Climate Bonds Initiative screens self-labelled debt instruments to identify bonds and similar debt instruments as eligible for inclusion in the Climate Bonds Initiative Green Bond Database (the Database).
The screening references the Climate Bonds Taxonomy, albeit using a modified sector list rather than the taxonomy indicators. This document provides information on the approach and the database maintenance process.
There are three overarching prerequisites:
i. Debt instrument includes but not limited to bonds, asset-backed securities and loans.
ii. Self-labelled, defined as a conscious decision by the issuer to label the instrument. Deals, which finance the right types of assets, projects and activities, but are not self-labelled by the issuer, are not included.
iii. Public disclosure that is sufficient to (1) determine if the financed assets / projects / activities are “green” and (2) allow inclusion of the debt instrument, most notably an amount outstanding and closing / settlement confirmation (issue date).
The screening is based on two key aspects: eligible sectors and eligible use of proceeds.
Eligible sectors for assets, projects and/or activities
The screening seeks to determine general alignment to the Climate Bonds Taxonomy (see Annex A, Pg 14 of the Methodology). The Taxonomy provides two levels of information:
a. Broad guidance on eligible sectors and subsectors, and
The methodology’s sector screening is primarily based on the first level (a). The Climate Bonds Green Bond Database Methodology uses an adapted list of eligible sectors and types of assets, projects and activities (see Annex B, Pg 15 of the Methodology).
The 2˚C indicators (b) are also used to inform the analysis. These indicators are sector and subsector specific. They link to Sector-Specific Criteria, developed or being developed together with scientific and other technical and industry experts, for the purpose of Certification under the Climate Bonds Standard, a labelling scheme for financial instruments that are 2˚C - compliant.
Eligible use of proceeds
Historically, the focus has been on direct financing of physical assets and projects and indirect financing thereof (e.g. loans to suitable assets / projects). Annex D (Pg.22 of the Methodology) provides the expanded eligibility list from the new Climate Bonds Standard Version 3.0, which now includes physical assets and projects, financing thereof and certain expenses.
Climate-change mitigation, adaptation and resilience
Most green bond financing to date has been allocated to climate change mitigation. However, climate change adaptation and resilience (A&R) measures are also eligible.
Climate Bonds’ Climate Resilience Principles provide a framework for issuers to demonstrate that for the assets and activities (re) financed via the bond they understand the related climate risks, have identified measures that address them and can deliver resilience benefits, and the financing is provided to implement them. As risks are idiosyncratic given geography, climate profile and operations, suitable measures would be context specific.
Climate Bonds Green Bond Database Screening Process
As noted, the overarching prerequisites include self-labelled debt instrument, defined as a conscious decision by the issuer to label the instrument in a public document, and public disclosure that is sufficient to determine if the financed assets / projects / activities are “green” and to allow inclusion of the debt instrument in the Climate Bonds Initiative Green Bond Database.
Assuming these are met, the three-step screening process to classify a green bond as eligible covers the following:
i. Identification of climate-themed, self-labelled debt;
ii. Screening sectors and green credentials to determine if the proceeds will finance eligible expenses, assets, projects or activities are in line with the Green Definitions in Annex B (which is adapted from the Climate Bonds Taxonomy and Sector Criteria). Notably, eligible expenses are a new aspect, in line with the proposed EU Green Bond Standard, but the eligibility rules are stricter. More information is provided in the section on certification and the details of screening below.
iii. Evaluating the use of proceeds threshold. Only bonds which are expected to allocate all net proceeds to aligned green assets, projects or activities are included in the Climate Bonds Initiative Green Bond Database