Green Bonds
Green bonds are a fixed-income financing instrument where 100% of the money from the bonds are earmarked for climate-related or environmental projects. The bonds can be issued by public, private or multilateral entities to raise capital for projects that generate identifiable climate or environmental benefits. Examples for projects include renewable energy, energy efficiency, water and waste management, pollution prevention and control, and green buildings. The proceeds from the bonds are tracked and managed in a reliable manner and transparency is ensured by reporting after financing.
In principle, green bonds work just like other bonds: investors in bonds become creditors of the issuing entity – they basically lend money to whoever issues the bond. The investors are in return paid a fixed interest rate and returned their initial investment when the bond matures.
Green bonds have become popular for investors to align their financial goals with their values and contribute positively towards the transition to a sustainable low carbon economy. They connect investors who want to invest in green purposes with businesses who need funding of green business initiatives or green assets.
Nordea works with clients to develop a Green Finance Framework, which articulates how the client’s governance and management systems are used to track, manage, and report on the use of proceeds so they are allocated only to eligible green projects. This framework is reviewed by a second opinion provider which provides an independent confirmation that the Framework is aligned to the Green Bond Principles, and has clear climate or environmental benefits.
Nordea has developed a framework for green bonds, which we follow when issuing new green bonds.