Issued in order to support projects having positive environmental and climate benefits, green bonds are first launched in 2007 by the World Bank and the EIB.

The main feature of green bonds is that the proceeds from bonds are earmarked for green projects. To this end, investors are provided with detailed information on the projects for which bond proceeds will be earmarked. In addition, proceeds are credited to a special account.

When compared to standard bonds, green bonds offer the same features and advantages. They do not introduce any additional burden for investors. Green bonds:

  • do not cause an additional burden on investors thanks to flat pricing
  • offer same recourse to issuer
  • are pari passu, i.e. they have the same features and payment criteria as the other bonds issued by the same issuer
  • offer a bonus feature of “green” thanks to environmental contribution.

The green bond market gained a huge momentum in 2013 when corporate green bonds are offered to investors. The market volume stood at USD 3 billion in 2012 whereas it increased to USD 11 billion in 2013 and to USD 36.5 billion by the end of 2014. [1] The first corporate green bonds were issued by the French electric utility company EDF, the Bank of America and the Swedish real estate company Vasakronan. The amount of corporate green bonds is striking, with the green bonds issued by GDF Suez reaching EUR 2.5 billion in March 2014 to become the largest green bond in the corporate market. Nevertheless, the largest green bond issuer in 2014 was the EIB with USD 3.53 billion. International financial institutions maintain their importance in the green bond market.

It is observed that corporate bonds such as Unilever’s bonds based on company-wide energy and water consumption goals and Toyota’s bonds for electric vehicles and hybrid cars sparked interest among consumers.[2]

Starting from 2013, municipalities and local governments also began to develop green bonds, with the State of Massachusetts being the first to do so. Examples of local governments offering green bonds include the states of Massachusetts, New York and California in the US, the province of Ontario in Canada, the city of Johannesburg in South Africa and the city of Gothenburg in Sweden.

Indeed, green bonds only constitute a certain part of the climate bonds market. The total value of bonds, the proceeds of which are earmarked for climate change projects, stood at USD 502.6 billion in June 2014 while the value of green bonds was USD 35.8 billion.[3]

The core investable climate-themed bonds (bonds having an investment grade of BBB and above) constitute approximately 47% of the entire climate-themed bonds universe.

Of all the countries issuing climate-themed bonds, China ranks the first in cumulative total (thanks to China Railway Corporation) with USD 164 billion. The UK ranks the second with USD 58.5 billion while the US ranks the third with USD 51 billion[4].

Types of green bonds (Source: Climate bonds Initiative)


Proceeds raised by bond sale are

Debt re-course


Green “use of proceeds” bonds

Earmarked for green projects

Standart/full re-course to the issuer, same credit rating applies as to issuers other bonds

EIB Climate Awareness Bonds

Green “use of proceeds” revenue bond

Earmarked for green projects

Revenue streams from the issuers through fees, taxes etc are the collateral for the debt

Hawaii State (backed by fee on electricity bills of the state utilities)

Green Project Bond

Ring-fenced for the specific underlying green projects

Re-course is only to the project’s assets and balance sheet

Alta Wind Holdings LLC (backed by Alta Wind Project)

Green Securitized Bond

Either 1) earmarked for green Project or 2) goes directly into the underlying green project

Re-course is to a group of projects that have been grouped together (i.e. covered bond or other structures)

1- Northland Power (backed by solar farms)Northland Power (backed by solar farms)

2- Solar City (backed by residential solar leases)

In the upcoming period,

  • Utilities,
  • Automotive,
  • Water (by water utility companies and municipalities during climate change adaptation practices),
  • Banking and finance sectors are expected to present potential for green bonds.

For green bonds, due diligence and third party reviews are mainly performed by CICERO, Vigeo and DNV. Nevertheless, 39% of green bonds were not subject to such review in 2013-2014. It is observed that the future of the market holds both a gap and room for improvement.

Türkiye Sınai Kalkınma Bankası (TSKB) became the first issuer of green bonds in Turkey in 2016. Allocating resources to Turkish private sector for its transition to low-carbon economy, TSKB achieved huge success when the Bank’s bond issuance worth USD 300 million on a 5 year maturity attracted a demand of more than 13 folds of the planned amount. The funds from this issuance which was coordinated by the seven banks authorized by TSKB will be earmarked exclusively for the financing of green and sustainable projects.

Green bond principles

In 2014, a group of financial institutions and banks came together to develop the principles to set certain criteria for green bonds. As of 2015, 89 institutions in the green bond market are GBP members. Furthermore, 45 institutions are observers of the GBP. To become GBP members, institutions are required to have invested in, issued and sold green bonds. GBP membership is not mandatory but voluntary.

The principles are as follows:

  • Use of proceeds from bond sales
  • Process for project evaluation and selection
  • Management of proceeds
  • Reporting

The World Bank Green Bonds:

Green bonds are launched in 2008 with the World Bank’s new climate change program. As of 30 June 2015, the World Bank issued 100 green bonds in 18 different currencies with a value of USD 8.4 billion. These bonds are earmarked for transition to low-carbon economy and climate-resilient growth projects. Green bonds totaling USD 1.2 billion will be due in the next quarter.

World Bank Green Bond Issuances by Currency

Source: World Bank Green Bond Impact Report 2015

[1] HSBC Bonds and Climate Change 2015 report

[2] HSBC Bonds and Climate Change 2015 report

[3] HSBC Bonds and Climate Change 2015 report