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GREEN BONDS FREQUENTLY ASKED QUESTIONS  What are Green Bonds? Bonds are debt securities issued by Governments, Governmental Agencies or corporate bodies in order to raise capital. Green Bonds are bonds that are used to raise capital specifically for environmentally friendly projects i.e. projects that are climate friendly and leave little or no adverse effect on the environment. For example:
  • Reduced or no pollution of land, water or air
  • Reduction in carbon emission
  • Conservation of natural resources
Green Bonds provide opportunities for investment in the projects that deliver sustainable development. These projects are also referred to as “Qualifying or Eligible Green Projects”. Such projects produce environmental and economic benefits and also help transition the economy away from fossil fuels.
  1. What are the examples of Qualifying or Eligible Green Projects?
They include but are not limited to investments in the following:
Project Category Examples
1. Renewable energy solar, wind, hydropower
2. Energy efficiency efficient buildings, energy management
3. Sustainable waste management pollution prevention and control
4. Sustainable land use forestry, agriculture and aquaculture
5. Conservation biodiversity and natural ecosystems
6. Clean transportation rail, mass transit system, Bus Rapid Transit (BRT) schemes
7. Sustainable water management water treatment plants, water distribution infrastructure, water capture and storage infrastructure
  1. How is the Green Label determined?
There are standards and guidelines to determine which bonds are in fact green. These are
  1. Green Bond Principles – Voluntary guidelines on process for labelling green bonds.
  2. Climate Bond Standards and Certification– Certification label for Green Bonds that provides assurance on due diligence against the Green Bond Principles and the “greenness” of the bond portfolio. It is a third party verification process.
  3. Instruments to assess process for Green Bond labelling such as “Second Opinions”, Green Ratings (e.g. Moody’s Green Rating) and Green Bond Indices.
  1. How are Green Bonds different from regular bonds?
Green Bonds are essentially the same as regular or conventional bonds in terms of deal structure. The primary distinguishing characteristic of Green Bonds relate to the use of proceeds, which are typically earmarked or ring-fenced to finance new and existing qualifying projects with environmental benefits. There are also requirements on transparency and disclosure during the life time of the bond such as annual reporting, auditing and proceeds allocation.
  1. How do financial characteristics of Green Bonds compare with regular bonds?
Green Bonds have financial characteristics that are identical to regular bonds including the credit quality, yield and price at which they are issued.
  1. How are Green Bonds priced?
The market prices of Green Bonds are determined like any other regular bond in relation to market conditions at the time of issuance, or on trade date, if being traded in the secondary market.
  1. Are Green Bonds used to finance only new projects?
Green Bonds can be used to finance new projects and to re-finance existing projects.
  1. How is the use of proceeds and impact of Green Projects monitored?
There are requirements for reporting, third party auditing and proceeds allocation in the guidelines for Green Bonds. Issuers also provide report on both use of proceeds and the impact achieved. These are achieved through:
  1. External review
  2. Annual reporting
  1. Can investment in Green Projects be profitable?
Green bonds provide the same risk reward profile as regular bonds for investors. The “green” tag is a bonus feature to the bond making it attractive to environmentally conscious investors. Green Projects provide sustainable developments that have positive impacts on the environment and reduce carbon emissions while also providing sustainable cash flows amidst other socio-economic benefits. Solar Energy, Bus Rapid Transit Schemes and Modern Rail are examples of Green Projects.
  1. What are Green Bond Principles?
The Green Bond Principles (“GBP” or the “Principles”) are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the Green Bond market by clarifying the approach for issuance of a Green Bond. The Principles highlight the importance of tracking proceeds, allocated funds to eligible projects and providing periodic reports on use of proceeds. These additional requirements provide marketing and branding value absent from regular bonds.
  1. Who issues the National Green Bond Guidelines and Principles in Nigeria?
The National Green Bond Guidelines and Principles are issued by the Federal Ministry of Environment to facilitate the process for the issuance of Green Bonds targeted at the Nigerian market.
  1. How are Green Bonds certified?
The Green Bonds certification process has been designed to work in parallel with the normal bond issuance process:
  • Pre-Issuance: the period when the bond is formulated, confirmed, launched, registered, priced and marketed
  • Post-Issuance: the period from issuance of the bond through to allocation of the net proceeds to eligible projects & assets, and then ongoing for the term of the bond.
Certification of a Green Bond at the Pre-Issuance phase enables the Issuer and underwriters to market the bond as Certified in their road show. Further assurance activities in the Post-Issuance phase must be undertaken to maintain the Green Bond Certification. The Issuer engages an approved (third party) to check that:
  1. The projects & assets to be financed by the bond proceeds are eligible under the Climate Bond Standards, and
  2. The Issuer has established internal processes and controls to keep track of how the bond proceeds are used and produce annual reports.
The third party verifier provides the issuer with a Pre-Issuance Verifier’s Report which states whether the bond conforms with the Pre-Issuance requirements of the Climate Bond Standard. Once the verifier has finalised its report, the issuer includes this in its application for certification to the Climate Bond Standards Secretariat, which is reviewed by the Climate Bond Standards Board. The Climate Bonds Standards Board awards certification based on the verifiers report. On approval, the issuer will receive a formal Certification Letter as well as a Certificate to confirm the decision by the Standards Board.
  1. How are Green Bonds rated?
The credit ratings of Green Bonds and regular bonds are determined by Credit Rating Agencies. However, Green Bonds have additional rating called the Green Rating. This rating accesses the likelihood or extent to which the projects proposed to be funded by the bond proceeds will be adjudged to be environmentally or climate friendly, or meet the requirements of the Green Bond Standards. This is referred to as “Green Bond Assessments” (GBAs). Rating agencies such as Moody’s provide this assessment. The rating score runs from GB1 (Excellent) to GB5 (Poor).
  1. Who can issue Green Bonds?
Green Bonds can be issued by any entity that can issue bonds such as Countries, States, Corporates, banks and Government Agencies.
  1. What are the forms of Green Bonds?
  • Corporate Green Bonds: These are issued by corporate entities.
  • Project Bonds: These are issued to fund specific projects.
  • Financial Sector Bonds: These are issued by financial institutions to specifically raise capital to provide loans to green projects or activities.
  • Asset-Backed Security (ABS) Green Bonds: These are issued for specific projects and are collateralised by one or more of the projects.
  • Supranational, Sub-sovereign and Agency Green Bonds: These are issued by International Financial Institutions (IFIs) such as the World Bank and the European Investment Bank and Sovereign National Development banks.
  • Subnational or Municipal Bonds: These are issued by municipal governments, regional governments, State government or cities.
  • Sovereign Bond: These are issued by a national government.
  1. What are the benefits of Green Bonds?
  2. Issuer
Green Bonds issuance enhances the Issuer's reputation by showcasing the Issuer’s commitment towards sustainable development. Others include:
  • Access to capital for sustainable development projects
  • Access to new global investors who invest in green ventures.
  • Positive publicity.
  • Leadership and branding opportunity.
  1. Investors
Green Bonds provide all the benefits that regular bonds provide such as low risk, fixed regular income, tradability, tax savings and capital appreciation. Other specific benefits include:
  • Investors can balance risk-adjusted financial returns with environmental benefits.
  • Green Bonds satisfy Environment, Social and Governance (ESG) requirements and green investment mandates.
  • Green Bonds improve risk assessment in an otherwise opaque fixed income markets through use of proceeds reporting.
  1. Financial Market
  • Green Bonds enhance the reputation of institutions that offer Green Bonds and also promote interests in investments that deliver sustainable development
  • Green Bonds attract investors from outside the traditional universe of domestic financial market participants.
  • Green Bonds foster a greater level of transparency and institutional accountability in the delivery of sustainable development.
  1. What are the possible risks of investing in Green Bonds?
Green Bonds have similar risk profiles to regular bonds such as credit risk, interest rate risk, market and liquidity risk, event risk, etc.
  1. When did the concept of Green Bonds start?
Green Bonds were launched by a few development banks such as the European Investment Bank and the World Bank in 2007. Subsequently, in 2013, other Issuers such as corporates and municipalities also started participating in their issuance.
  1. What has been the growth and composition of the Green Bond market?
The Green Bond market accounted for $800 million of issuance in 2007, but has expanded significantly every year since then. The Green Bond market, which saw the issuance of only $3 billion in 2012, reached a record issuance of $81 billion in 2016.
  1. Who buys Green Bonds?
Green Bond purchasers are typically institutional investors, often with either an ESG mandate or Responsible Investment focus. Other buyers include investment and fund managers, corporate investors, high net worth individuals and retail investors.
  1. What are issuance-sizes for Green Bonds?
On average $250Million, ranging from $10 million to $2 billion. However, in January, 2017, France issued its first Green Bonds with a record $7.5 billion sale.
  1. What are Green Bond maturities?
Tenures are similar to those of regular bonds, ranging from 3-25 years with a focus toward medium term bonds.
  1. How vast is the coverage of the Green Bonds market?
The coverage of the Green Bond market is expanding. Green Bonds have been issued to domestic and foreign investors in 23 jurisdictions, including 14 markets of the G20countries and in 23 currencies.
  1. Who has issued Green Bonds?
  • Commercial Banks: IDBI Bank, Axis Bank, Yes Bank, Dutch bank ABN Amro, etc.
  • Corporate: Apple, Toyota, Hyundai Capital Services, and Iberdrola etc.
  • Asset-Backed Security (ABS): FlexiGroup Ltd, Toyota Financial Services, Citi and Renew Financial etc.
  • Subnational, Municipal: The City of Johannesburg, Province of Ontario, Canada and State of Victoria, Australia, The Commonwealth of Massachusetts etc.
  • Development Banks: The World Bank, The African Development Bank (AFDB), The European Investment Bank, The International Finance Corporation etc.
  • Sovereign: Poland, France.
  1. What are the Past Sovereign Green Bond Issuance?
Two countries have issued Sovereign Green Bond. Poland is the first country to issue a Sovereign Green Bond in December, 2016, followed by France in January, 2017. Other countries such as China, Luxembourg and Nigeria have expressed interest in doing so.
  1. How remarkable is Nigeria’s debut Green Bond initiative?
It will be the first Sovereign Green Bond issuance in Africa and emerging markets and the third Sovereign Green Bond in the world.
  1. Can Green Bonds be Listed and Traded?
Green Bonds are tradable instrument like regular bonds. The proposed Nigerian Green Bond will be listed on The Nigerian Stock Exchange.
  1. Will the proposed Nigerian Green Bond be subject to tax?
Interest earned on bonds issued in Nigeria is tax exempt. This will also apply to the proposed Green Bonds.
  1. Do we have an enabling environment for Green Bonds in Nigeria?
To facilitate the process for the issuance of Green Bonds in Nigerian, the Federal Ministry of Environment has issued the National Green Bond Guidelines and Principles. Furthermore, Green Bonds issued by the Federal Government will be based on the existing financial and governance regulatory framework for regular bonds issued by the Federal Government through the Debt Management Office. New rules and regulations will be issued by the Securities and Exchange Commission and other regulatory agencies to further deepen the market for Green Bond issuance by subnational and corporate entities.
  1. 30. How do investors subscribe to the Green Bonds?
The mode of subscription is to be determined based on the structure of the Green Bond.
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