA during 2021 revisions.3

Additional Guidance for Green Bond Issuers

Green Bond Handbook

The Green Bond Handbook is a document that is designed as a roadmap for potential green bond issuers. It provides an easy to follow, step-by-step guide on how to develop and deliver a successful green bond issuance. The handbook covers the background and theory of green bond issuances as well as the practical procedures, from use of proceeds allocation to reporting and disclosure obligations. Conceived by market experts, the handbook is a living document that is revised periodically as the green bond market evolves. The ICMA Green Bond Principles are the foundation of the Green Bond Handbook’s structure and approach.

Sustainability Bond Guidelines

Some green projects may also have social benefits. In such cases the use of proceed categories should be determined by the projects’ primary objectives. When there is an intentional mix of environmental and social benefits, the bond is referred to as a sustainability bond, for which the ICMA provides a separate set of guidelines, namely Sustainability Bond Guidelines

To learn more about the sustainable bond market, such as how green bonds can help finance sustainability projects, how to address green bond credibility, and what the future holds for the sustainable bond market, download our ebook, The Sustainable Bond Market in 2023: The Importance of Quality.



  1. Climate Bonds Initiative. 2023. “2022 Market Snapshot: And 5 big directions for sustainable finance in 2023.” Climate Bonds Initiative. January 30, 2023.
  2. Ibid.
  3. Ammerman, D. Friedman, B. 2021. “ICMA Green Bond Principles Undergo Minor Facelift.” McMillan LLP. June 23, 2023.


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