Green Bond Regulatory Frameworks:

Subjecting Finance to Environmental Objectives Through “Green” Definitions

LUNVEN DE CHANROND, Gregoire Regis Marie

A Thesis Submitted in Partial Fulfilment

of the Requirements for the Degree of
Doctor of Philosophy
in
Laws

The Chinese University of Hong Kong

February 2023
Abstract of thesis entitled:
Green Bond Regulatory Frameworks: Subjecting Finance to Environmental Objectives
Through “Green” Definitions
Submitted by LUNVEN DE CHANROND, Gregoire Regis Marie
for the degree of Doctor of Philosophy in Laws
at The Chinese University of Hong Kong in February 2023

ABSTRACT

This thesis argues that much of the legal literature has misunderstood green bond regulatory
frameworks for failing to adequately consider the public law element of these emerging
regulations. Most of previous analyses focus on the ability of the green bond regulations to
ensure the mutual adjustment of private contracting parties’ interests. From this perspective,
the environmental characteristics of the bond become a matter of bilateral agreement. However,
the environmental objectives of green bonds are a matter of public law, as they relate to the
interest of all. The condition for the existence of the green bond market lies in the existence of
public law rules defining what "green" means. This primacy of the public element radically
changes the understanding of the origins of green bonds, the structure of their regulatory
regimes, and the implementation of these regulations. Dissenting from most of the scholarship,
this thesis shows that it is not the market that invented green bonds, but international
institutions based on international environmental law; that the core of green bond regimes is
not transparency between contracting parties, but green finance taxonomies defining
trajectories towards the achievement of environmental objectives; and that the main reason for
the deficiencies in implementation is not the lack of environmental clauses in bond contracts,
but the lack of control by public authorities.

Key words: Green Bonds, Green Finance Taxonomies, Climate Finance, Sustainable Finance,
Environmental Strategic Planning

i
 摘要

本篇论文认为，针对新兴的绿色债券法规的许多法律研究因为忽视了其中的公法要素
而误读了绿色债券的监管框架。此前，诸多分析大多集中在绿色债券法规确保调节私
人缔约方利益的能力上。从这个角度来看，债券的环境特性成为双边协议中考虑的问
题。然而，绿色债券的环境效益目标关系到所有人的共同利益，所以它是一个公法问
题。绿色债券市场存在的条件首先在于既定的公法规则对何为“绿色”作出界定。公共
要素的这种首要地位从根本上改变了我们对绿色债券的起源、监管制度架构及实施的
理解。与大部分学术研究不同，本文表明，创造绿色债券的不是市场，而是基于国际
环境法的国际机构；绿色债券制度的核心不是缔约方之间的透明度，而是定义了环境
效益目标实现路径的绿色金融分类标准；而执行不力的主要原因不是债券合同中缺少
环境条款，而是公共机构监管的缺失。

ii
 ACKNOWLEDGEMENTS

I naturally would like to express my thanks to my supervisors, Professor Benoît MAYER

and Professor XI Chao. Their positive spirit and constructive feedback were extremely
helpful to me.

iii
TABLE OF ABBREVIATIONS

CBI: Climate Bonds Initiatives

COP: Conference of Parties
CRA: Credit Rating Agency
CRS: Credit Reporting System
CSR: Corporate Social Responsibility
CSRD: China Securities Regulatory Commission
CSRD: Corporate Sustainability Reporting Directive
ECB: European Central Bank
EIB: European Investment Bank
EPA: Environmental Protection Agency
ESG: Environment Social Governance
ESMA: European Securities and Market Agency
EU: European Union
EUGBR: Proposed (as of July 2022) European Union Green Bond Regulation
DAC: Development Assistance Committee
DNSH: Do No Significant Harm
FED: Federal Reserve System
GBF: Green Bond Framework
GBP: Green Bond Principles
GCF: Green Climate Fund
GEF: Global Environment Facility
GHG: Greenhouse Gas
HKEX: Hong Kong Stock Exchange
HKMA: Hong Kong Monetary Authority
HKQAA: Hong Kong Quality Assurance Agency
HLEG: High-Level Expert Group on sustainable finance
ICMA: International Capital Market Association
IDFC: International Development Finance Club
IPSF: International Platform on Sustainable Finance
IEA: International Energy Agency
IFRS: International Financial Reporting Standards

iv
IPCC: International Panel on Climate Change
IPSF: International Platform on Sustainable Finance
IRS: Internal Revenue Service
KPI: Key Performance Indicator
LuxSE: Luxembourg Stock Exchange
MDB: Multilateral Development Bank
NACE : Nomenclature des activités économiques de la Communauté Européenne
NAFMII: National Association of Financial Market Institutional Investors
NCA: National Competent Authority
NDC: Nationally Determined Contribution
NFRD: Non-Financial Reporting Directive
NGO: Non-Governmental Organisation
ODA: Official Development Aid
OECD: Organisation of Economic Cooperation and Development
PBOC: People’s Bank of China
PRI: Principles for Responsible Investment
SPO: Second Party Opinions
SFC: Securities and Finance Commission
SFDR: Sustainable Finance Disclosure Regulation
STAGE: Sustainable and Green Exchange of Hong Kong
TCFD: Task-force on Climate-related Financial Disclosures
UN-DESA: United Nations - Department of Economic and Social Affairs
UNEP-FI : United Nations Environment Programme Finance Initiative
UNFCCC : United Nations Framework Convention on Climate Change

v
LIST OF TABLES AND FIGURES

Figure 1: Stated normativity of green bond standards (p71).

Figure 2: Effective normativity of green bond standards (p71)
Figure 3: Family tree of green finance taxonomies (p82)
Figure 4: Centrality of the taxonomy in the EU sustainable finance plan (p86)
Figure 5: The concepts of materiality and green bond regimes (p127)
Annex 2: Table of equivalence between the Equator Principles III, June 2013, the Green Bond
Framework, October 2013 and the Green Bond Principles, January 2014.

vi
 TABLE OF CONTENTS

TABLE OF ABBREVIATIONS ........................................................................................ iv

CHAPTER I: INTRODUCTION ..............................................................................................1

SECTION 1 BACKGROUND..............................................................................................2

1.1. GREEN BOND: AN OPEN CONCEPT ...................................................................2

1.2. THE LITERATURE ON GREEN BONDS ...............................................................5

SECTION 2: OBJECTIVES ...............................................................................................13

2.1. LITERATURE GAPS ..............................................................................................13

2.2. GAPS TO BE ADDRESSED IN THIS THESIS .....................................................15

2.3. QUESTIONS ...........................................................................................................16

SECTION 3: METHODOLOGICAL FRAMEWORK ......................................................18

3.1. A DOCTRINAL APPROACH ................................................................................18

3.2. SOURCES OF LAW: PLURALIST AND TRANSNATIONAL THEORIES .......20

3.3. ANALYTICAL FRAMEWORK: AGAINST HYBRIDITY, THE

PUBLIC/PRIVATE DISTINCTION ..............................................................................24

SECTION 4: STRUCTURE OF THE THESIS ..................................................................27

CHAPTER II: THE CONCEPT OF GREEN BOND .............................................................31

1. INTRODUCTION ..........................................................................................................31

2. THE EMERGENCE OF THE GREEN BOND CONCEPT ...........................................33

2.1. EARLY GREEN BOND CONCEPTS IN CONTEXT ...........................................34

2.1.1. OVERVIEW OF THE BOND MARKET ........................................................34

2.1.2. EARLY GREEN BOND COMPETING CONCEPTS .....................................37

2.2. REASONS EXPLAINING THE EMERGENCE OF THE GREEN BOND

MARKET........................................................................................................................42

2.2.1. THE SUSTAINABILITY-DRIVEN TRANSFORMATIONS OF FINANCE 42

2.2.2. GREEN BONDS’ QUALITIES FROM THE VIEWPOINT OF MARKET

PARTICIPANTS ........................................................................................................46

3. THE CONTRIBUTION OF SUCCESSIVE ISSUANCES TO THE GREEN BOND

CONCEPT ..........................................................................................................................48

3.1. RATIONALES FOR ISSUING GREEN BONDS ......................................................49

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 3.1.1. NON-FINANCIAL RATIONALES FOR GREEN BONDS ISSUANCES .... 49

3.1.2. FINANCIAL RATIONALES FOR ISSUING GREEN BONDS .................... 55

3.2. CONCEPTUAL DEBATES.................................................................................... 61

3.2.1. CONTROVERSIES ON THE DEFINITIONS OF “GREEN” ........................ 62

3.2.2. CONTROVERSIES ON INFORMATION DISCLOSURES .......................... 64

4. THE NORMATIVE DENSIFICATION OF THE GREEN BONDS CONCEPT ......... 66

4.1. THE RATIONALES FOR GREEN BONDS’ NORMATIVE DENSIFICATION 67

4.1.1. ENVIRONMENT-RELATED RATIONALES OF GREEN BOND NORMS

MAKERS ................................................................................................................... 67

4.1.2. FINANCE-RELATED RATIONALES OF GREEN BOND NORMS

MAKERS ................................................................................................................... 72

4.2. THE PROCESS OF NORMATIVE DENSIFICATION OF THE GREEN BOND

CONCEPT ...................................................................................................................... 76

4.2.1. THE NORMATIVE DENSIFICATION OF GREEN FINANCE

TAXONOMIES.......................................................................................................... 76

4.2.2. THE NORMATIVE DENSIFICATION OF TRANSPARENCY

STANDARDS ............................................................................................................ 78

4.3. THE RESULTING NORMATIVITY OF GREEN BOND STANDARDS ........... 80

5. CONCLUSION .............................................................................................................. 89

CHAPTER III: THE ENVIRONMENTAL CONTRIBUTION REGIME ............................ 91

1. INTRODUCTION ...................................................................................................... 91

2. GENEALOGY OF GREEN FINANCE TAXONOMIES ......................................... 94

2.1. ORIGINS OF GREEN FINANCE TAXONOMIES IN MDBS AND

INTERNATIONAL ORGANISATIONS ...................................................................... 94

2.2. THE ADOPTION OF GREEN FINANCE TAXONOMIES BY THE GREEN

BOND MARKET ........................................................................................................... 98

2.2.1. THE EFFECT OF THE CLIMATE BONDS TAXONOMY .......................... 98

2.2.2. FURTHER TAXONOMY DEVELOPMENTS ............................................. 101

2.2.3. THE MARGINALISATION OF ALTERNATIVE SOLUTIONS TO

TAXONOMIES........................................................................................................ 104

3. STRUCTURE OF GREEN FINANCE TAXONOMIES ......................................... 106

viii
 3.1. PRINCIPLES AND OBJECTIVES .......................................................................106

3.2. CATEGORIES OF ACTIVITIES ..........................................................................110

3.3. GREEN CRITERIA ...............................................................................................113

3.4. DO NO SIGNIFICANT HARM PRINCIPLE AND SOCIAL SAFEGUARDS ...116

4. REQUIREMENTS BUILDING ON GREEN FINANCE TAXONOMIES .............118

4.1. REQUIREMENTS OF ALLOCATION ................................................................119

4.2. REQUIREMENTS OF INFORMATION ..............................................................122

4.3 OTHER REQUIREMENTS AND INCENTIVES .................................................124

5. CONCLUSION .........................................................................................................126

CHAPTER IV: THE TRANSPARENCY REGIME ............................................................129

1. INTRODUCTION ....................................................................................................129

2. TRANSPARENCY REQUIREMENTS ...................................................................131

2.1. PRE-ISSUANCE DISCLOSURES........................................................................131

2.1.1 AD-HOC GREEN BOND DOCUMENTATION ...........................................131

2.1.2. BOND DOCUMENTATION .........................................................................138

2.2. POST-ISSUANCE REPORTING ..........................................................................141

2.3. EXTERNAL REVIEWS ........................................................................................144

3. INTERACTIONS BETWEEN GREEN BOND STANDARDS AND

INTERNATIONAL FINANCIAL REGULATION .........................................................149

3.1. PRE-ISSUANCE DISCLOSURES IN INTERNATIONAL FINANCIAL

REGULATION .............................................................................................................150

3.2. POST-ISSUANCE DISCLOSURES IN INTERNATIONAL FINANCIAL

REGULATION .............................................................................................................157

3.3. THIRD PARTIES .............................................................................................163

4. CONCLUSION .........................................................................................................166

CHAPTER V: IMPLEMENTATION AND CONTROL .....................................................169

1. INTRODUCTION ....................................................................................................169

2. IMPLEMENTATION ...............................................................................................172

2.1. IMPLEMENTATION OF TRANSPARENCY REQUIREMENTS .....................172

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 2.1.1. IMPLEMENTATION OF PRE-ISSUANCE DISCLOSURES
REQUIREMENTS ................................................................................................... 172

2.1.2. IMPLEMENTATION OF POST-ISSUANCE DISCLOSURES

REQUIREMENTS ................................................................................................... 176

2.2. IMPLEMENTATION OF ENVIRONMENTAL CONTRIBUTIONS

REQUIREMENTS ....................................................................................................... 179

2.2.1. IMPLEMENTATION OF GREEN TAXONOMIES REQUIREMENTS ..... 179

2.2.2. IMPLEMENTATION OF REQUIREMENTS BUILDING ON GREEN

TAXONOMIES........................................................................................................ 181

3. NON-JUDICIAL MONITORING AND CONTROL .............................................. 183

3.1. GREEN BOND EXTERNAL REVIEWERS ....................................................... 183

3.2. CIVIL SOCIETY .................................................................................................. 187

3.3. ADMINISTRATIVE CONTROL BY REGULATORS ....................................... 190

4. JUDICIAL CONTROL ............................................................................................ 195

4.1. LITIGATION BASED ON FINANCIAL LAW ................................................... 195

4.2. CONTRACT LAW LITIGATION................................................................... 199

4.3. OTHER LITIGATION POSSIBILITIES .............................................................. 203

5. CONCLUSION ........................................................................................................ 204

CHAPTER VI: CONCLUSION AND PERSPECTIVES .................................................... 206

1. RESULTS OF THE THESIS ................................................................................... 206

2. CRITICAL PERSPECTIVES: ALTERNATIVES TO THE GREEN BOND REGIME

.......................................................................................................................................... 207

2.1. BENEFITS ............................................................................................................ 208

2.2. PROJECTS ............................................................................................................ 209

2.3. TAXONOMIES..................................................................................................... 211

2.4. CAPITAL AND INTERESTS .............................................................................. 213

2.5. MATURITY .......................................................................................................... 215

2.6. GREEN.................................................................................................................. 217

2.7. BOND.................................................................................................................... 218

3. PROPOSALS ............................................................................................................... 218

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 3.1. DEMOCRATIZING THE NORMATIVE PRODUCTION ON GREEN BONDS
......................................................................................................................................218

3.2. FOSTER A TYPE OF ENVIRONMENTAL TRANSPARENCY CONNECTED TO

THE POLITICAL COMMUNITY ...............................................................................220

3.3. STRATEGICALLY PLANNING FOR THE DEMISE OF HARMFUL

ACTIVITIES: SET UP RED TAXONOMIES .............................................................221

3.4. STRENGTHEN THE IMPLEMENTATION OF GREEN FINANCIAL

PRODUCTS ..................................................................................................................221

BIBLIOGRAPHY .............................................................................................................224

BOOKS AND THESES ................................................................................................224

JOURNAL ARTICLES AND BOOK CHAPTERS .....................................................225

REPORTS AND RESEARCH PAPERS ......................................................................230

MEDIA ARTICLES .....................................................................................................236

OTHER PUBLICATIONS AND STATEMENTS .......................................................237

INTERNATIONAL TREATIES ..................................................................................241

LAWS, LAW PROPOSALS, REGULATIONS AND STANDARDS ........................241

CASES ..........................................................................................................................246

OTHER OFFICIAL DOCUMENTS ............................................................................246

GREEN BOND ISSUANCE MATERIALS .................................................................248

ANNEX 1: ANNOTATED LIST OF GREEN BOND STANDARDS ............................252

ANNEX 2 : TABLE OF EQUIVALENCE BETWEEN THE EQUATOR PRINCIPLES III,

JUNE 2013, THE GREEN BOND FRAMEWORK, OCTOBER 2013 AND THE GREEN
BOND PRINCIPLES, JANUARY 2014. .........................................................................254

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xii
 CHAPTER I: INTRODUCTION

Controversies on the green bond phenomenon. A green bond is, in the most general sense,
“a fixed income debt instrument that finances environmental or climate-related projects.”1
Green bonds give rise to conflicting opinions. For some, green bonds are merely an exercise
in greenwashing2 – “the practice of claiming products as green or sustainable, when in fact,
such environmental benefits do not exist or the products do not meet basic environmental
standards.”3 For others, green bonds represent “one of the main instruments for financing
investments related to low-carbon technologies, energy and resource efficiency as well as
sustainable transport infrastructure and research infrastructure.”4 Despite the lack of consensus
on the benefits of issuing green bonds, this market underwent vigorous growth. By the end of
2020, the green bond market had reached USD1.1 trillion and almost 10,000 instruments had
been issued under green, social or sustainable labels since 2006 – the vast majority of these
instruments being green bonds.5 On the other hand, green bond issuances remain a fraction of
overall bond issuances. For instance, 2.6 percent of overall 2020 bond issuances in the
European Union were green bonds.6

Outline of this introduction. Some of the controversies regarding green bonds cannot be
addressed in a law thesis. Issues regarding the efficiency of green bonds are better treated by
economists or environmental scientists.7 Similarly, issues regarding the appropriate pace of

1
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
2
Alain Grandjean, Julien Lefournier and Gaël Giraud, L’illusion de la finance verte (Editions de
l’Atelier 2021).
3
Michael P. Vandenbergh and Jonathan M. Gilligan, Beyond Politics: The Private Governance
Response to Climate Change (Cambridge University Press 2017) 152. The Oxford English Dictionary
defines the verb ‘to greenwash’ in the following way: “(a) To mislead (the public) or counter (public or
media concerns) by falsely representing a person, company, product, etc., as being environmentally
responsible; (b) to misrepresent (a company, its operations, etc.) as environmentally responsible.” OED
Online, Oxford University Press, December 2021. <www.oed.com/view/Entry/251865> accessed 1
October 2021.
4
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the Council
on European Green Bonds’ COM(2021) 391 Final, recital 3.
5
Climate Bonds Initiative, ‘Sustainable Debt Global State of the Market 2020’ (2021)
<https://www.climatebonds.net/files/reports/cbi_sd_sotm_2020_04d.pdf> accessed 1 October 2021.
6
Commission, ‘European Financial Stability and Integration Review 2021’ (2021), 28
<https://ec.europa.eu/info/sites/default/files/european-financial-stability-and-integration-review-
2021_en.pdf> accessed 1 October 2021.
7
For instance, Torsten Ehlers, Benoît Mojon and Frank Packer, ‘Green bonds and carbon emissions:
exploring the case for a rating system at the firm level’ (2020) BIS Quarterly Review 31 ; Morgane
Nicole, Igor Shishlov, Ian Cochran, Green Bonds: Improving their contribution to the low-carbon and
climate resilient transition (I4CE 2018) <https://www.i4ce.org/wp-core/wp-
content/uploads/2018/03/I4CE-GreenBondsProgram-Contribution-Energy-Transition-web-5.pdf>
accessed 1 October 2021.

1
reforms in view of the climate emergency are a political question, left to advocacy groups,
policymakers, think tanks, or governmental institutions.8 The following sections identify the
questions suitable to legal research. The first section does so by providing some background
information on green bonds and the academic literature already devoted to them (1). The
second section exposes the main literature gaps, and therefore the objectives of this work (2).
The third section presents the methodological framework mobilised to achieve these objectives
(3). The fourth section summarises the structure of the thesis (4).

SECTION 1 BACKGROUND

Outline. This first section presents background information on the concept of green bond (1.1)
and the academic literature on this concept (1.2).

1.1. GREEN BOND: AN OPEN CONCEPT

Outline. The variety green bond issuances are the first hints at the openness of the green bond
concept. The absence of any technical meaning of the word “bond” and the diversity of bond
types in green bond reveals the polysemy of the word “bond”. The absence of determinate
meaning of the word “green” as well as the emergence of competing adjectives to “green” add
to the plasticity of the green bond concept. The multiplicity of actors involved in green bonds
making further contributes to the multifaceted nature of green bonds.

Varied green bond issuances. What is the common feature between a bicycle lane in Xian,
China;9 France’s energy transition tax credit;10 and energy efficiency improvements on an oil
refinery in Spain? 11
All were financed with debt securities labelled – sometimes
controversially – as green bonds by the corporations or public authorities who issued them.
This eclectic list illustrates the wide array of possibilities opened by green bonds. A green
bond can finance commercial or non-commercial projects; it can be issued by a corporation, a
financial institution, or a public authority; it can be traded domestically or internationally, etc.
The concept of green bond is extremely flexible, to the point that someone who would think

8
For instance, Oxfam Hong Kong and Carbon Care Asia, Making Green Bonds Work: Social and
Environmental Benefits at Community Level (2020).
9
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 213.
10
Agence France Trésor du Ministère de l’Economie et des Finances, Green OAT Allocation and
Performance Report for 2019 (2020) 32 < https://www.aft.gouv.fr/files/medias-
aft/3_Dette/3.2_OATMLT/3.2.2_OATVerte/Agence%20France%20Tresor_Green%20OAT%20UK.p
df> accessed 1 October 2021.
11
Phil Brown, ‘Green bond comment, June – Of Repsol and reputation’ (2017) Environmental Finance
<https://www.environmental-finance.com/content/analysis/green-bond-comment-june-of-repsol-and-
reputation.html> accessed 1 October 202.

2
that any project can be financed by a green bond might just be right. The following paragraphs
further characterize the indeterminacies of the green bond concept.

Absence of any technical meaning of the word “bond.” In the context of the financial
market, the word “bond” does not have any technical legal meaning but “is used as a generic
term to include all obligations and instruments which constitute or evidence long-term
indebtedness, and which are traded between investors during the period between their issue
and the date of redemption.”12 The word “bond” is mainly to be understood by opposition with
the words “stock” or “share”: a bond is a debt, while a share or a stock is an ownership stake
in a company. Bonds may have different characteristics: they can be “with fixed or variable
rates of interest, redeemable or irredeemable, short or long-term, secured or unsecured, and
marketable or unmarketable.”13 Bonds sold to international investors are often a specific kind
of bonds called “eurobonds.”14 Eurobonds are issued in euros and secondary market investors
can remain anonymous.15 Some green bonds are also sometimes called “green notes”. A note
is a type of bond “where the word ‘note’ is used in preference to bond when the principal sum
is repayable in less than five years.”16

Diversity of bond types in green bond standards. Early green bond standards further
illustrate the diversity of situations covered by the word “bond.” These standards used to list
the types of potential green bonds: “use of proceeds bond”, defined as “a standard recourse-
to-the-issuer debt obligation for which the proceeds shall be moved to a sub-portfolio or
otherwise tracked by the issuer and attested to by a formal internal process that will be linked
to the issuer’s lending and investment operations for projects” ; “use of proceeds revenue
bond”, defined as “a non-recourse-to-the-issuer debt obligation in which the credit exposure
in the bond is to the pledged cash flows of the revenue streams, fees, taxes etc.,” “project bond”
defined as “a bond […] for which the investor has direct exposure to the risk of the project(s)
with or without potential recourse to the issuer” ; and “securitized bond”, defined as “a bond
collateralized by one or more specific projects, including but not limited to covered bonds,
ABS, and other structures.”17

Absence of determinate meaning of the word “green.” If the word “bond” covers a wide
range of realities, the word “green” has an even wider meaning. Private green bond standards
and state regulations set a great variety of requirements, from simple transparency guidelines

12
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015).
13
Jonathan Law, A dictionary of finance and banking (6 ed, Oxford University Press, 2018).
14
This expression « eurobond » has nothing to do with the euro currency. This is the name of the
international bond market, which started between Europe and the United States after World War II.
15
Ibid.
16
Ibid.
17
International Capital Market Association, Green Bond Principles (2014).

3
enabling issuers to justify the greenness of their bonds to lists of “green” categories or activities
– with or without detailed criteria. 18 Depending on the existing green bonds issued on
international capital markets, “green” can be defined solely by the issuer or can be verified or
certified as green by a specialised green bond reviewing entity. This entity can be accredited
as verifier/certifier by a green bond private standard or by a State. Sometimes, a green bond
standard is not even necessary for a review to occur: green bond reviewers can assess a green
bond solely on the basis of the issuer’s framework. Bond exchanges, to some extent, contribute
as well to the definition of what is green, by establishing listing requirements for green bonds.19

Emergence of competing adjectives to “green.” The openness of the green bond concept
also led to the development of closely linked concepts, such as social, sustainable, blue,
transition bonds or sustainability-linked.20 Based on the model of green bonds, these thematic
bonds grew even faster than green bonds in the last two or three years. Social bonds
spectacularly grew in the aftermath of the Covid 19 crisis, 21 but the projects with intended
positive social impacts they finance are even less well defined than for green bonds.
Sustainable bonds refer to an emerging category of bonds financing projects with both
environmental and social positive impacts.22 Blue and transition bonds refer, respectively, to
bonds financing ocean protection-related projects23 and projects not yet qualified as green but
showing an effort to aiming at it.24 Sustainability-linked bonds are bonds where the interest

18
See Chapter III.
19
See Chapter IV.
20
Organisation for Economic Development and Cooperation (OECD), Scaling up Green, Social,
Sustainability and Sustainability-linked Bond Issuances in Developing Countries (18 October 2021) <
https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD(2021)20&docLangua
ge=En> accessed 17 June 2022.
21
United Nations - Department of Economic and Social Affairs (UN- DESA) and
International Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify,
verify and align investments to sustainability goals (2021) 21 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022 [“In
2020, social bond issuance grew to $249 billion mainly to fund Covid-related relief packages by
government agencies and development banks (in comparison with $290 billion green bonds). Bonds
with a mix of both social and green spending are usually called sustainability bonds and issuance in
2020 amounted to $169 billion”].
22
Ibid 21.
23
World Bank, Sovereign Blue Bond Issuance : Frequently Asked Questions (2018)
<https://www.worldbank.org/en/news/feature/2018/10/29/sovereign-blue-bond-issuance-frequently-
asked-questions> accessed 17 June 2022 [“The blue bond is a debt instrument issued by governments,
development banks or others to raise capital from impact investors to finance marine and ocean-based
projects that have positive environmental, economic and climate benefits.”].
24
Axa, Une nouvelle obligation pour accompagner la transition énergétique (2019)
<https://www.axa.com/fr/magazine/une-nouvelle-obligation-pour-accompagner-la-transition-
energetique#:~:text=Les%20transition%20bonds%20permettent%20de,la%20r%C3%A9duction%20d
u%20bilan%20carbone> accessed 17 June 2022.

4
rate varies depending on reaching certain social or environmental targets agreed upon by the
issuers and the investors.25

The multiplicity of green bond actors. The main actors of contemporary bond markets are
the issuers, the underwriters, the credit rating agencies, the bond exchanges and the investors.
The issuers are the entities in demand for money, then issuing a debt security called a bond.
Their main goal is to issue bonds with the lowest possible interest rate, as it diminishes the
cost of the capital issuers raise on the market. The underwriters are the banks that buy the
bonds, and then resell it to market investors. Their main objective is to issue as many bonds
as possible, since they receive a fee each time they assist the issuance of a bond. Credit rating
agencies assess the likeliness that the issuer will reimburse the loan. The bond exchanges list
the bond, which enables transactions for the primary as well as the secondary markets. The
investors are the final buyers of the bonds. Their main aim is to buy bonds which yields is as
high as possible, while its risks are as low as possible. The green bond market adds a last actor:
external reviewers. External reviewers are the entities paid by the issuer in order to deliver an
assessment of the green bond called an external review. The main types of external review are:
assurance, green bond ratings, Second Party Opinions (SPO) and certification.26 Assurance is
the most basic mode of external review.27 Green bond ratings are slightly more sophisticated,
insofar as they provide a shaded rating on the “greenness” of the bond. 28 SPOs have an
additional degree of complexity and are the most widely used method for assessing the green
credentials of a bond.29 Finally, certification, such as the Climate Bonds Certification, is the
most demanding external review process.30

1.2. THE LITERATURE ON GREEN BONDS

Outline. Reviewing the academic literature on green bonds is necessary to grasp the contours
of the green bond concept. This section reviews academic work in law, before turning to other
types of scholarship related to green bonds.

25
ICMA, Sustainability-linked Bonds Principles (2020) <
https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/June-2020/Sustainability-
Linked-Bond-Principles-June-2020-171120.pdf> accessed 17 June 2022 [“Sustainability-Linked
Bonds (“SLBs”) are any type of bond instrument for which the financial and/or structural characteristics
can vary depending on whether the issuer achieves predefined Sustainability/ ESG objectives.”].
26
Further defined section 2.3 of chapter IV.
27
United Nations - Department of Economic and Social Affairs (UN- DESA) and
International Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify,
verify and align investments to sustainability goals (2021) 24.
28
Ibid 24.
29
Ibid 24.
30
Martijn W. Scheltema, ‘Assessing Effectiveness of International Private Regulation in the CSR
Arena’, 13 Richmond Journal of Global Law and Business 323 (2014).

5
Overview of the legal literature. In a nutshell, the dozens of articles, book chapters and the
thesis constitutive of the legal literature on green bonds can be synthesised to three main
conceptualisations of green bonds: a pluralist approach (Park), which emphasizes the
regulatory role of private green bond standards; a law and economics approach (Forsbacka),
which assesses green bonds in light of their economic efficiency and a public law approach,
initiated by Cornut St Pierre and pursued in this thesis. The last strand of scholarship opposes
the two first, which are both private law approaches.

Park’s contribution to the literature. The article of Stephen Kim Park, entitled ‘Investors as
Regulators: Green Bonds and the Governance Challenges of the Sustainable Finance
Revolution’ and published in 2018 in the Stanford Journal of International Law31 contributed
to the literature on green bonds by providing a pluralist account of green bonds. Before Park,
the legal literature was mentioning in passing the existence of some private standards but was
focused on deploring the absence of public regulations. With his article, Park changed the
understanding of the green bond market with a detailed analysis of the “decentralized and
primarily shaped by private governance regimes” rules applicable to the green bond market.
Instead of regretting the absence of public regulation, Park acknowledges some advantages of
private governance, “[which] is often faster to implement and more responsive to the needs of
market participants”, without overlooking some of its flaws, such as the “lack of legitimacy,
accountability, and consistency and [the fact of being] susceptible to greenwashing.” To tackle
private governance issues, Park advocates a “public-private hybrid regulatory framework
[designed] to optimize the interests of investors and stakeholders.”32

Forsbacka and Vulturius’ contribution. The other fundamental work in the green bond legal
literature is the article entitled ‘A Legal Analysis of Terms and Conditions for Green Bonds,’
published in 2019 by Kristina Forsbacka and Gregor Vulturius in a Swedish journal called
Europarättslig Tidskrift. This paper is part of a PhD thesis written by Kristina Forsbacka.33
The article consists in “a review and analysis of the contract documentation of the issuers on
the Nordic green bond market.” It is the first systematic study of the contractual documentation
of green bonds on a given market. The article considers that there is a general absence of

31
This article is complemented by Stephen Kim Park, “Green Bonds and Beyond: The Regulatory and
Corporate Governance Dimensions of Debt Financing as a Sustainability Driver” in Beate Sjåfjell and
Christopher Bruner (eds) Cambridge Handbook of Corporate Law, Corporate Governance and
Sustainability (Cambridge University Press, 2019).
32
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 1.
33
Kristina Forsbacka, Climate Finance and the Point of Green Bonds (Lulea University of Technology:
2021) <https://www.diva-portal.org/smash/get/diva2:1517127/FULLTEXT03.pdf> accessed 2 August
2022 [in her thesis, Forsbacka explicates her methodological choices – in particular the law and
economics anchoring of her work, but most of the findings regarding green bonds are gathered in the
journal article published with Vulturius. Therefore, this thesis mostly refers to the journal article].

6
contractual obligations in relation to green bonds on the Nordic green bond market.
Incidentally, the authors also identify the weaknesses of issuers’ impact reporting. As solution,
Forsbacka and Vulturius argue against the “introduction of “green” undertakings in the
contracts [as it] would not make the green bond market more effective.” Instead, they support
the idea that “regulation should support unification and transparency, but needs to be flexible
and non-exclusive, or it could hinder growth and innovation of the market.”34

Challenges by other scholars. Other, less extensive works added a useful light on certain
legal aspects of green bonds, and contradict, on certain points, the two articles cited above.
Cornut St-Pierre for instance, refutes Forsbacka’s certitude that green bonds do not create any
obligations for the issuers, by showing the legal ambiguity surrounding the information and
the commitments related to green bonds. Although considered unlikely, Cornut St-Pierre did
not rule out in her 2020 article the possibility of a legal crystallisation of certain aspects of
green bonds.35 Cornut St-Pierre, by structuring her article in such a way as to outline the role
of green finance taxonomies, 36 and by developing a legal reflexion on the environmental
effects of green bonds,37 is a precursor of this thesis. Without making explicit her choice,
Cornut St-Pierre hierarchises the public interests over the private ones – which is precisely the
methodological choice made for the analytical framework of this thesis.38 Two other scholars
– Bahanan and Rose – contradict Park and Forsbacka’s optimism on the ability of private
governance entities (in this specific instance, green bonds’ external reviewers) to ensure an
effective control of the “green” characteristics of the bonds. Both scholars identify striking
similarities between Credit Rating Agencies (CRAs)’s model and green bond external
reviewers.’ The fact that they both share an “issuer pays” model is problematic insofar as this
system was considered as a root cause of the inaccurate assessment by CRAs of the subprime
financial products at the origin of the 2007 Great Financial Crisis.39

34
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
35
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
36
Ibid. [See the section 2.A on sustainable finance taxonomies]
37
Ibid. [see the section 3.B on the uncertain legal consequences of the non-respect of commitments
taken in favour of the environment.]
38
See section 3.3 of this introduction.
39
Cristina M Banahan, ‘The Bond Villains of Green Investment: Why an Unregulated Securities Market
Needs Government to Lay Down the Law’ (2019) 43 Vermont Law Review 841 ; Paul Rose, ‘Certifying
'Climate' in Climate Bonds’ (2019) 59 Capital Market Law Review 60; Kristina Forsbacka, Gregor
Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’ (2019) Europarättslig Tidskrift
397.

7
Overview of the rest of the legal literature. Beside these main researchers, quantity of
articles of lesser importance have been written on green bonds. As green bonds developed,
legal scholars and practitioners started in 2015/2016 to publish articles on the topic. A sizeable
share of the literature embodies legal practitioners’ professional ethos and is directed at
providing practical advice to issuers, verifiers, and investors.40 As regard legal disciplines,
authors mainly analyse green bonds from a financial law perspective,41 but also, sometimes,
with additional insights from contract law42 and from an international public law angle.43 The
jurisdictions surveyed in the literature in English and French include Canada,44 China,45 the
European Union (EU),46 France47 and the United States.48 The main questions addressed by
these articles revolve around the existence and potential specificities of a green bond regime
compared to the legal regime applicable to plain bonds, 49 the application of such regime

40
Krystian Czerniecki and Sam Saunders, ‘Green Bonds: An Introduction and Legal Considerations’
(2016) 48 Securities Regulation & Law Report 275.
41
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
42
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
43
Nathan Bishop, 'Green Bond Governance and the Paris Agreement' (2019) 27 New York University
Environmental Law Journal 377.
44
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
45
Hao Zhang, ‘Regulating green bond in China: definition divergence and implications for policy
making,’ (2020) Journal of Sustainable Finance 141.
46
Nikolai Badenhoop, ‘Green Bonds An assessment of the proposed EU Green Bond Standard and its
potential to prevent greenwashing’ (2022) Study Requested by the ECON committee of the European
Parliament
<https://www.europarl.europa.eu/RegData/etudes/STUD/2022/703359/IPOL_STU(2022)703359_EN.
pdf> accessed 15 May 2022.
47
Virginie Mercier, ‘La crédibilité des green bonds nécessite un encadrement normatif du marché’
(2017) 116 :2 Bulletin Joly Bourse 39.
48
Krystian Czerniecki and Sam Saunders, ‘Green Bonds: An Introduction and Legal Considerations’
(2016) 48 Securities Regulation & Law Report 275; Aaron Franklin, Paul Davies, Paul Dudek, Jack
Mathews, and Kristina Wyatt, ‘Green Bond Second Party Opinions: Legal and Practice Considerations’
(April 2020) Bloomberg Law 1; Aaron E. Franklin, Christopher Harris, Sara K. Orr, and Nicholas Hazen,
‘Green Bond Impact Reporting Under Securities Law’ (June 2020) Bloomberg Law 1; Sharath Voleti,
‘Green Bonds: A Catalyst for Municipal Action against Climate Change’ (2021) 42 Windsor Review of
Legal and Social Issues 88 ; Eric Phillips, Adam Waring and Kathrine Meloni, ‘Green bonds: time for
new investor protections?’ (November 2021) Butterworths Journal of International Banking and
Financial Law 724.
49
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).

8
through green bond contractual practices,50 the litigation possibilities associated with issuing
green bonds,51 and recommendations for further regulation.52

Significance of the green bond legal literature to legal scholarship: the building of the
green – non-green distinction in financial law. One could wonder whether the literature on
green bonds is significant enough to justify that a law thesis. The legal literature on green
bonds matters to legal scholarship because green bonds contribute to the legal transition to a
green economy53 in an original way. Green bonds are a lever of the sustainable transformation
of finance, for their ability to create a distinction in financial law between green and non-green
assets. This distinction forms the basis of emerging disclosure, tax and prudential obligation,54
as well as resulting litigation. 55 Frameworks based on green – non-green distinction also
inspires policy developments with important environmental and financial consequences, such
as the Belt and Road Initiative.56 The building a green – non-green distinction in financial law
also differentiates green bonds from other ESG policies and instruments57 (such as principles
for responsible investments,58 pledges,59 codes of governance,60 risk mitigating frameworks61
and exclusion policies62). Therefore, the originality and centrality of green bond’s contribution

50
For instance, Paul Rose, ‘Certifying 'Climate' in Climate Bonds’ (2019) 59 Capital Market Law
Review 60; Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green
Bonds’ (2019) Europarättslig Tidskrift 397.
51
Krystian Czerniecki and Sam Saunders, ‘Green Bonds: An Introduction and Legal Considerations’
(2016) 48 Securities Regulation & Law Report 275.
52
Nathan Bishop, ‘Green Bond Governance and the Paris Agreement’ (2019) 27 New York University
Environmental Law Journal 377.
53
Markus W. Gehring, ‘Legal Transition to the Green Economy’ (2016) 12 McGill International
Journal of Sustainable Development Law and Policy 135.
54
Emilios Avgouleas, ‘Resolving the Sustainable Finance Conundrum: Activist Policies and Financial
Technology’ (2021) 84 Law and Contemporary Problems 55
55
Joana Setzer, Catherine Higham, Andrew Jackson, Javier Solana, ‘Climate change litigation and
central banks’ (2021) Legal Working Paper Series
<https://www.ecb.europa.eu/pub/pdf/scplps/ecb.lwp21~f7a250787a.en.pdf> accessed 17 June 2022.
56
Allison Goh, ‘Sustainable Green Finance towards a Green Belt and Road’ (2021) 11 Asian Journal
of International Law 245–252.
57
Paul Davies, Michael Green and Tim Clare, ‘Environmental, social and governance (ESG): an
introduction’ (2022) Practical Law UK Practice Note [“ESG is an umbrella term for a broad range of
environmental, social and governance factors against which investors can assess the behaviour of the
entities they are considering for investment.”]
58
United Nations Principles For Responsible Investment (April 2006) <https://www.unpri.org/about-
us/what-are-the-principles-for-responsible-investment> accessed 2 August 2022.
59
Montreal Carbon Pledge (September 2014) <https://www.unpri.org/montreal-pledge> accessed 2
August 2022.
60
Financial Reporting Council, UK Corporate Governance Code (July 2018)
<https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-
Corporate-Governance-Code-FINAL.pdf> accessed 2 August 2022.
61
Task Force on Climate-related Financial Disclosures, Final Report: Recommendations of the Task
Force on Climate-related Financial Disclosures (2017) iii
<https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf> accessed March
14th 2022.
62
For instance, Allianz, Sustainable and Responsible Investment: Exclusion Policies
<https://regulatory.allianzgi.com/en/esg/sri-exclusions> accessed 2 August 2022.

9
to the emerging legal architecture for greening the economy justifies the attention granted to
what is still a minor stream of the legal literature.

Overview of the non-legal literature on green bonds – economy. A rich non-legal literature
on green bonds and sustainable finance complements this legal literature. Since the emergence
of the green bond concept, several academic disciplines started researching green bonds:
economics, public policy, sociology and anthropology and geography. The economic literature
certainly represents the most important body of scholarship in quantitative terms. Economists
focus on identifying the potential efficiency of such instruments.63 As such, they also try to
identify the existence of an additionality to green bonds. Additionality is a word which comes
from multilateral development banks. It describes the gain – or “addition” – observed when
comparing two scenarios: one scenario that includes a fact, event or action (here: a green bond,
but in other contexts, it can be a government decision or spending) and a second scenario
without that fact, event or action – called a baseline scenario. Green bonds have an
additionality, or they are additional if the outcome (financial resources or environmental
benefits) of the scenario with a green bond issuance is superior to the outcome of the baseline
scenario. As Zahar explains in the context of climate finance, “additionality is mostly about a
hypothetical future – about what would not have happened in the future in terms of growth in
financial support (or lack thereof) but for the government acting on its new [climate finance]
commitment.” 64 In general regarding green bonds, the additionality consists in searching
whether green projects financed by green bonds would have been financed in a scenario
without green bonds. In other words, additionality consists in assessing whether green bonds
enable more green projects to be carried out. The answer to this question is generally negative,
as the price and risk perception of green bond appears to be broadly the same as vanilla bonds
to investors.65 On the other hand, researchers have criticised the concept of additionality as
inadequate for assessing green bonds, as the bond market is mostly a refinancing tool
[borrowers finance existing projects with the proceeds of bonds], which implies that new

63
Ivar Ekeland and Julien Lefournier, ‘L’obligation verte : homéopathie ou incantation ?’ (2019) 79
Les Cahiers de la Chaire Finance & Développement durable ; Torsten Ehlers, Benoît Mojon and Frank
Packer, ‘Green bonds and carbon emissions: exploring the case for a rating system at the firm level’
(2020) BIS Quarterly Review 31 ; Morgane Nicole, Igor Shishlov, Ian Cochran, Green Bonds:
Improving their contribution to the low-carbon and climate resilient transition (I4CE 2018)
<https://www.i4ce.org/wp-core/wp-content/uploads/2018/03/I4CE-GreenBondsProgram-
Contribution-Energy-Transition-web-5.pdf> accessed 1 October 2021.
64
Alexander Zahar, Climate Change Finance and International Law (Routledge: 2017) 26.
65
This does not mean that green bonds are useless: they can have other policy, social and cultural
positive effects (see next paragraph). In addition, green bonds could become useful in the future,
provided for instance that a different political and institutional context puts greater incentives on issuing
or owing them.

10
projects – green or not – attributable to the bond markets are rare.66 Economists and researchers
in finance therefore also assess green bonds without the concept of additionality, but simply
by surveying the existence of a “greenium.” A “greenium” is a price that an investor is ready
to pay to obtain a green financial product. For green bonds, a “greenium” results in a lower
interest rate. Research in this field tend to conclude that a small “greenium” exists.67 Overall,
economists paint a negative image of green bonds (limited additionality and greenium).

Overview of the non-legal literature on green bonds – social sciences. Beyond economists,
other social scientists also developed an interest for green bonds. As Zhang writes about green
bond research in China, the existing literature usually examines green bonds and green credit
from a policy perspective— “as an economic tool that helps address environmental problems.
As such, the literature tends to discuss green credit as part of a broader discussion about
economic policies, and rarely addresses the issue from a legal perspective”.68 Anthropologists
and sociologists analysed the personal trajectories of the people involved in developing green
bonds, showing the multiplicity of backgrounds necessary for translating climate science into
metrics fit for the financial markets and the complexity of actors’ motivations – between strong
ethical commitments and personal interest. 69 Geographers also proposed interesting case
studies in Brazil and in Asia, showing the complex impacts on the ground of green bonds
structured in financial centres, therefore most often far from the places where the final projects
are implemented.70 As a summary, social sciences works depict a green bond professional
network that is useful insofar as it enables people from different backgrounds (ex: climate
scientists and traders) to converse but point at the risks of expanding and reinforcing a system
– capitalism – deemed to be a major source for the ecological issues.

Institutional literature on green bonds. Beyond the academic literature, many international
institutions and financial regulators published on green bonds in the last five years. The
Climate Bonds Initiative (CBI) structured the field by being the main source of quantitative
data on the green bond market. Using CBI’s data, the OECD published influential studies

66
2 Degrees Initiative, Shooting for the Moon in a Hot Air Balloon? Measuring How Green Bonds
Contribute to Scaling up Investments in Green Projects (2018) <https://2degrees-investing.org/wp-
content/uploads/2018/10/Green-bonds-updated-paper-Oct-2018.pdf> accessed 1 October 2021.
67
Caroline Harrison, Candace Partridge, and Aneil Tripathy, ‘What’s in a Greenium: An Analysis of
Pricing Methodologies and Discourse in the Green Bond Market’ (2020) 10 The Journal of
Environmental Investing 80.
68
Hao Zhang, ‘Regulating green bond in China: definition divergence and implications for policy
making,’ (2020) Journal of Sustainable Finance 141.
69
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished).
70
Iagê Miola, Gabriela De Oliveira, Junqueira, Flávio Prol, Tomaso Ferrando, Marcela Vecchione,
Gonçalves and Héctor Herrera, ‘Green bonds in the world-ecology: capital, nature and power in the
financialized expansion of the forestry industry in Brazil’ (2021) 46 Relaciones Internacionales 161 ;
Felicia H. M. Liu, David Demeritt & Samuel Tang ‘Accounting for Sustainability in Asia: Stock Market
Regulation and Reporting in Hong Kong and Singapore,’ (2019) 95 Economic Geography 362.

11
which contributed to legitimize green bonds.71 The United Nations Environment Programme
Finance Initiative (UNEP-FI), 72 the European Commission, 73 the Bank of International
Settlement,74 the WWF,75 as well as the European Investment Bank (EIB) with China’s Green
Finance Committee76 also published studies that contributed to policy agendas about green
bonds. In general, these works recognize the potential of green bonds, but alert on the risks of
“greenwashing” given the number of green bonds with low environmental credentials and call
for more regulation regarding the definitions of what is “green.”

Conclusion of the literature review. Two major articles dominate the legal literature. These
articles view very favourably the private governance mechanisms at the origin of the green
bond market. However, shorter articles challenge their conclusions on specific points (legal
obligations of issuers, “issuer pays” model). In addition, the non-legal literature depicts a
market with some benefits (de-clustering of some professions, steps in the policy process) but
dysfunctional insofar as it is unable to fulfil its stated objective of reorienting capital flows
towards activities providing positive environmental outcomes. The contrast between, on the
one hand, the dysfunctions identified in short legal articles and in the non-legal literature and,
on the other hand, the uncritical endorsement of the core features of green bond regulatory
regimes in the long legal articles suggests that some important structural legal issues of the
green bonds regulatory regime have not been identified yet. The next section of this thesis
develops this intuition by stating the objectives of this thesis.

71
OCDE, Mobilising Bond Markets for a Low-Carbon Transition (Éditions OCDE, Paris, 2017)
<https://doi.org/10.1787/9789264272323-en> accessed 1 October 2021.
72
UNEP-FI, A Legal Framework for Impact: Sustainability Impact in Investor Decision-Making (2021)
<https://www.unepfi.org/publications/a-legal-framework-for-impact-sustainability-impact-in-investor-
decision-making/> accessed 1 October 2021.
73
Serena Fatica and Roberto Panzica, ‘Green bonds as a tool against climate change?’ Commission’s
Joint Research Centre Working Papers in Economics and Finance (Luxembourg: Publications Office
of the European Union, 2020) <https://ssrn.com/abstract=3710020> accessed 18 November 2021 ; EU
Technical Expert Group on Sustainable Finance, Report : Proposal for an EU Green Bond Standard
(2019)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf> accessed 1 October 2021;
European Commission, Study on the potential of green bond finance for resource-efficient investment
(Luxembourg: Publications Office of the European Union, 2016).
74
Torsten Ehlers, Benoît Mojon and Frank Packer, ‘Green bonds and carbon emissions: exploring the
case for a rating system at the firm level’ (2020) BIS Quarterly Review 31.
75
WWF, Green Bonds must keep the green Promise! (2016)
<https://wwfint.awsassets.panda.org/downloads/20160609_green_bonds_hd_report.pdf> accessed 2
August 2022.
76
European Investment Bank and the Green Finance Committee China Society for Finance and Banking,
The need for a common language in Green Finance: Towards a standard-neutral taxonomy for the
environmental use of proceeds (2017) <https://www.eib.org/attachments/press/white-paper-green-
finance-common-language-eib-and-green-finance-committee.pdf> accessed 2 August 2022.

12
SECTION 2: OBJECTIVES

Outline. This section identifies the literature gaps in the green bond literature (2.1), the gaps
to be addressed in this thesis (2.2) and the specific questions to be answered (2.3).

2.1. LITERATURE GAPS

Outline. The legal literature on green bonds shows some gaps on the two main questions
addressed by legal scholars: the characteristics of green bond regimes and the application of
such regimes. Among the two major articles on green bonds, Park focuses on the analysis of
the characteristics of such regimes, while Forsbacka puts the emphasis on their application.
The following paragraphs explain why both of them provide a deficient or outdated analysis
on the chosen focuses of their work. The following paragraphs also expose why the overall
limits of their work stem from focusing on the characteristics of the regimes or their
implementation, at the expense of an integrated analysis surveying both the characteristics of
the regimes and their implementation. This lack of integrated analysis may explain the absence
of investigation into the structural deficiencies of green bond regulatory frameworks.

Literature gaps regarding the characteristics of green bond regimes – domestic legal
regimes. Park’s work focuses on private governance regimes, thus excluding from his analysis
an important number of domestic green bond regimes – most of them already existing when
he wrote his article. China, Japan, Indonesia, the Philippines, the EU, etc have public green
bond regimes that have not yet been analysed in a comprehensive study. The only comparisons
between jurisdictions are now four to five-year-old, and therefore are outdated given the quick
pace of regulatory developments. In addition, comparison between transnational standards also
needs to go beyond the ones made in Park’s article. There are now many more standards than
the two main one Park identified – the Green Bond Principles (GBP) and the Climate Bonds
Standards (CBS) – and these two main standards became considerably closer in their 2019 and
2021 versions. 77 Finally, Park mostly approaches the question of the interactions between
these standards and the domestic legal framework under a normative perspective (what new
rules should be set in order to hybridize private and public governance?), but not under a
positivist perspective (what existing domestic financial or contractual laws are already
applicable to green bonds?). The question of the interactions between green bond regimes and
standard regimes for securities or corporation also became important as certain normative tool

77
The International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021)
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 1 October 2021; Climate Bonds Initiative, Climate Bonds
Standard Version 3.0 (2019) <https://www.climatebonds.net/files/files/climate-bonds-standard-v3-
20191210.pdf> accessed 1 October 2021.

13
originating from the green bond market (such as the EU sustainable finance taxonomy) have
now a field of application that spans much further than the bond market.

Literature gaps regarding the implementation of the green bond regime. Forsbacka’s
article is the strongest regarding the study of the implementation of the green bond regime,
however, it also shows some limits. Obviously, its main limit is its geographical scope (Nordic
countries), which lives much of the world unexplored. The professional literature provides
some insights on the Australian 78 and American 79 markets but lacks for other countries.
Interestingly, these studies emphasize much more than Forsbacka do the ambiguities issuers’
the legal commitments.80 Additionally, the green bonds contracts formed between issuers and
underwriters, or issuers and verifiers are little known, even in the Nordic countries. Studies on
verification and certification are also quite limited in terms of empirical material, and some of
them are outdated.81 Studies on litigation possibilities are still at the embryo’s stage. Overall,
Forsbacka’s empirical inquiry has a law and economic frame, and as such is aimed at making
the market more efficient, not the environment better protected. This explains why Forsbacka
concludes that “the introduction of “green” undertakings in the contracts would not make the
green bond market more effective”82 and that “regulation […] needs to be flexible and non-
exclusive, or it could hinder growth and innovation of the market.”83 These conclusions also
show that the analysis needs to be redone if the aim of the research is to consider the
environmental effects of green bonds. Indeed, Forsbacka does not engage with the social and
environmental science literature attempting to assess the environmental and social effects of
green bonds, as if she did not believe that green bonds could have any environmental positive
effects.

Literature gaps stemming from the lack of integration of regime and implementation
analyses. Park and Forsbacka both strongly focus on either regime description and analysis,
either implementation. The result is a form of naivety for Park, who tends to overvalue the

78
Karsten Woeckener, ‘Green bonds – building optionality for issuers into programme documentation’
White & Case Alert (9 January 2018).
79
Scott Breen and Catherine Campbell, ‘Legal Considerations for a Skyrocketing Green Bond Market’
(2017) 31 Natural Resources & Environment 16 ; Krystian Czerniecki and Sam Saunders, ‘Green Bonds:
An Introduction and Legal Considerations’ (2016) 48 Securities Regulation & Law Report 275.
80
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
81
Cristina M Banahan, ‘The Bond Villains of Green Investment: Why an Unregulated Securities Market
Needs Government to Lay Down the Law’ (2019) 43 Vermont Law Review 841; Paul Rose, ‘Certifying
'Climate' in Climate Bonds’ (2019) 59 Capital Market Law Review 60.
82
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 398.
83
Ibid.

14
effectiveness of private standards, and a form of cynicism for Forsbacka, who tends to
underestimate the possibilities of green bonds for the environment. By promoting the hybrid
public-private regulation of the green bond market, Park does not question why any private
entity would care about any environmental positive outcomes (that would be a public good,
especially on the climate issue), either as a green bond issuer or a green bond investor. By
focusing on the implementation and observing that private actors studied on the Nordic green
bond market indeed do not care about environmental outcomes, Forsbacka does not explore
the possibility that private actors could care about these outcomes if constrained by laws.
Forsbacka recommends against introducing any mandatory legal requirements applicable to
the green bond market and limits her main proposal to supporting the European Commission’s
texts designed to increase transparency. Both authors are somewhat aware of the
environmental ineffectiveness of the green bond market (both mention for instance
“greenwashing concerns”), but their anecdotal proposals (further public-private hybridisation
and more transparency) reveal that they have not identified the legal structural causes
explaining the environmental ineffectiveness of green bonds.

2.2. GAPS TO BE ADDRESSED IN THIS THESIS

Outline. This thesis is interested in searching for the structural legal causes of the failure of
green bonds to deliver their promised environmental benefits. Such research will enable to fill
some of the gaps identified above, in terms of regime and implementation analysis.

Gaps to be addressed regarding the characteristics of the green bond regime. Regarding
the characteristics of the green bond regime, this thesis aims at adding to the legal literature
an account of the important shift undergone by green bond regulations in recent years: the
transition from a green bond market dominated by private standards to a hybrid situation where
State regulations are gaining ground and progressively marginalizing private standards.
However, transnational private standards remain crucial for understanding the history of the
green bond market and hence will also be analysed in this thesis. Even if these norms do not
originate from states, private financial standards matter and are a commonly accepted source
of law in the financial and environmental realms. Since these standards are evolving very
quickly, this thesis aims at providing a new analysis of their content. Specifically, since the
two main standards – the GBP and the CBS – significantly converged thanks to their latest
revisions, this thesis aims at providing the first analysis of green bonds standards that goes
beyond the existence of a dichotomy between GBP and CBS. On the contrary, this thesis
explores the existence of a unified transnational green bond standard, nuanced by minor
variations supported by the survivance of nominatively different standards. This thesis will

15
also aim at producing new knowledge on an understudied aspect of green bond regimes, the
sustainable finance taxonomies. The extended scope of application of these lists of sustainable
economic activities makes them crucially important. Sustainable finance taxonomies are at the
basis of most obligations arising in the field of EU sustainable finance law. Therefore, one of
this thesis’ objectives is to provide background information and analysis of these taxonomies,
such as how they are constructed, or how normatively stringent they are.

Gaps to address regarding the implementation of the green bond regime. While having an
international scope, this thesis substantially rests on implantation examples drawn from a
jurisdiction that has not been studied before, Hong Kong. This lack in the literature needs to
be addressed since Hong Kong is the third largest financial places in the world,84 a crossroad
between Western countries and China and hence a crucial place for studying environmentally
induced transformations of economic law. However, this thesis wants to draw the
consequences from the fact that “the green bond market is inherently international.”85 As such,
financial securities issued or sold in any significant green bond exchanges, such as Hong Kong,
are also likely indexed, traded or offered by or to entities located in other countries. It means
that these securities must also respect some of the laws (such as prospectus regulations) of the
other jurisdictions where these bonds are offered. Therefore, studying how green bond regimes
are implemented in Hong Kong inherently also consists in integrating transnational aspects.

2.3. QUESTIONS

Principal question. The core puzzle regarding green bonds is this: provided that the promise
of environmental benefits by the issuer does not directly benefit the issuer or the investor, why
would this promise be kept? Why would this “green” promise be kept not only bilaterally
(between the issuer and the investor), but also towards the public? Of course, non-legal factors
(for instance, political, economic, or social) could explain why green bond issuers abide or do
not abide86 by their “green” promises. For instance, some promises are kept without any legal
apparatus, simply because one fears the consequences of not keeping the promise, such as
reputational harm. However, this thesis is limited to what a legal reflection can explain.

84
Hong Kong ranks third globally in the Global Financial Centres Index (GFCI) 30 Report. Z/Yen and
the China Development Institute, Global Financial Centres Index (GFCI) 30 Report (2021)
<https://www.longfinance.net/media/documents/GFCI_30_Report_2021.09.24_v1.0.pdf> accessed 1
October 2021.
85
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the Council
on European Green Bonds’ COM(2021) 391 Final, recital 3.
86
As explained in the section 1.2 of this introduction, according to the literature green bonds issuers
often tend not to abide by their commitments.

16
Therefore, this thesis’ principal question is: what is the legal framework necessary for the
“green” promise to be kept?

Clarifications on the principal question. This question has two dimensions: a descriptive (or
positive) one, relating to the search for such legal framework among existing laws; and a
normative one, relating to the thinking of new laws to build such a legal framework. This
question also implies seeking to understand why green promises are made in the first place,
since understanding the interests at play in the formation of these promises are relevant in
determining whether or under which conditions issuers would keep their promises. In addition,
this question can relate to the characteristics of the green bond regime, or the implementation
of this regime. Regarding the characteristics of the green bond regime, the principal question
of this thesis implies inquiries about legal nature of the various standards and regulations
defining green bonds, the requirements and obligations that these standards create, the scope
of these obligations and the interactions between these obligations and environmental and
financial laws. Regarding the implementation of the regime, the principal question of this
thesis refers to the study of conformity of green bonds’ issuance documentation with green
bonds standards and regulations, the role of civil society and administrative actors in
controlling this conformity and the possible interpretation of standards and regulations by
courts.

Significance of this thesis’ objectives. Why, after all, undertake to answer such questions?
The overall aim of this thesis is to contribute to the reflexion on the mobilisation of private
law instruments in order to achieve public good. Given the limitations of public action, many
governments try to enrol private entities in their effort to reach environmental or social
objectives. This phenomenon is known as the contractualisation of public action and can be
observed as much at the international scale (Clean Development Mechanism for instance)87 or
at the regional and national one (contracts of energy performance in the EU).88 In parallel, the
growing awareness of environmental issues leads private entities to be more proactive on
environmental and social issues. It is not considered as absurd now to consider that private
entities have a social and environmental responsibility. The evolution of political consciences
on that point also lead to specific statutes for companies with environmental or social missions.
However, ascribing sustainability goals to private entities raises questions about their right to

87
Marion Lemoine, ‘Un contrat in specie. Le recours au contrat dans le cadre du Mécanisme pour un
développement propre du protocole de Kyoto sur les changements climatiques’, in Mathilde Hautereau-
Boutonnet (dir.), Le contrat et l’environnement – Étude de droit interne, international et européen
(PUAM, 2014).
88
Anne Stevignon, Le temps qu’il fait et le droit des obligations : de l’influence du changement
climatique sur l’appréhension des phénomènes météorologiques (PhD thesis, Paris II - 2019) 422
<https://docassas.u-paris2.fr/nuxeo/site/esupversions/3c851137-24fe-42b6-84c5-5e76816bbab5?inline>
accessed 17 June 2022.

17
shape sustainability policies without recourse to political deliberation and questions about the
effectivity of such commitments to sustainability, given that private entities generally serve
first their private interests. In any case, even if sincere about their commitment to sustainability,
companies need to conciliate their private interests with the public ones embedded in the
pursuit of sustainability. Studying the legal structure of the green bond market is a way to
progress on how law can help overcome the limits of sustainable development.89 Green bonds
are one of the most sophisticated (which is not to say that they are effective, but simply that
they are complex, involves an large body of rules and a high number of actors) sustainable
financial products currently available and their methods substantially influence the
development of many of the most recent sustainability legal tools applicable to finance.

SECTION 3: METHODOLOGICAL FRAMEWORK

Outline. This section presents the methodology used in this thesis. More specifically, it
outlines the doctrinal approach chosen and the main methodological difficulties arising (3.1).
This section subsequently presents solutions drawn from pluralist and transnational insights
(3.2), before presenting the laws and standards applicable to international green bonds (3.3).

3.1. A DOCTRINAL APPROACH

Outline. This sub-section starts with a definition of the doctrinal approach, continues with a
critique of the methodology chosen by the author of a major work on green bonds and finishes
by presenting this thesis’ doctrinal approach.

Definition of the doctrinal approach. A general definition of the doctrinal study of law –
also called “blackletter law” by opposition to “law in context”90 – states that it is “a discipline,
which has to (1) produce information about the law and (2) systematise the legal norms.” 91
This doctrinal method “is normally a two-part process, because it involves first locating the
sources of the law and then interpreting and analysing the text.”92 The interpretation of the text
is central to the doctrinal method, which is “a mainly hermeneutic discipline.” 93 This
hermeneutic activity can consist in providing “a systematic exposition of the rules governing

89
Dominique Bourg, ‘Transition écologique, plutôt que développement durable’ (2012) 1 Vraiment
durable 77 <https://www.cairn.info/revue-vraiment-durable-2012-1-page-77.htm> accessed 17 June
2022.
90
Mike McConville and Wing Hong Chui, ‘Introduction and Overview’ in Mike McConville and Wing
Hong Chui (eds), Research Methods for Law (Second edition, Edinburgh University Press, 2017) 1.
91
Aulis Aarnio, Essays on the Doctrinal Study of Law (Springer, 2011) 19.
92
Terry Hutchinson and Nigel Duncan, ‘Defining and Describing What We Do: Doctrinal Legal
Research’ (2012) 17 Deakin Law Review 83.
93
Mark Van Hoecke, ‘Legal Doctrine: Which Method(s) for What Kind of Discipline?’ in Mark Van
Hoecke (ed), Methodologies of Legal Research: Which Kind of Method for What Kind of Discipline?
(Bloomsbury Publishing Plc, 2013) 17.

18
a particular legal category, analys[ing] the relationship between rules, explain[ing] areas of
difficulty and, perhaps, predict[ing] future developments.”94 A complementary definition of
what is a “doctrinal restatement” includes “a. organize and reorganize case law into coherent
elements, categories and concepts ; b. acknowledge distinction between settled and emerging
law ; c. identify difference between majority and “preferred” or “better” practice – ideally with
some explanation for the criteria used.”95 Importantly for the doctrinal study of the law, “the
scholar must argue in support of his stand as if he were bound to the same sources and the
same principles of interpretation as the judge.”96

Critique of Forsbacka’s methodology. Forsbacka, in her article and own thesis on green
bonds, choses a methodology opposite to the doctrinal methodology favoured in this work.
This thesis does not aim at studying green bonds regulations “in context,” and in particular,
does not use a law and economics approach as Forsbacka does. The law and economics
approach is not necessarily unfit for studying green bonds, but the way Forsbacka mobilizes
this approach seems flawed. First, she only uses economists that can be labelled as neo-classic
economists. Therefore, she embeds (perhaps unconsciously) in her work choices of values and
ideology. Second, under the guise of expressing economic truths, Forsbacka describes in fact
contingent but currently dominating conceptions about financial law. Although green bonds
are essentially a product of the financial industry’s lobby, they bear within themselves some
reformist conceptions that go against established financial law. The way Forsbacka uses
economic knowledge therefore conduces to disqualify certain legal possibilities offered by
green bonds – apparently, because they are against economic truths, in reality because they do
not fit the dominating financial law conceptions.

This thesis’ doctrinal approach. On the contrary, this thesis’ main way of operation relies
upon considering “the law itself as an internal self-sustaining set of principles which can be
accessed through reading court judgments and statutes,”97 i.e. following a doctrinal approach
as defined in the preceding paragraph. This thesis achieves its research goals through
identifying the sources of laws applicable to green bonds and interpreting and analysing these
texts. This thesis presents a systematic exposition of the rules governing green bonds, analyse
the relationship between these rules, explaining their areas of difficulty and acknowledging
the distinction between settled and emerging law. Although it also tries to handle case law

94
Dennis Charles Pearce, Enid Campbell and Don E. Harding, Australian Law Schools: a Discipline
Assessment for the Commonwealth Tertiary Education Commission (Australian Government Publishing
Service, 1987) 7.
95
Martha Minow, 'Archetypal Legal Scholarship – A Field Guide', in AALS Workshop for New Law
Teachers (AALS, 2006) 34.
96
Aulis Aarnio, Essays on the Doctrinal Study of Law (Springer, 2011) 20.
97
Mike McConville and Wing Hong Chui, ‘Introduction and Overview’ in Mike McConville and Wing
Hong Chui (eds), Research Methods for Law (Second edition, Edinburgh University Press, 2017) 1.

19
relevant to green bonds primarily in Hong Kong, which is an important jurisdiction for green
finance but has not been studied before.

3.2. SOURCES OF LAW: PLURALIST AND TRANSNATIONAL THEORIES

Outline. However, the “global character of legal life”98 – perfectly illustrated by “inherently
international” 99
green bonds and international capital markets – requires additional
methodological refinements to determine the sources of law. This subsection presents the
conceptual framework used in this thesis in order to identify the sources of laws. This pluralist
and transnational framework is rather consensual among legal scholars who studied green
bonds and sustainable finance. Although not extensively spelled out in Park and Forsbacka’s
works, the framework presented here does not differ from their approach. There is therefore
no difference in the documents considered as sources of law in our three contributions.

Definition of legal pluralism. Legal pluralism describes a situation where more than one
bodies of law exist in the same social field.100 The concept comes from studies of hybrid legal
systems: church law and state law in pre-modern Europe; native legal systems and the
European state-based law in colonised countries; regulation set by non-state entities such as
jockey clubs and stock exchanges.101 Since the 1970s, the concept – which was mainly used
in the colonisation context – has expanded beyond former colonies and has been applied to
legal phenomena in the Western world, leading to the identification of pluralist legal orders in
almost every society.102 These pluralist legal orders can for instance take the form of unofficial
normative orders often used in international financial regulation.103 Legal pluralism theories
“analyse the dynamic interactions between [these] different legal frameworks.”104

Application to the green bond market. Many of the standards created in the field of
sustainable finance can be considered as law in a pluralist view. They are not directly created
by states holding a sovereignty over a territory, but through the cooperation of many multiple
actors. After their creation, these sustainable finance norms (such as the Task-force on

98
Ibid.
99
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the Council
on European Green Bonds’ COM(2021) 391 Final.
100
Gordon R Woodman, ‘The Idea of Legal Pluralism’ in Baudouin Dupret, Maurits Berger and Laila
al-Zwaini (eds), Legal Pluralism in The Arab World (The Hague: Kluwer Law International, 1999) 10.
101
Paul Schiff Berman, ‘The New Legal Pluralism’ (2009) 5 The Annual Review of Law and Social
Science 225 ; Sally Engle Merry, ‘Legal Pluralism’ (1988) 22 Law and Society Review 870 ; Neil
Gunningham and Darren Sinclair, ‘Regulatory Pluralism: Designing Policy Mixes for Environmental
Protection’ (1999) 21 Law and Policy 52.
102
Prakash Shah, Legal Pluralism in Conflict : Coping with Cultural Diversity in Law (London: Glass
House, 2005).
103
Steven Wheatley, ‘Democratic governance beyond the state: the legitimacy of non-state actors as
standard setters’ in Anne Peters, Lucy Koechlin, Till Forster and Gretta Fenner Zinkernagel (eds) Non-
state actors as standard setters (Cambridge University Press, Cambridge, 2009) 215.
104
Ibid.

20
Climate-related Financial Disclosures [TCFD]’s guidelines, ICMA’s GBP or CBI’s CBS) are
superimposed to national legal orders and coexist with and thanks to them. States integrate by
reference the GBP in their green finance labels 105 or in their green bond pre-contractual
issuance documentation;106 corporations, banks and bond exchanges also integrate these norms
into their contractual practices 107 or listing rules. 108 As a result, green bonds trigger the
application of a pluralist system of norms. As contracts, green bonds trigger the application of
general rules of contract law. Second, as debt securities, green bonds trigger the application
of financial law regimes or financial standards that require the respect of certain obligations.
Third, because they are sold as green, they trigger the application of environmental regulations
and standards aimed at controlling the greenness of the bond.

Clarifications regarding the pluralist system of norms applicable to green bonds.

Regarding the first body of rules, bond contracts issued on the international capital markets
are usually governed by the law of England or the New York. The English legal systems is
one of the most common legal systems chosen109 as governing law on the international bond
market,110 including the green bond market.111 This is due to the fact that London have long
been a dominant financial place,112 that lawyers are used to manipulating these laws, and that
this legal system tends to be more protective of the creditors than other systems.113 Some of
the principles of contract law are of specific importance for green bonds, such as
misrepresentation. The promoted characteristics of the green bond must be true, otherwise the
buyer can complain that he was the victim of misrepresentation. Green bonds are also subject
to the financial laws of the countries where these debt securities are offered, such as European
Union law. Among other things, these laws mandate the publication of a voluminous financial
documentation – the main document being the prospectus or offering circular. These laws
essentially aim at protecting the investors/ the entities buying these financial instruments. A
share of this control is, in some jurisdictions, delegated to private norms setters, be they

105
Décret n° 2015-1615 du 10 décembre 2015 relatif au label « Transition énergétique et écologique
pour le climat » <https://www.legifrance.gouv.fr/jorf/id/JORFTEXT000031593158/> accessed 1
October 2021.
106
Hong Kong Government, Green Bond Offering Memorandum dated 21 January 2021 (2021).
107
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
108
Luxemburg Green Exchange, Green Bond Listing Requirements <https://www.bourse.lu/displaying-
bonds-on-lgx> accessed 1 October 2021.
109
In practice, issuers choose the governing law of the bond contract through a clause of that contract
entitled “governing law.”
110
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015).
111
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
112
Katharina Pistor, The code of capital: how the law creates wealth and inequality (Princeton
University Press 2019).
113
Philip R. Wood, ‘Choice of governing law for bonds’ (2020) 15:1 Capital Markets Law Journal, 3.

21
professional organisations (such as the ICMA) or stock exchanges (such as the listing rules of
the Hong Kong Stock Exchange [HKEX]). Even if the norm comes from a public authority, it
can be applied by entities outside this public authority’s jurisdiction. For instance, the proposal
for an EU green bond regulation provides that the standard is open to any issuer in the world
– hence its relevance for the international green bond market. 114 Finally, green bonds are
increasingly subject to another body of laws and standards: environmental laws and standards
set to determine whether the bond is green. Currently, some countries’ labelling schemes set
out requirements for environmentally sustainable financial products, which in some cases
result in requirements on bond funds, hence on the bond market.115 But the main tool of this
segment of laws is called a taxonomy: several national regulators and several transnational
standard setters have established or are drafting green/sustainable/climate finance taxonomies.

Definition of transnational legal theories. Transnational legal methodologies provide a

method to identify sources of laws in a pluralist approach. Transnational methodologies find
their origin in Philip Jessup’s Transnational Law, in which Jessup defines transnational law
as “all law which regulates actions or events that transcend national frontiers,” which includes
“both public and private international law […] as are other rules which do not wholly fit into
such standard categories.”116 As one of the current developments in transnational legal theory
that offers “crucial insight”117, Schaffer and Halliday hold that a “transnational legal order is
legal when it involves international or transnational legal organizations or networks which
directly or indirectly engages multiple national and local legal institutions, and assumes a
recognizable legal form.”118 This approach based on a pluralist and transnational framework
implies that transnational standards are not laws per se, but because they are recognized as
legal. Transnational rules are not given as a set of state-sanctioned statutes. They need to be
recognized.

Application of transnational theories to green bonds rules. Following Schaffer and

Halliday, green bond standards’ recognition as transnational law requires to lend attention to
green bonds-related international and transnational legal organisations, national and local
green bonds-related institutions engaged by the transnational organisations, and green bonds-
related legal forms. Green bonds-related international and transnational organisations are

114
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final 1.
115
Ibid.
116
Phillip C. Jessup, Transnational law (Yale University Press 1956) 2.
117
Peer Zumbansen, ‘Transnational Law with and beyond Jessup’ in Peer Zumbansen (ed) The many
lives of transnational law: critical engagements with Jessup's bold proposal (Cambridge University
Press 2020) 30.
118
Terence C. Halliday and Gregory Shaffer (Eds.). Transnational Legal Orders (Cambridge:
Cambridge University Press, 2015) 11.

22
mainly the ICMA, the CBI, the ISO and the EU. These are the main organisations that
produced or are producing green bonds standards. National and local green bonds-related
institutions engaged by the transnational organisations are too numerous to be all studied in
one thesis. That’s why a choice must be made. As explained above in relation to the gaps in
the literature, this thesis focuses for all implementation matters, on the Hong Kong jurisdiction.
For instance, green bond-related institutions in Hong Kong are the Hong Kong Government,
Hong Kong green bond-issuing banks and corporations and Hong Kong green bond verifiers
and certifiers such as the Hong Kong Quality Assurance Agency (HKQAA). Green bonds’
legal forms are mainly standards, guidelines by financial regulators, prospectuses or offering
circulars, green bonds frameworks, and green bonds assurance or certification letters. The
prospectuses or offering circulars of green bonds issuances are the documents in which is
disclosed the necessary information for an investor to make an informed assessment about the
corporation, the security and its characteristics.119 Green bonds frameworks are the documents
usually setting the green characteristics of the bond. The frameworks are usually integrated by
reference in green bonds’ prospectuses and offering circulars. Green bonds assurance or
certification letters are usually to be found on the issuer’s website and guarantee the external
review of the bond’s green characteristics.

Clarification on the geographical scope of this thesis. As exposed in the paragraphs above,
the approach followed regarding the regime of rules analysed is transnational. This approach
fits the transnational nature of green bond rules and markets. There are no truly autonomous
domestic rules for green bonds, so there would be no point in studying one national green bond
regime in isolation of the rest of the world. However, regarding the implementation of those
rules, one is forced to choose a jurisdiction, for one individual author cannot study alone the
implementation of rules over the whole worldwide green bond market. The study of the
implementation requires the study of cases and the study of the jurisdiction(s) relevant for
these cases. Provided that green bonds issued in Hong Kong have been understudied and given
the heuristic interest of this jurisdictions placed between Western countries and China – the
largest green bond markets, the geographical scope of this thesis is focused on Hong Kong as
regards implementation matters (chapter V). However, given the links of green bonds issued
in Hong Kong with other jurisdictions (England for instance), and given the importance of
contextualizing Hong Kong’s situation within the broader green bond market, this focus on
Hong Kong is nuanced by references to secondary literature relating to other jurisdictions.

119
European Parliament and Council Regulation (EU) 2017/1129 on the prospectus to be published
when securities are offered to the public or admitted to trading on a regulated market, and repealing
Directive 2003/71/EC [2017] OJ L 168 Article 6.1 ; Companies (Winding Up and Miscellaneous
Provisions) Ordinance (Cap. 32) of Hong Kong ; Securities and Futures Ordinance (Cap. 571) of Hong
Kong.

23
3.3. ANALYTICAL FRAMEWORK: AGAINST HYBRIDITY, THE PUBLIC/PRIVATE
DISTINCTION

Outline. The theories for identifying the sources of laws being determined, this section turns
to the main analytical framework. This section argues that Park’s analytical framework fails
to explain the legal phenomena observed on the green bond market. Another framework, based
on the public/private distinction as highlighted by Alain Supiot, may be more successful.

Critique of Park’s analytical framework – public/private hierarchy issue. Park chooses to

build “a stakeholder-oriented conceptual framework based on the theory of hybridity.”120 This
“hybridity is both descriptive and aspirational,”121 “describes the multiple distinct, coexisting
legal and quasi-legal structures that govern any given legal phenomenon”122 and “also suggests
ways to optimize the interactions between non-hierarchical, pluralistic legal systems.”123 Park
argues that hybridity provides a pathway so that “public regulation and private governance
regimes engage in a mutually interdependent and sustaining relationship.”124 Park’s theory of
hybridity is a framework designed to analyse a situation of pluralism, where public and private
regulations compete and cooperate. It also provides a basis for normative proposals in order
to optimise the functioning of this hybrid system. The problem with this framework is that it
claims that there is no hierarchy between public and private legal regimes. Park mentions that
his hybrid framework applies to “non-hierarchical” legal systems that engage in “mutually
interdependent” relationships. As explained later in this section, more convincing and
authoritative views argue in favour of a subordination of the private to the public. Furthermore,
Park does not respect his non-hierarchical approach. He actually establishes a conceptual
domination of the private over the public by talking about a “stakeholder-oriented conceptual
framework based on the theory of hybridity.”125 A stakeholder has two meanings in the Oxford
English Dictionary: it can be “an independent person or organization with whom money is
deposited, esp. when a number of people make a bet or other financial transaction” or it can
also be “a person, company, etc., with a concern or (esp. financial) interest in ensuring the
success of an organization, business, system, etc.”126 In any case, it is a concept pertaining to
the private.127 Someone holding a stake in something acts as a private person, in defence of

120
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 7.
121
Ibid 7.
122
Ibid 7.
123
Ibid 7.
124
Ibid 7.
125
Ibid 7.
126
Oxford English dictionary, “Stakeholder.”
127
As the use of the term primarily in the field of corporate management shows it. Samuel F.
Mansell, Capitalism, Corporations and the Social Contract: A Critique of Stakeholder Theory,
(Cambridge University Press: 2013).

24
one’s stake; not as a public person in defence of the public good. Admittedly, the public can
be a stakeholder, but only when taken as a set of private persons, each defending their own
stake. This conceptualisation of the public as a set of stakeholders is the result of a pessimist
anthropology that ignore people’s ability to act altruistically – not in defence of their stake,
but in defence of the common good. Therefore, “a stakeholder-oriented conceptual framework
based on the theory of hybridity” is a framework that subordinates the hybridisation of the
public and the private to a private conceptualisation of the person. As such, it establishes a
hierarchical relationship of subordination of the public to the private.

Critique of Park’s analytical framework – inability to explain and solve issues on the
green bonds market. Park’s conceptual framework focused on hybridity and titled towards
the private is problematic insofar as it does not enable him to explain the legal causes of the
main issue (the lack of positive environmental impacts) identified by the non-legal literature
on green bonds. Park perceives that “the green bond market already features robust, largely
autonomous private governance regimes.”128 This qualification of robust can only be made in
the sense that it robustly handles the private interest of the private persons concerned, i.e.
issuers and investors. From a public interest standpoint, green bond regimes are anything
except robust! The hybridity lenses prevent Park from seeing how public interests are trampled
on in the green bond market. It also prevents him from seeing the potential conflicts between
public and private interests. Nowhere in Park’s article the potential conflicts between the
environmental promises of the issuer and its financial interests are analysed. Paradoxically,
this sophisticated hybrid framework leads to a position of naivety regarding the reality of the
green bond market. As a result, Park’s diagnostic 129 and solutions 130 do not address the
inability of the green bond market to deliver the promised environmental public good.

An analytical framework based on the public/private distinction. Against hybridity, this

thesis’ analytical framework is centred on the public–private distinction and on the
subordination of the private to the public. Following Alain Supiot, this thesis postulates that
the “subordination of private to public is what makes the structure of law intelligible and
dependable.” 131 Alain Supiot recalls the centrality of the public-private distinction for
continental and common law traditions. In the code of Justinian, Ulpian explains that “there
are two branches [positiones] of legal study: public and private law. Public law is that which

128
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 42.
129
The lack of inclusiveness and the lack of legitimacy of private green bond standards.
130
A greater representativity of stakeholders for the design of private standards and the establishment
of public rules of recognition of private standards.
131
Alain Supiot, ‘The public–private relation in the context of today’s refeudalization’ (2013) 11(1)
International Journal of Constitutional Law, 129 <https://doi.org/10.1093/icon/mos050> accessed 17
June 2022.

25
respects the establishment [statum] of the Roman commonwealth, private that which respects
individuals’ interests.”132 Following Ulpian, public and private branches are not necessarily
different bodies of laws, but different positions over a body of rule, depending on whether
public or private interests are considered. Private interests are subordinated to public ones as
“the mutual adjustment of private interests in the horizontal plane is dependent on the stability
(status) of the public institutions in the vertical one.”133 This thesis follows Ulpian’s approach,
considering green bonds regimes under the perspectives of public and private interests. Alain
Supiot stresses the importance of this approach, highlighting what is at stakes when
disregarded: while the subordination of the private to the public is the very structure of
government by laws, “ignorance of the organization of powers underpinning government by
laws has returned us to government by men, that is, to feudal ways of hybridizing the public
and the private.”134 In other words, the approach followed by Park – which implicitly reverses
the public-private hierarchy – leads to the destruction of the government by laws in favour of
government by men.

Government by laws and government by men. Borrowing from Chinese political

philosophy, Alain Supiot distinguishes between two systems of government, government by
laws and government by men. According to Supiot:

“In a system of government by laws, the condition of each person’s freedom is that all
are subject to the same general and abstract laws. This structure supposes the presence
of a third-party guarantor of laws, who transcends the will and interests of individuals.
Two distinct legal realms can be articulated in this dogmatic configuration: that of
rules bearing on objects transcending any calculation of individual utility (the realm
of deliberation and the law) and that of rules bearing on objects subject to the
calculation of individual utility (the realm of negotiation and contract).”135
Conversely, “In a system of government by men, by contrast, people are placed in a network
of relations of dependence.”136 In these networks, “the figure of the third-party guarantor does
not disappear,”137 but “it becomes a guarantor of bonds rather than of laws.”138 The issue with
this configuration the disappearance of the figure of the sovereign state, “at the cost of
amalgamating the realm of the calculable and the incalculable. Since there is no third party
to take charge of the latter, the distinctions between public and private become blurred.”139

Searching for the conditions of compatibility between green bonds and a government by
laws. The green bond regulatory regime is an instance of power system at the crossroad of

132
Ibid 129.
133
Ibid 130.
134
Ibid 129.
135
Ibid 139 (emphasis added).
136
Ibid.
137
Ibid.
138
Ibid.
139
Ibid (emphasis added).

26
government by laws and government by men. The word “bond” itself suggests a specific
connection with a system of government by men, where these bonds are guaranteed by third
parties (mirroring green bonds’ guarantee by third parties called external reviewers). In a green
bond system, no one serves the general or public interests (taken in this thesis as synonyms),
but everyone serves the interests of the entity on whom he depends (e.g. issuers serves
investors; external reviewers serve issuers, etc). The issue with this system is that it leads to
“amalgamating the realm of the calculable and the incalculable.”140 In green bonds indeed, the
calculable (the interests of the bond) are amalgamated with the incalculable (“environmental
benefits”). For this reason and because as a law researcher, one can feel bound to reflect on
the government by laws instead of the government by men, this thesis will question the ability
of the green bond regulatory system to fit in a government by laws, i.e. a legal system
upholding the distinction of the public and the private, and the subordination of the former to
the latter. The main question of this thesis (as exposed above: what is the legal framework for
the “green” promise to be kept?) will therefore be solved by way of a systematisation of rules
applicable to green bonds according to their positions towards public and private interests.

SECTION 4: STRUCTURE OF THE THESIS

Chapter II: the concept of green bonds. In order to consider the green bond regulatory
system from the viewpoints of public and private interests, one must first inquire into the
processes and rationales by which green bonds became a regulatory concept. This is the
endeavour of the chapter immediately following the introduction. This second chapter of the
thesis exposes the emergence of the green bond concept in the early 2000s, the contribution of
successive issuances to the definition of the concept in the last 20 years, and the normative
densification of the concept in the last 10 years. Each of these three sections includes a factual
description of the green bond developments and an analysis of the rationales leading to the
creation of the regulatory concept of green bond. This chapter enables to conclude that the
public interest mostly finds its expression in the regulatory instruments – called green finance
taxonomies – designed to define green bonds’ contribution to public environmental good – i.e.
what is “green” – while private interests mostly converge to support norms ensuring
transparency in green bond transactions about what is “green.” Both bodies of rules are
interdependent, but this chapter suggests that green finance taxonomies are to be analysed
using a public interest standpoint, while transparency rules are to be analysed using a private
interest standpoint. This approach renews Park and Forsbacka’s perspectives, who analysed
green bonds from the private interest perspective exclusively.

140
Ibid.

27
Chapter III: the environmental contribution regime. The third chapter of this thesis
inquires into green finance taxonomies’ abilities to provide a stable definition of “green,” by
translating public interests on environmental concerns into the language understandable by the
actors of the bond market. This chapter does so through tracing the genealogy of green finance
taxonomies, analysing these taxonomies’ structures and the emerging requirements and
obligations building on them. This chapter shows how taxonomies grasp the most polluting
sectors of the economy through a sophisticated normative architecture, composed of
overriding principles and objectives, applicable to categories of economic activities, detailed
with technical criteria and protected from unintended consequences by social and
environmental safeguards. Building on these taxonomies, requirements to allocate financial
resources to the green activities and requirements to inform the financial markets about the
alignment with the taxonomy show the centrality of taxonomies for the regulation of
sustainable finance. This chapter concludes on the singularity and novelty of green finance
taxonomies, which can be interpreted as a form of environmental strategic planning applied to
finance. Unlike Park and Forsbacka, who posited that environmental transparency was the
mainstay of green bonds’ legal framework, this thesis argues that environmental strategic
planning fulfils this core function. By extension, environmental strategic planning is also
necessary to setting legal frameworks for any other sustainable finance products.

Chapter IV: the transparency regime. As explained in Chapter II, private regulators were
instrumental in building the transparency regime for green bonds, with the primary aim of
enabling investors to know the characteristics of the green bond they invested in. That is why
Chapter II concluded that transparency rules were to be analysed using a private interest
standpoint. However, the development of the environmental contribution regime analysed in
Chapter III transformed the transparency regime of green bonds. Transparency for green bonds
does not consist anymore in information disclosure about any characteristic of the bond, but
about the degree of alignment with the strategic environmental planning set in green finance
taxonomies. The pre-issuance disclosures and the post-issuance reporting rules analysed in
this chapter therefore bear on the alignment of the issuers’ projects or activities with public
environmental objectives or policies. This type of environmental information differs from the
dominant type of information regulated by financial law. Financial information matters only
to investors, while environmental information matters to the state, the civil society and
investors. Green bonds contribute to “publicise” (or “de-privatise”) financial law. This
evolution triggers some challenges regarding interactions between green bond regimes and
international financial regulation, in particular regarding the definition of materiality and the
role of third parties involved in transparency processes. In addition, green bond regimes foster
the emergence of a third kind of sustainable finance transparency that is neither built on impact

28
or risk, but on alignment with public plans. This chapter differs from Forsbacka’s analysis
insofar as she considers green bonds transparency as a form of impact reporting; and from
Park’s analysis insofar as he analyses the private origin of green bond rule making without
considering the publicisation of the content of these rules.

Chapter V: implementation and control. Given the prominent public aspect of green bond
normative architecture, the implementation of such rules let to the quasi-sole control of private
actors cannot be adequate. The fifth chapter documents the deficiencies of the implementation,
non-judicial and judicial control of green bonds issued in Hong Kong. This jurisdiction was
chosen for its abilities to gather features of legal systems of the main green bonds markets:
Western countries (the EU and the US) and China. The situation in Hong Kong is compared
with what the secondary literature says of other important financial markets. This chapter
shows structural deficiencies common to Hong Kong and the global green bond market, due
to the small involvement of public actors (such as NGOs or public authorities) to protect the
public interests at stake. Private actors in presence (external reviewers and investors) have
essentially no interest in seeing a public interest being defended, and therefore are only
marginally able to correct mis-implementation of green bond rules. The considerations
exposed in this chapter contradict Park (who does not see any issue in green bond control),
Forsbacka (who does see an issue, but only advocate light control over the transparency) and
Badenhoop (who advocates control through a civil liability mechanism) by showing that the
main control mechanisms must be centred around public interests.

Chapter VI: conclusion. Finally, the sixth chapter concludes the thesis by providing an
answer to the question asked in the introduction. What is the legal framework necessary for
the “green” promise to be kept? In order to answer this question, this thesis chose an analytical
framework based on the traditional public-private distinction. The second chapter showed how
the public and private interests shaped green bonds into a normative concept composed of a
public side (taxonomies) and a private one (transparency rules). The third chapter analysed
taxonomies as the crucial public institution providing the precondition for a green bond market
to exist in law. The fourth chapters showed that these taxonomies transformed the meaning of
transparency, contributing to integrating a public element in this area of financial regulation
usually dominated by private relations. The fifth chapter noted the inadequacy of public
control means in relation to the importance of the public interests at stake. This thesis therefore
concludes on the emergence of promising legal framework that cannot yet enforce the “green”
promises because it did not fully integrate the public elements at stake. This marginalization
of the public categories results, among other reasons, from the fact that the notions of the green
bond market are forged by private actors to serve their own interests. Before making some

29
proposals for improving the green bond legal regime, this concluding chapter therefore sets
out to critique the main notions involved in green bonds.

30
 CHAPTER II: THE CONCEPT OF GREEN BOND

ABSTRACT

This chapter exposes the processes by which green bonds became a concept charged with a
normative value. It does so by explaining the emergence of the green bond concept in the early
2000s, the contribution of successive issuances to the definition of the concept in the last 20
years, and the normative densification of the concept in the last 10 years. Each of these three
sections includes a factual description of the green bond developments and an analysis of the
rationales leading to the creation of a normative concept of green bonds. These rationales
enable to identify public and private interests at play behind green bonds normative
developments. Public interests mostly find their expression in the normative instruments –
called green finance taxonomies – designed to define green bonds’ contribution to public
environmental good – i.e. what is “green” – while private interests mostly converge to support
norms ensuring transparency in green bond transactions, without relying on a unique
definition of what is “green.” Both bodies of rules are interdependent and there is no clear-cut
boundary, but this chapter suggests that green finance taxonomies are to be analysed using a
public interest standpoint, while transparency rules are to be analysed using a private interest
standpoint. This approach renews Park and Forsbacka’s perspectives, who analysed green
bonds from the private interest perspective exclusively.

1. INTRODUCTION

Background information. The green bond concept is a recent intellectual construct. The first
debt securities resembling the green bond concept were issued in the early 2000s in the US.
Prior to these issuances, no such encounter between environmental concerns and debt
securities had occurred. 141 The beginnings of green bonds coincided with the rise of
environmental finance and its products (such as CO2 quotas). From 2010 onwards, the green
bond market underwent a spectacular growth in the US, Europe, China as well as in several
other emerging economies. Paralleling the growth of the green bond market, transnational
standards and state regulatory regimes arose. During these last 20 years, an unlikely coalition

Except for some relatively confidential experiences, such as debt-for-nature swaps. Derek Asiedu-
141

Akrofi, ‘Debt-for-Nature Swaps: Extending the Frontiers of Innovative Financing in Support of the
Global Environment’ (1991) 25 The International Lawyer 557.

31
of actors contributed to give substance to the “green bond” concept: development and private
banks, environmental Non-Governmental Organisations (NGOs), financial industry
associations, states, corporations, standardisation organisations, international organisations.
These entities’ diverse motivations and contributions – the issuance of green bonds, the
production of knowledge on green bonds or the creation of green bond rules – questions the
existence and solidity of a unified concept of green bonds.

Objective of the chapter. This chapter describes how and why the concept of “green bond”
emerged, spread, and took a normative value. By using the word “concept,” this chapter refers
to “an abstract idea; an idea or mental picture of a group or class of objects, formed by
combining all their aspects.”142 This chapter aims at explaining the gradual construction of
such an abstract idea of green bonds. Since this thesis is a law thesis, this chapter also aims at
presenting how “green bond,” beyond being an abstract idea, took a regulatory dimension. By
describing how the concept developed, this chapter aims at describing the successive
conceptualisations of green bonds. As such, this chapter aims at providing an intellectual
history, or in other words, a genealogy, of the green bond idea. Incidentally, this genealogy
aims at showing that currently dominating green bond concepts are not the only possible
solution. By explaining why the concept of green bond developed, this chapter aims at
exposing the rationales behind the rise of the concept. The word “rationale” here is taken with
two meanings. It refers to the objective set of reasons and logical bases 143 explaining the
success or failures of certain green bonds concepts. It also refers to the subjective reasons and
justifications for green bond developments expressed by actors linked to the green bond
market.144

Objective of the chapter as regards this thesis and legal scholarship. By uncovering the
conceptualisation of green bonds, this chapter fulfils two functions in this thesis. First, it
performs an introductory function. It delivers background information on what green bonds
are, the green bond market and its context. As such, it helps understand the following chapters
of the thesis. Second, this chapter holds an analytical function. The understanding of the
building process of the green bond concept and the rationales behind it help identify two
developmental forces: a force promoting the economic efficiency of transactions on the one

142
Catherine Soanes and Angus Stevenson, Concise Oxford English Dictionary (11th Ed. Oxford
University Press, 2008).
143
A rationale is “a reasoned exposition of principles … an (attempted) justification for something”
Oxford English Dictionary [electronic Resource] (Oxford University Press, 1989).
144
Rationale is often used in the sense of justification or motivation in financial law scholarship. For
instance, in their section “rationale for listing”, Arner and al. explain: “There are many possible reasons
why a company may decide to seek a listing on the SEHK, not least the benefits it may gain from the
standing and reputation that accompanies listed status […]” Douglas W. Arner and Maurice Kwok-Sang
Tse, Financial Markets in Hong Kong: Law and Practice (Second ed. Oxford University Press, 2016)
254.

32
hand, and another one supporting social and environmental purposes on the other hand. These
two forces translate, respectively, into instruments relating mainly to the interests of parties to
the contract, on the one hand, and instruments relating to the general interest, on the other hand.
These two sets of conceptual components in the green bond idea explain the choice made in
this thesis to distinguish the elements of green bond legal regimes assimilated to private law
(chapter 3) from those assimilated to public law (chapter 4). This chapter also contributes to
the knowledge of green bonds in the legal field. To the knowledge of the author, this is the
first study on the conceptualisation of green bonds conducted from a legal point of view.

Method. This chapter uncovers the concept of green bonds by induction. This chapter analyses
green bond transaction documents as a means of inducing, from these cases, what the general
concept of green bond is. Green bond transactions documents refer to green bond prospectuses,
green bond framework and other promotional documentation, green bond impact reports, etc.
This chapter complements the analysis by resorting to documents holding general definitions
of green bonds. These documents essentially refer to reports on the green bond market (from
international development banks, international organisations, NGOs, regulators, industry
associations) and scholarship. This chapter uses scholarship from law, but also from economy
and other social sciences to identify the rationales and interests behind green bonds’ issuances
and normative developments. In addition, it uses speeches from important green finance actors
and statutes from the main green bond standard setters.

Outline. After this introduction, section 2 explains the emergence of the green bond idea in
the early 2000s. Section 3 shows how the green bond concept progressively gained definite
attributes thanks to the conceptual contribution of multiple green bond issuances. Section 4
exposes how green bonds turned into a normative concept through the combined action of
private standard setters and state regulators. This fourth section also underlines conflicting
rationales – environmental protection on one hand, efficiency of financial market on the other
– at the root of the normative concept of green bond. This dual construction of the green bond
concept enables to conclude on the identification of two facets of the concept: a private law
facet and a public law facet.

2. THE EMERGENCE OF THE GREEN BOND CONCEPT

Outline. This section describes the green bond idea as it emerged in the early 2000s (2.1) and
provides the main reasons for such an emergence (2.2). It shows that, from the beginning, a
public-private dynamic forged green bonds.

33
2.1. EARLY GREEN BOND CONCEPTS IN CONTEXT

Outline. The green bond idea as it emerged in the early 2000s cannot be separated from some
background elements on the bond market (2.1.1) as most green bonds were sold as listed bonds.
Early competing concepts coalesced into two dominating and rival conceptions of green bonds:
one dominated by public interest, the other one by private ones (2.1.2).

2.1.1. OVERVIEW OF THE BOND MARKET

Outline. The bond market did not appear spontaneously as the free encounter between private
issuers. States were crucial in the birth of the international bond market and, more recently,
the Eurobond market. Only in the last decades did private actors impose themselves as the
dominant ones on the bond market, to the point that the definitions of the main terms and actors
of the bond market invisibilize public actors. Private actors managed to establish a powerful
private self-regulation of the international bond market. However, the failures of such private
actors to ensure that the bond markets (and more broadly, the debt markets) contribute to the
common good – apparent failure since the great financial crisis of 2007 and the European
sovereign debt of 2013 – triggered a come-back of public good considerations in the debates
on the international bond market regulation. Green bonds correspond to one of this public
consideration debates.

History of the bond market. The origin of the bond market harks back to the medieval times,
when Venice and Western European kings borrowed money from domestic and overseas
lenders to finance their wars. At that time, European exchanges dealt mainly in debt claims or
forms of annuities. However, there was no real international trade in long-term debts until the
nineteenth century. During this century, modern bond markets developed jointly with joint
stock company.145 However, the success of shares of companies eclipsed bonds in the course
of the nineteenth and twentieth centuries, to the point that “the orientation of exchanges in all
advanced economies has shifted to being venues for listing and transferring equity
securities.”146 Since the 1970s and 1980s, the bond market became increasingly globalized, as
many restrictions to capital movements from jurisdictions to jurisdictions were lifted. The
amount outstanding in bonds on the global bond market was estimated in August 2020 at 123
trillion (123.1012 or 123 000 milliards) of US dollars.147

145
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015) 158.
146
Douglas W. Arner and Maurice Kwok-Sang Tse, Financial Markets in Hong Kong : Law and
Practice (Second ed. Oxford University Press, 2016) 257.
147
International Capital Market Association, Bond Market Size
<https://www.icmagroup.org/Regulatory-Policy-and-Market-Practice/Secondary-Markets/bond-
market-size/> accessed on 18 October 2021.

34
History of the Eurobond market. A central bond market which appeared in the 1970s was
called the Eurobond market. This Eurobond market finds its historical roots in the Marshall
Plan – under which the United States financed the rebuilding of Europe after the war. The
Marshall plan resulted in European companies receiving large sums of US dollars.
Consequently, international corporations which needed US dollars could borrow it on the
European market instead of borrowing it on the New York capital markets. What started as an
alternative source of financing became mainstream in the 1960s, when the US government
imposed a set of taxes148 and policies149 on credit and interests from bonds. The objective of
these policies was to reduce the amount of US capital exiting the country, but it led in fact to
an increase of US dollars available on the Eurobond market, as lenders and borrowers chose
to transact outside the US jurisdiction. With the Eurobond market, bond market participants
invented a “legal structure under which the debt of the corporate borrower was capable of
transfer in such a way that the change of ownership was not captured for tax purposes in any
jurisdiction.”150 The US government taxes resulted in turning the dollars held by corporations
and banks in Europe in the principal international source of funding for any government or
company which needed US dollars.

Definitions. Bond markets are exchange venues where debt securities are listed. A debt
“describes the obligated side of the legal relationship which, on the opposite side, has a party
with the entitlement to a monetary claim.”151 A security is “an instrument that evidences the
holder's ownership rights in a firm (e.g., a stock), the holder's creditor relationship with a firm
or government (e.g., a bond), or the holder's other rights (e.g., an option).”152 Listing debt
consists in making a bond appear on the list of a bond exchange. Listing is “now largely a
residual function that serves two purposes: first to provide a marginal benefit in distributing
new issues […] as national conventions can require certain classes of professional investors to

148
“In 1963, concerned that too much available funding by US banks and investors was going abroad,
in loans to non-US corporations and in the purchase of securities issued by non-US corporations, the
Kennedy Administration introduced the Interest Equalization Tax.15 This tax imposed a 15 per cent
surcharge on interest received by US lenders and investors from non-US borrowers.” Colin Bamford,
Principles of International Financial Law (2nd Edition, Oxford University Press, 2015) 162.
149
“In 1965, in a further move to reduce capital outflows, the US Federal Reserve System introduced
its voluntary Foreign Credit Restraint Program, which limited the amount of credit that US banks could
make available to non-residents. In addition, the Federal Reserve Board regulated the interest rates
payable by US banks on term deposits.17 From 1966 the limit set by Regulation Q, the name given to
the Federal Reserve measure concerned, became noticeably lower than the market rate would have
fixed.” Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015) 163.
150
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015) 164
151
Christopher G. Paulus, ‘Debts’ (last updated: September 2014) Max Planck Encyclopedias of
International Law.
152
Bryan A. Garner and Henry Campbell Black, Black's Law Dictionary (Eleventh edition, Thomson
Reuters: 2019).

35
avoid or minimize holdings of unlisted securities ; and second, to provide a reliable forum
throughout the life of an issue for retail investors to buy or sell those debt securities that are
especially targeted at non-professional users.”153 Listing a bond enables it to be sold on the
primary and secondary markets. The primary market is the market for issuances of the bond,
while the secondary market enables the reselling of a bond, or the buying of second-hand
bonds – bonds that have already been owed by someone else. In some jurisdictions, such as
the US where local authorities are allowed to borrow money, there exist a municipal market –
the market where local authorities sell their debt securities – on which specific rules – such as
tax exemptions – may be applied.

Main actors of the bond market. As already briefly mentioned in section 1.1 of the
introduction, the main actors of contemporary bond markets are the issuers, the underwriters,
the credit rating agencies, the bond exchanges and the investors. The issuers are the entities
in demand for money, then issuing a debt security called a bond. Their main goal is to issue
bonds with the lowest possible interest rate, as it diminishes the cost of the capital issuers raise
on the market. The underwriters are the banks that buy the bonds, and then resell it to market
investors. Their main objective is to issue as many bonds as possible, since they receive a fee
each time they assist the issuance of a bond. Credit rating agencies assess the likeliness that
the issuer will reimburse the loan. The bond exchanges list the bond, which enables
transactions for the primary as well as the secondary markets. The investors are the final buyers
of the bonds. Their main aim is to buy bonds which yields is as high as possible, while its risks
are as low as possible. An important type of investors on the bond market are institutional
investors. Institutional investors are particularly important investors (such as insurers, pension
funds or sovereign wealth funds), often subject to specific regulations. The amounts managed
by those investors are often so considerable (several thousands of billions of dollars of asset
under management 154 ) that they may be considered as “universal investors”. A universal
investor has investments in all sectors of the economy, potentially giving them an interest in
the “long-term sustainability of the economy and the correction of market failures and negative
externalities that undermine long-term economic efficiency.”155

Relations of the bond market with the rest of the society. Like many other segments of the
economy, the bond market has been considered in the last decades as an autonomous area of
activity, best performing when left to itself – in other words, with minimal interferences from

153
Douglas W. Arner and Maurice Kwok-Sang Tse, Financial Markets in Hong Kong : Law and
Practice (Second ed. Oxford University Press, 2016) 257.
154
Blackrock for instance manages 6 800 billions of dollars in 2019, an amount roughly equivalent to 5
percent of the global bond market. Blackrock, Introduction to Blackrock (2021)
<https://www.blackrock.com/sg/en/introduction-to-blackrock> accessed 18 November 2021.
155
James P. Hawley and Andrew T. Williams, ‘The Universal Owner’s Role in Sustainable Economic
Development.’ (2002) 9(3) Corporate Environmental Strategy 284–291.

36
political authorities or the civil society. Thus, the bond market is currently mainly ruled by a
system of autoregulation. Several professional organisations act as self-regulatory
organisations, such as the International Capital Market Association (ICMA). This means that
some jurisdictions endow these private organisations to regulate the bond market. The ICMA
publishes a rule book on some technical rules to respect on the bond market but its content
remains hidden from the public eye as it is only accessible in exchange of a very high fee.
However, this independence granted to the bond market went under challenge since the 2008
financial crisis, due to the lack of regulation and transparency of certain securitized debt
instruments. This negative view of the bond market was reinforced in 2011-2013 by the
European sovereign crisis. Bond traders were perceived as the ones imposing budgetary
“austerity” policies. Following these crises, the bond market became the focus of at least three
political debates. The first relates to the self-regulation versus state regulation. Because the
public image of the financial sector in most Western democracies is negative, self-regulatory
organisations such as the ICMA are in a defensive position and opinions are generally
demanding more stringent regulations. The second debate is on the bond buying programs of
the central banks. In the last ten years, central banks such as the European Central Bank (ECB)
and the Federal Reserve System (FED) answered the crises with very significant corporate and
state bond buying programs. Several camps opposed such method to support the economy,
fearing inflation and budgetary relaxation. Others noted that such purchase programs were
supporting large companies at the expense of small ones, and polluting activities inconsistent
with State’s environmental objectives. The third debates relate to green bonds – mainly an
invention of the financial industry – and their ability to deliver their green promises.

2.1.2. EARLY GREEN BOND COMPETING CONCEPTS

Outline. During the greater part of civilisations’ history, debt relations took the form of archaic
green bonds, insofar as debt relations frequently included considerations for social and
environmental issues. After a parenthesis (18th century – 20th century) during which the
dominant conception of credit was exclusively economic, many signs suggest a come-back in
the last 30 years of environmental and social considerations in debt relations. Important
milestones in the US in the early 2000s, in multilateral development banks in 2007-8 and
through standardising organisations in 2012 and 2014 led to the birth of two main competing
versions on the green bond concept: climate bonds, organised around the public interest
objective to contribute to climate change policies; green bonds, structured on the need of
private actors to promote their minimal environmental actions. Green bonds successfully
marginalised climate bonds, to the point of becoming the dominant instrument on financial
markets as well as in policy and academic debates.

37
Precedents to the green bond concept. The idea of subjecting debt to non-economic
conditions (be they social, environmental, religious, political, etc) is as old as the concept of
debt itself. David Graeber shows that economic considerations relating to debt have, across
long historical periods, been intertwined with all types of other social relationships. On the
contrary, the idea that debt exclusively belongs to the economic sphere is only a modern idea
and the reality of such conception is debated. 156 For instance, religious systems such as
Christianism and Islam show concerns for the human or environmental impacts of debt
relations. In Catholicism, this concern led to the prohibition of loans with interests from the
fourth to the eighteenth-century. The arguments were often theological (for instance, “time
belongs to God, hence a man can’t make others pay for it”),157 but also sometimes related to
practical issues that we nowadays label as environmental or social. Some medieval theologians
judged interests on loans as a danger for the natural rhythm of human beings and animals –
forced to ceaselessly work to pay the interest.158 Other theologians were concerned that the
owners of funds, attracted by the high profits of the loan at interest, would divert their capital
from the land to usury, thus causing an under-exploitation of the soil, generating famine.159
More generally, the catholic prohibition on interests was based on the principle that a loan
relation should not harm borrowers – in particular the poor.160 Although Islam’s prohibition of
lending still supports in contemporary Islamic finance the development of alternatives to credit
remunerated with interest,161 such practices became minoritarian globally after the Catholic
church abandoned the prohibition on interests in the eighteenth century, because Europe
imposed its financial model to the greater part of the world through the industrial revolution
and colonization. The Catholic Church’s acceptation of credit with interests represents an
important marker: an important hurdle to considering credit under an exclusively economic
light is cleared in Europe. Afterwards, examples of extra-economic considerations in debt
relations are mostly to be found in times of collective hardships such as in insolvency
procedures or in wars or their immediate aftermath, where State sometimes resorted to the
issuance of thematic bonds directed at the war effort or the reconstruction.162

Overview of environment-related debt mechanisms. Against the idea that market forces can
be credited with the idea of inventing green bonds, most of the recent predecessors of green

156
David Graeber, Debt: The First 5,000 Years (Brooklyn, N.Y.: Melville House, 2011).
157
Jean Ibanès, La doctrine de l’église et les réalités économiques au XIIIe siècle. L’intérêt, les prix et
la monnaie (Presses Universitaires de France, 1967) 20.
158
Jacques Le Goff, La bourse et la vie (Hachette :1986) 32.
159
John T. Noonan, The scholastic analysis of usury (Harvard University Press, 1957).
160
Charles Geisst, Beggar Thy Neighbor A history of usury (University of Pennsylvania: 2013) 24.
161
Amir Kordvani, ‘A Legal Analysis of the Islamic Bonds (Sukuk) in Iran’ (2009) 2(4) International
Journal of Islamic and Middle Eastern Finance and Management 323-337.
162
James Chen, ‘War Bond’ (2021) Investopedia
<https://www.investopedia.com/terms/w/warbonds.asp> accessed 17 June 2022.

38
bonds are the result of government or environmental NGOs actions. Across the world,
governments have launched countless mechanisms to incentivize lending to certain
environmentally valued activities. The US were precursors in many aspects, as financial
products linked to the environment – such as sulphur emissions tradable permits – emerged
there from the 1980s.163 Experiments in social impact bonds also happened in the US in the
2000s.164 In China, authorities have been encouraging banks over the last 15 years to deliver
green lending: loans for which banks conduct environmental impact assessments before the
lending.165 In France, the government subsidizes loans without interest rates for financing
thermic renovation of buildings (the “éco-prêt à taux zero”). 166 At the international level,
environmental NGOs and developed countries governments offered debt-for-nature swaps in
the 1990s to developing countries. These NGOs and developed countries bought developing
countries’ debts on international capital markets and cancelled is in exchange of a commitment
from these developing countries to protect ecological resources. As early as 1994, at least one
academic used the words “green bond” to designate such debt-for-nature swaps. 167

Bonds and environment in the US. Former US vice-president and climate activist Al-Gore
played an under-recognized role in the invention of contemporary green bonds. Indeed, certain
types of bonds are linked to environmental performance through US government tax incentives
since the very end of the 90s. The Taxpayer Relief Act of 1997 introduced the concept of tax
credit bond. For these bonds, the federal government grants the bondholders a tax credit worth
an amount equivalent to the interest rate. The first tax credit bond (the Qualified Zone
Academy Bonds or "QZABs") was not dedicated to environmental issues but to financing the
development of education facilities. The ancestor of green bonds appears two years later. In
1999, Vice President Gore introduced a program called “Better America Bonds” as part of its
"Livability Agenda."' Better America Bonds were tax-credit bonds designed to aid local
communities with environmental issues related to open spaces, water quality, and abandoned,
contaminated industrial sites.168 Additional environment-related tax credit bonds were later

163
Paul Ali and Kanato Yano, Eco-Finance : The Legal Design and Regulation of Market-Based
Environmental Instruments (La Haye, Kluwer Law International : 2004) ; Deborah Burand, 'Contracting
for Impact: Embedding Social and Environmental Impact Goals into Loan Agreements' (2017) 13(3)
New York University Journal of Law and Business 775.
164
Ana Demel, ‘Second Thoughts on Social Impact Bonds’ (2013) 9 New York University Journal of
Law and Business 503.
165
Virginia Harper Ho, ‘Sustainable Finance & China's Green Credit Reforms: A Test Case for Bank
Monitoring of Environmental Risk’ (2018) 51 Cornell International Law Journal 609.
166
Articles R*319-1 to R319-22 of the French Code de la Construction.
167
Nicolas Kublicki, ‘The Greening of Free Trade: NAFTA, Mexican Environmental Law and Debt
Exchanges for Mexican Environmental Infrastructure Development’ (1994) 19(59) Columbia Journal
of Environmental Law 59 ; Nicolas M. Kublicki, ‘Green Finance: Problems and Solutions Concerning
Alternative Environmental Debt Exchanges’ (1994) 18 Vermont Law Review 313.
168
Robert A Fisher, ‘Better America Bonds: Better Is in the Eye of the Beholder’ (2000) 25 William &
Mary Environmental Law & Policy Rev 23.

39
created, such as the Clean renewable energy bonds (or "CREBs") created by the Energy Policy
Act of 2005, the Qualified energy conservation bonds (or “QECB”) in the Energy
Improvement and Extension Act of 2008 and the Qualified forestry conservation bonds (or
“QFCB”) in the Food, Conservation, and Energy Act of 2008. 169 The issuance of these bonds
was only available to qualified issuers, such as governmental bodies, public power providers,
or cooperative electric companies. The Tax Cuts and Jobs Act of 2017 repelled all these tax
credit bonds schemes.

The 2007 Climate Awareness Bond of the European Investment Bank (EIB). After the US
government, multilateral investment banks were the next crucial actors for the birth of the
green bond concept. Unlike the US government, which acted as enabling actor for early green
bond issuances, multilateral development banks intervened as financial actors, directly issuing
their own green bonds. The European Investment Bank (EIB) 2007 “climate awareness bond”
issuance was the first bond to be promoted as linked to the climate issue, and to display specific
features related to this linkage. EIB’s climate bond programme had three climate-related
features: allocation of the proceeds to sectors key to climate protection, linking of the returns
to the performance of an index of “green” corporations created by the EIB, and an option for
the investors at the maturity of the bond to reduce capacity for greenhouse gas emissions by
purchasing CO2 allowances. 170 Hence, in this first high-profile climate bond series, the
“climate” orientation of the bond is not realized through the financing of climate projects, but
through a three-pronged approach – climate sectors, green corporations, and CO2 allowances.

The 2008 green bond programme of the World Bank. But EIB’s “climate awareness bond”
was soon in concurrence with a competing form of environmental bond. In 2008, the World
Bank and the Skandinaviska Enskilda Banken bank – a Scandinavian regional bank – jointly
issued a simpler green bond, whose characteristics are also closer to later green bond issuances.
This bond financed eligible projects “promoting a transition towards low-carbon and climate
resilient development in recipient countries.”171 This issuance was the first to define ad-hoc
criteria for eligible green bond projects, to include a list of eligible projects and the first second
party opinion assuring investors that eligible projects would address climate change, and to
encompass a reporting on the use of green bond proceeds and expected project impacts.172 In

169
Scott Breen and Catherine Campbell, ‘Legal Considerations for a Skyrocketing Green Bond Market’
(2017). 31 Natural Resources & Environment 16 ; Krystian Czerniecki and Sam Saunders, ‘Green
Bonds: An Introduction and Legal Considerations’ (2016) 48 Securities Regulation & Law Report 275.
170
European Invesment Bank, EPOS II: The Climate Awareness Bond – May 2007 (2007).
171
International Bank for Reconstruction and Development, Final Terms dated November 9, 2008 (2008)
<http://www.oblible.com/Prospectus/www.oblible.com__XS0398811959.pdf> accessed 1 October
2021.
172
World Bank, Press Release: November 13, 2008 (2008), <World Bank Marks 10-Year Green Bond
Anniversary with Landmark Issuance US$1.3 Billion Issuances Bring World Bank Green Bond
Program to US$12.6 Billion> accessed 1 October 2021.

40
this issuance, the word “green” is a rough draft of the mainstream definition later imposed by
the standardisation led by the financial industry: the financing of green projects.

Two dominating concepts: climate bonds and green bonds. Early green bond
standardisation merged meanings of “green” developed by the World Bank and the EIB and
eclipsed the alternative set by the US legislator. The climate dimension put forward by the EIB
kept being promoted by an NGO named the Climate Bonds Initiative173 (CBI). In 2012, the
CBI was the first organisation to enter the field of green bond standardisation.174 The CBI
introduced a decisive tool for the definition of what is “green”: the “climate bonds taxonomy”.
This taxonomy is a table listing eligible categories for climate change investment. CBI’s
climate bonds standards generated a new stream of green bonds oriented towards climate
change and certified on the basis of the “climate bond taxonomy”. In 2014, the meaning of
“green” pioneered by the World Bank – broader focus than climate change, transparency of
proceeds allocation, loose green categories – got further refined by the green bond industry
standards set by the ICMA. The Green Bond Principles (GBP) mostly set procedural rules.
According to the GBP, investors should explain how they determined the greenness of their
investment. Beyond these transparency requirements, the GBP do not prescribe any definition
about what “green” means. These two competing concepts – CBI’s climate bonds and ICMA’s
green bonds – anchored from the start in the green bond normative the opposition between a
set of rules oriented towards public interests – the climate, through CBI’s climate taxonomies
– and a set of rules oriented towards private interests – the promotion of issuers’ environmental
actions, through ICMA’s transparency rules.

The cuckoo of climate finance. The anteriority of the public-oriented set of rules (CBI’s)175
was certainly necessary for a private-oriented set of rules (ICMA’s) to appear. CBI’s set of
rules enabled a certain stable definition of what climate-friendly investments meant, thereby
creating the possibility for private actors to start exchanging them. ICMA’s transparency rules
resulted in creating a category of bonds backed on climate bonds, but broader than this climate
category. ICMA’s “green” includes climate bonds, which are based on a robust definition,
genuinely attempting to organise private actors’ contribution to the common goal of mitigating
and adapting to climate change. But ICMA’s green definition also include any other bond
deemed as green by the issuer, since ICMA’s rules only recommend transparency

173
The Climate Bonds Initiative is a nongovernmental organization (NGO) based in London that was
launched in 2009 at the United Nation’s Conference of the Parties’ Climate Change summit in
Copenhagen in order to mobilise climate finance. <https://www.climatebonds.net/> accessed 1 October
2021.
174
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 43.
175
CBI’s climate taxonomy was established in 2011, three years before ICMA’s first version of the
GBP (2014).

41
requirements and does not contain any substantial definition of what is “green.” As such, the
“green” as defined by ICMA benefits from the seriousness of CBI’s definitions, while
including also environmentally harmful bonds. In the same way as securitized subprime assets
at the origin of the 2007 Great Financial Crisis were a mixture of good-quality tranches of debt
and bad-quality ones, the “green” invented by ICMA enables to sell under the same sticker
excellent environmental investments and catastrophic ones. This exactly the opposite of what
CICERO 176 tried to do by creating a range of different greens, from light green (weak
environmental credentials) to dark green (high environmental ambition).177 To take a last (and
nature-inspired) image, the ICMA is the cuckoo of the CBI, laying its green eggs in the nest
of climate finance. Once ICMA’s green egg hatched, its green chicks successfully
marginalised the climate chicks, as the market environment was much more favourable to the
growth of green omnivorous chicks than to selective climate chicks. Blinded by the
resemblance between “green” and “climate,” the CBI kept feeding the green chicks to the point
of becoming the main promotor of green bonds.

2.2. REASONS EXPLAINING THE EMERGENCE OF THE GREEN BOND MARKET

Outline. This section examines the reasons explaining the emergence of the green bond market.
This section shows that green bonds’ qualities were successfully framed as participating in the
sustainability-driven transformation of the financial sector, therefore contribution to public
goals (2.2.2). Green bonds were also recognized certain intrinsic qualities that may appeal to
market participants, and therefore refer to a private interest logic (2.2.1). These two sets of
rationales enable to analyse the lineaments of the public/private interests dynamic behind the
normative developments of green bonds.

2.2.1. THE SUSTAINABILITY-DRIVEN TRANSFORMATIONS OF FINANCE

Outline. Reasons explaining the emergence of green bonds first relate to the sustainability-
driven transformations of the financial sector. Numerous public institutions endorsed green
bonds’ sustainability framing promoted by green bonds’ private standard-setters. This
endorsement created an impression of inevitability regarding the development of green bonds,
reinforced by a performative growth narrative actively promoted by green bonds’ market main

176
CICERO is Norwegian an interdisciplinary research centre and green bond reviewer. CICERO, About
<https://cicero.oslo.no/en/about> accessed 27 July 2022
177
CICERO, Green <https://cicero.green/> accessed 27 July 2022

42
actors. Green bonds’ development was also spurred by a multidirectional ESG regulatory
pressure imposed by public authorities on finance actors.

Sustainability framing of green bonds. The main standard setters – the CBI and the ICMA
– as well as countless issuers actively promoted green bond issuances as a way to contribute
to the achievement of the Paris Agreement on climate change and the Sustainable
Development Goals.178 Powerful institutions or networks such as the OECD,179 the G20 study
group on green finance,180 the EIB and the Chinese Green Finance Committee,181 as well as
the UNEP-FI182 promoted through numerous reports green bonds as a way, among others, to
contribute to sustainable development. States themselves in some of their Nationally
Determined Contributions (NDCs)183 under the Paris Agreement repeated this idea that green
bonds were enabling them to achieve their climate change objectives. Domestic financial
regulators issued landmarks reports on green finance,184 with the consequence of positioning
green bonds as the vanguard of a broader process. Emerging regulations, such as the EU green
bond standard 185 and the EU taxonomy, 186 repeated these elements as well. If a repeated
discourse does not make a truth, one can nonetheless suppose that constant repetition by many
powerful international actors generates an impression of consensus regarding the contribution
of green bonds to the sustainable future of finance.

Growth narratives. These sustainable development discourses were complemented by

repeated growth narratives. Green bond growth narratives were of two types: growth histories

178
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished).
179
OECD, Mobilising Bond Markets for a Low-Carbon Transition (Éditions OCDE, Paris, 2017)
<https://doi.org/10.1787/9789264272323-en> accessed 1 October 2021.
180
G20 Sustainable Finance Working Group, Document Repository
<https://g20sfwg.org/#document_repository> accessed 1 October 2021.
181
European Investment Bank and the Green Finance Committee China Society for Finance and
Banking, The need for a common language in Green Finance: Towards a standard-neutral taxonomy
for the environmental use of proceeds (2017).
182
UNEP-FI, A Legal Framework for Impact: Sustainability Impact in Investor Decision-Making (2021)
<https://www.unepfi.org/publications/a-legal-framework-for-impact-sustainability-impact-in-investor-
decision-making/> accessed 1 October 2021.
183
United Arab Emirates, Second Nationally Determined Contribution of the United Arab Emirates
(December 2020) ; Suriname, Nationally Determined Contribution of the Republic of Suriname
(December 2019).
184
U.S. Commodity Futures Trading Commission, Managing Climate-risks in the US Financial System
(September 2020) <https://www.cftc.gov/sites/default/files/2020-09/9-9-
20%20Report%20of%20the%20Subcommittee%20on%20Climate-
Related%20Market%20Risk%20-%20Managing%20Climate%20Risk%20in%20the%20U.S.%20Fina
ncial%20System%20for%20posting.pdf> accessed 18 November 2021 ; Patrick Bolton and al., The
Green Swann : Central Banking and Financial Stability in the Age of Climate Change, Bank of
International Settlement, January 2020 <https://www.bis.org/publ/othp31.pdf> accessed 27 July 2022.
185
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final.
186
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13.

43
and growth prophecies. A quasi-universal narrative among bond related institutions consists
in retracing the exponential growth of green bonds. Growth histories take many dimensions.
Growth can be assessed in the total amount of bond issued: from $11 billion in issuances in
2013, to US $90 billion in 2016, to US$150 billion in 2017, to $389 billion in 2018 and $723
billion at the start of January 2020.187 But growth histories can also be expressed in number of
issuances, issuers, jurisdictions, or types of financial instruments mobilized. Similarly, growth
is often predicted. Climate Bonds Initiative regularly published growth expectations and
enticed participants at its annual climate bonds conference to publicly express their growth
predictions. For years, CBI’s dominant narrative was the objective to reach one trillion of
outstanding green bonds in 2020. 188 Governments also joined in predicting growth. For
instance, the Hong Kong government supports that “although the outstanding green bonds
currently account for as low as less than 1 percent of the overall bond market, they have huge
potential for growth”189 and that the Hong Kong’s green bonds “capitalize on the enormous
green finance opportunities.”190 In a very mimetic environment such as the financial sector,
these growth narratives provided a strong rationale to many financial actors: they issued green
bonds to anticipate the trend. As such, these growth narratives became performative: because
many financial actors believed in it, it became reality.

The long-term sustainable transformations of finance. But beyond the marketing, green
bonds also answer to long-term environmental, social and governance (ESG) transformations
of the financial sector. At the international level, initiatives such as the Brundtland report in
1987 (which defined sustainability as the development that answers to the need to present
generations without preventing other generations to answers theirs, and conceptualize the
equally important three pillars of sustainable development: economic, social and
environmental) and its successive translations in more practical instruments, played a long-
lasting role in the evolution of finance. For instance, the Principles for Responsible Investment
(PRI), a United Nations supported investor network that promotes incorporation of
environmental, social, and governance (ESG) issues in investment decision-making, has
dramatically grown, from twenty members in 2006 to over 1400 members in 2015. Other
international initiatives, such as the Task Force on Climate-related Financial Disclosures
(TCFD) – a set of recommendations to banks and corporations to communicate climate risks

187
Climate Bonds Initiative, ‘Sustainable Debt Global State of the Market 2020’ (2021)
<https://www.climatebonds.net/files/reports/cbi_sd_sotm_2020_04d.pdf> accessed 1 October 2021.
188
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 70.
189
Legislative Council, session of 17 March 2021, 3977 <https://www.legco.gov.hk/yr20-
21/english/counmtg/hansard/cm20210317-translate-e.pdf#nameddest=orq02> accessed 1 October
2021.
190
Ibid.

44
to investors – or the Equator Principles – guidelines applied to banks when dealing with
environmentally sensitive projects in developing countries – are also transforming finance,
either because they are integrated into hard law or because the authority of these soft laws
leads finance actors to change their behaviour. As a result, most sections of finance underwent
some ESG modifications: ESG funds, green credit, green stocks etc. Over seventy percent of
mainstream institutional investors considered sustainability as central to their investment
decisions in 2015.191 This figure rose to 85 per cent in 2019 according to one study192 and
another survey among institutional investor found that 80 per cent of asset owners integrate
ESG factors into their investment process. 193 In conjunction with ESG screening, equity
investors engage with corporate management through shareholder activism.194 Green bonds
appeared as the main method to align the bond market with these ESG long term evolutions.

Regulatory developments. At the domestic level, many guidelines and regulations are
changing practices. In Hong Kong, the Securities and Finance Commission (SFC) and the
Hong Kong Monetary Authority (HKMA) published several guidelines starting to implement
climate stress tests on banks,195 as well as regulating green funds.196 In the EU, the sustainable
finance package of reforms add important additional reporting requirements.197 The objective
of these reforms is to systematically integrate the “carbon dimension” in investment and loan
decisions.198 In the US, a presidential decree set an ambitious agenda on climate finance.199 A
race has started between the initiative European regulatory Corporate Sustainability Reporting
Directive (CSRD) which aims at developing European standards for sustainability and the

191
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 1.
192
Morgan Stanley, Sustainable Signals: Individual Investor Interest Driven by Impact, Conviction and
Choice (2019) <https://www.morganstanley.com/press-releases/sustainable-signals> accessed 1
October 2021.
193
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 7 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 1 October 2021.
194
Ibid.
195
Hong Kong Monetary Authority, Circular: Climate Risk Stress Test (2020)
<https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-
circular/2020/20201204e1.pdf> accessed 5 June 2021.
196
Securities and Futures Commission of Hong Kong, Circular: Green or ESG funds (2020)
<https://apps.sfc.hk/edistributionWeb/api/circular/openFile?lang=EN&refNo=19EC18> accessed 5
June 2021.
197
Communication from the Commission to the European Parliament, the Council, the European
Economic and Social Committee and the Committee of the Regions, ‘Strategy for Financing the
Transition to a Sustainable Economy’ COM/2021/390 final < https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52021DC0390&from=EN> accessed 18 November 2021.
198
Yves Perrier (dir.) Faire de la place de Paris une référence pour la transition climatique : un cadre
d’actions (2022) 55 <https://www.vie-publique.fr/sites/default/files/rapport/pdf/284351.pdf> accessed
27 July 2022.
199
‘Executive Order on Climate Related Financial Risks, 20 May 2021’
<https://www.whitehouse.gov/briefing-room/presidential-actions/2021/05/20/executive-order-on-
climate-related-financial-risk/> accessed 18 November 2021.

45
International Financial Reporting Standards (IFRS) Foundation project, which launched at the
Conference of Parties (COP) 26 an International Sustainability Standards Board aimed at
develop a common set of global standards, limited to climate topics and reflecting only the
financial risks related to climate change.200 The practical results of such regulations have yet
to be assessed, but one can no longer defend the view that sustainable finance is only a
marketing slogan. Therefore, these normative developments in sustainable finance are one of
the important rationales for the development of the green bond market.

2.2.2. GREEN BONDS’ QUALITIES FROM THE VIEWPOINT OF MARKET

PARTICIPANTS

Outline. The two dominating green bond concepts – the CBI and the GBP, as presented in the
previous subsection – display characteristics that are susceptible to please market actors. Their
degree of originality is limited since they rely on the legal infrastructure of a conventional
bond, they are simple compared to other financial products, flexible as most standards are not
mandatory, replicable since they nonetheless tend to be standardised, a safe investment as they
do not have a different risk profile from the rest of the issuer’s debt, and little legalized as, in
general, most of the green characteristics of a bond are not included in the contractual terms.
All these qualities were actively enhanced by the private regulators of the market.

Conventional and simple. Green bonds rely on the legal contractual structure of a
conventional financial instrument: a bond. Although green bonds may be considered as a
specific asset class on the market, green bonds only marginally differ from conventional bonds
(also called “plain” or “vanilla” bond). Like a “vanilla” bond, a green bond is a debt security
issued by a borrower in return for the payment by investors of a subscription price. These
notions of debt and security are, with corporations’ stocks, among the most basic legal notions
used on financial markets. They are therefore familiar to financial market participants. Closely
related to their conventionality, green bonds are, from the viewpoint of investors, simple.
Green bonds do not necessitate additional complex due diligence, or complex structuration
from the issuers or the investors. Compared with asset-backed securities or credit default
swaps, green bonds are extremely simple. This simplicity led to the development of other types
of ethical bonds modelled on green bonds, such as social bonds and sustainable development
bonds.

200
Yves Perrier (dir.) Faire de la place de Paris une référence pour la transition climatique : un cadre
d’actions (2022) 71 <https://www.vie-publique.fr/sites/default/files/rapport/pdf/284351.pdf> accessed
27 July 2022.

46
Innovative and flexible. Green bonds represent, to some extent, a genuine innovation. Before
green bonds, the international bond markets were mainly used to raise capital for general
corporate or public purposes based on the issuer’s risk profile. By contrast and in the words of
the EU Technical Expert Group TEG, “green bonds represent a considerable innovation
through their focus on green use of proceeds, tracking, impact reporting and external
reviews.”201 Nonetheless, green bonds remain flexible. Not only does “green” often mean what
the issuer wants it to mean, but “bond” is also an open concept.202 As already mentioned in the
introduction, there is an unlimited number of types of bonds. As explained in further details in
chapters 3 and 4, green bonds standards are seldom mandatory. The door is often open to the
issuer’s self-labelling of its green bonds, by which “green” means nothing else than what the
issuer wants.

Replicable and financially secure but without environmental legal commitment. Green
bonds are replicable since they tend to be standardised, although this standardisation, in most
of the cases has nothing mandatory. The GBP and the CBI provide all kind of models and
resources to issue, at the minimum cost, a green bond matching the standards of the market.
In addition, green bonds are secure investments, since the bond exposes the investor to the
risks of the entire balance sheet of the issuer (and not to the specific green projects only).
Therefore, the financial risk for a green bond is not different from the risk for a conventional
bond issued by the same issuer. This similarity of risk profile is strengthened by the fact that
most green bonds do not include a firm legal commitment by the issuers to achieve an
environmental objective. Therefore, there can be no event of default in relation to unmet
environmental promises. The investor knows that the green commitments will not interfere
with the reimbursement of the bond.

Private regulators’ enhancement of green bonds’ qualities. Green bonds’ qualities were
tweaked and harmonized by private standard setters, which enabled the replicability of green
bonds, and hence their expansion. Private regulators had a crucial role in establishing the green
and climate bonds concepts (including related concepts, such as the “greenium”, invented by
the team of the Climate Bonds Initiative, or the concept of “shades of green” developed by the

201
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
202
The American legal doctrine has long been grappling with the question of the qualification of a bond
as bond despite the many names potentially attributed to it. In 1934, one author was stating:
''The fact that an instrument is called a 'bond' is not conclusive as to its character. It is necessary to
disregard nomenclature and look to the substance of the bond itself. The distinguishing feature of a bond
is that it is an obligation to pay a fixed sum of money, at a definite time, with a stated interest, and it
makes no difference whether a bond is designated by that name or by some other, if it possesses the
characteristics of a bond. There is no distinction between bonds and certificates of indebtedness which
conform to all the characteristics of bonds. 1 Silvester E. Quindry, Bonds & Bondholders Rights &
Remedies § 2, at 3-4 (1934). Quoted in Black’s law dictionary, article “bond.”

47
third-party verifier CICERO).203 The green bond definition of the ICMA became the standard
of the market. The CBI also had a decisive role for creating quantitative data about the green
and climate bond market. Their figures provided the main sources for authoritative reports,
such as the OECD 2017 green bond report.204 The construction of precise numbers gave a
substance to the green bond and climate bonds concepts and created confidence in the
market.205 The bond exchanges and the third-party verifiers and certifiers also contributed to
ascertain the existence of a bond market. The bond exchanges also had an important role in
creating green bond segment of the markets, accessible to bonds that would respect certain
green bond standards. 206 The third-party verifiers and certifiers ensured a certain form of
implementation of the green bond standards. The CBI and the ICMA reinforced the synergies
by organising yearly meetings with all the market participants. The CBI also lobbied and
actively participated in the emerging state regulations in several jurisdictions, hence further
anchoring the existence of the bond market.

3. THE CONTRIBUTION OF SUCCESSIVE ISSUANCES TO THE GREEN BOND

CONCEPT

Outline. The previous section sketched the public–private dynamic at work in the emergence
of green bonds. This section carries out the same endeavour – exposing the public–private
dynamic at play – applied to the next stage of green bonds’ development: the successive
issuances happening after the emergence of the concept (which excludes the very first green
bond issuances from multilateral development banks), but before the main normative
developments (analysed in the section 4 under the heading “the normative densification of the
green bond concept). This period of conceptual debates linked to successive issuances of green
bonds was the most intense from 2007 (the first climate bond by the EIB) to 2015 (the first
public regulations, therefore provoking an intensification of the normative developments
around green bonds), but also continued from 2015 to today, given the remaining immaturity
of the regulation on green bonds. In order to identify the public/private dynamics at play during
this second period of green bond conceptualisation, this section exposes the rationales for
issuing green bonds (3.1) and shows how successive green bond issuances generated debates
enriching the green bond concept (3.2). This section shows that the core rationale for issuing

203
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 35 and following.
204
OECD, Mobilising Bond Markets for a Low-Carbon Transition (Éditions OCDE, Paris, 2017)
<https://doi.org/10.1787/9789264272323-en> accessed 1 October 2021.
205
Ibid.
206
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54 Stanford Journal of International Law 1.

48
green bond is the alignment with public objectives on environmental protection. Consequently,
successive green bond issuances made indispensable instruments for defining “green,” while
transparency standards were marginalized to the point of being suppressed in some
environmental debt securities alternative to green bonds.

3.1. RATIONALES FOR ISSUING GREEN BONDS

Outline. At first sight, since most green bond issuers are private entities, one could expect the
rationales for issuing green bonds to revolve exclusively around private interests. This is not
the case. Many public or semi-public entities issued important green bonds or bought an
important share of the green bonds available for sale. In addition, market actors have often
taken carefully observed public actors’ behaviours in matter of green bonds, in order to
establish references, granting public interventions in green bond transactions a greater
conceptual importance than their quantitative light weight could suggest. Therefore, this sub-
section exposes both non-financial (3.1.1) and financial (3.1.2) rationales for issuing green
bonds. It shows, overall, that the core rationales for issuing green bond revolve around the
alignment with public objectives on environmental protection.

3.1.1. NON-FINANCIAL RATIONALES FOR GREEN BONDS ISSUANCES

Outline. Even though green bonds are financial products, the rationale for their issuance is not
primarily tied to economic reasons. Social and environmental considerations matter. Green
bonds advocates promote this financial instrument as one of the solutions to deal with urgent
environmental issues. It is also instrumentalized by some actors as communication strategy
dedicated to improving the image of the financial sector and protecting its “social license to
operate”. Finally, green bonds also meet organisations’ demands for ethics. In other words,
green bonds were, issuances after issuances, justified as an instrument able to contribute to
public aims but this rationale was subverted by some private actors, who used it in order to
legitimize the current functioning of the bond market, and therefore to block any new public
initiative in the field of finance. However, this subversion was not complete, as many private
organisations genuinely used green bonds to reintegrate their action into a frame oriented
towards the ethical pursuits of public aims. Given the low financial advantage provided by
green bonds, and the fact this low financial advantage is actually the financial conversion of
the alignment with public environmental objectives (see next sub-section), the core rationale
for issuing green bonds is this alignment with public aims, not the financial gain.

49
Green bonds as a solution to environmental issues. Green bonds advocates promote this
financial instrument as one of the solutions to deal with urgent environmental issues.207 A
combination of several factors explains this advocacy: the environmental situation is dire on
many fronts, international agreements have not fully demonstrated their efficiency in the last
30 years, and financial markets have shown in the past their ability to influence the behaviour
of states and corporations. As result, green bond advocates defend the instrumentalization of
finance to achieve environmental practical results. Nonetheless, this rationale faces many
studies challenging the environmental benefits attributed to green bonds.

Limits of international environmental law. The environmental situation is dire on many

fronts and international agreements designed to tackle the issues are not fully efficient. For
instance, the Emissions Gap Report 2021 reveals that national climate pledges under the Paris
Agreements, combined with other mitigation measures, put the world on a trajectory for an
average temperature rise of 2.7°C by 2100. This rise is superior to the objective of the Paris
climate agreement and would have many negative consequences on earth’s ecosystems
(including homo sapiens).208 A way to supplement or accompany states’ efforts is by helping
to bridge the lack of financing for climate change issues. Many international organisations
consider green bonds as an efficient way to mobilize private financial resources to achieve
public aims.209

Financial markets and institutions’ power. In addition, the financial markets and institutions
have shown in the last decades their ability to influence the behaviours of states and
corporations. As such, they can be instrumentalized in order to trigger changes of behaviour
benefiting the environment. The IMF and World Bank have been harshly criticized in the last
decades for imposing the “Washington consensus” (a set of economic policies championing
public budget cuts and pro-market reforms) on States accepting their credit support.210 The
“austerity” policies attributed to the financial markets (in countries such as Greece, Spain or

207
For instance, United Nations Development Program, Climate Bonds Initiative, Global
Environmental Facility, The Climate Aggregation Platform, Linking Global Finance to Small-Scale
Clean Energy: Financial Aggregation for Distributed Renewable Energy in Developing Countries
(2022) <https://www.climatebonds.net/files/reports/undp_cap_final.pdf> accessed 17 July 2022.
208
United Nations Environmental Programme (UNEP), Emission Gap Report 2021 (2021)
<https://www.unep.org/resources/emissions-gap-report-2021> accessed 17 June 2022.
209
Organisation for Economic Development and Cooperation (OECD), Scaling up Green, Social,
Sustainability and Sustainability-linked Bond Issuances in Developing Countries (18 October 2021) 16
<
https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DCD(2021)20&docLangua
ge=En> accessed 17 June 2022 [“As of early 2021, the SDG financing gap in developing countries is
estimated to have increased by at least 50%, USD 1.2 trillion, totalling USD 3.7 trillion in 2020].”
210
John Williamson, ‘What Washington Means by Policy Reform’ in John Williamson (ed.) Latin
American Adjustment: How Much Has Happened? (Institute for International Economics: April 1990) ;
Joseph Stiglitz, ‘Challenging the Washington Consensus’ (2003) 9(2) The Brown Journal of World
Affairs 33.

50
Italy) also show the power over policies that creditors can have on debtors, even when these
debtors are relatively powerful states. In The code of capital, Katharina Pistor recalls how
financial lawyers instrumentalize the law of property, corporation, trust, and bankruptcy to
protects the owners of capital assets at the expense of other social or environmental
priorities.211 Given the power wielded by financial law, theoreticians and activists imagined
leveraging this power to implement rapid and efficient environmental actions. Christian
Arnsperger theorized the refoundation of money on ecological limits.212 CBI’s founder, Sean
Kidney, developed the concept of climate bond to raise awareness in the financial sector.

The environmental instrumentalization of finance. The Paris Agreement itself bears the
mark of the strong link made between financial systems and climate commitments in its Article
2.1.c. This link is endorsed by states and territories, such as Hong Kong, which explain that
the Green Government Bond Program was set up in 2018 with the policy objective of
“signifying the Government’s support for sustainable development and determination to
combat climate change” 213 and that “having regard to the goal of achieving carbon neutrality
before 2050 […] the Government plans to issue green bonds regularly and expand the scale of
the GGBP [Government Green Bond Programme] […].”214 One study gave some credence to
the environmental rationale of green bonds, by showing that “compared to conventional bond
issuers with similar financial characteristics and environmental ratings, green issuers display
a decrease in the carbon intensity of their assets after borrowing on the green segment.”215
However, some other studies show that “as a financial instrument, green bonds are not judged
[…] to play a large role in shifting capital from unstainable to sustainable investments.”216

Green bonds as a communication strategy to keep one’s social “licence to operate”. The
academic literature on sustainability and corporations identifies a number of rationales that are
not only based in economic or even ecological strategies, but instead in social strategies

211
Katharina Pistor, The Code of Capital (Princeton University Press : 2019) ; Katharina Pistor, ‘The
Myth of Green Capitalism’ (September 2021) Project Syndicate <https://www.project-
syndicate.org/commentary/green-capitalism-myth-no-market-solution-to-climate-change-by-
katharina-pistor-2021-09> accessed 18 November 2021.
212
Christian Arnsperger, ‘Repenser la création monétaire pour demeurer dans les limites de la biosphère’
in Agnès Sinaï et al. (eds), Gouverner la Décroissance (Presses Universitaires de Sciences Po: 2017)
77- 94 ; Christian Arnsperger, Bernard Liater, Sally Goerner, Money and Sustainability (Triarchy Press:
2012).
213
Legislative Council Panel on Financial Affairs, Resolution to Expand the Scope of and Raise the
Maximum Amount of Borrowings under the Government Green Bond Programme, LC Paper No.
CB(1)737/20-21(06), p 1 <Legco papers on Hong Kong green bond.pdf> accessed 18 November 2021.
214
Ibid 2.
215
Serena Fatica and Roberto Panzica, ‘Green bonds as a tool against climate change?’ Commission’s
Joint Research Centre Working Papers in Economics and Finance (Luxembourg: Publications Office
of the European Union, 2020) <https://ssrn.com/abstract=3710020> accessed 18 November 2021.
216
Aaron Maltais and Björn Nykvist, ‘Understanding the role of green bonds in advancing sustainability’
(2020) Journal of Sustainable Finance & Investment 13
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021.

51
relating to the legitimacy of the organisation and its ‘license to operate.’ According to Maltais
and Nykvist, green bonds are used by companies to communicate to other social actors – at
least, their investors and consumers – the company’s commitment to sustainability. 217
Similarly, by purchasing green bonds, investors signal to other market participants their pledge
to sustainability, which may enhance the reputational image of mainstream investors.218 This
instrumentalization of green bonds for social legitimacy purpose is also identified by Tripathy,
who considers that green bonds contributes to promote the utility of financial markets for
talking climate risks, “which has the added benefit that bankers can self-reflect and be moral
actors in their work and identity construction.” 219 Therefore the main value green bond
investors and issuers find in green bonds is this ability of this product to show their alignment
with public goals in order to keep a public consent in favour of their activities.

Sovereign green bond issuances and social legitimacy. In their green bond issuances, states
and municipal authorities also openly acknowledge the social legitimacy research. The Hong
Kong government green bonds are meant to demonstrate “the Government’s commitment to
consolidating Hong Kong as the green and sustainable finance hub in the region” and to
“showcase to potential green bond issuers, both locally and overseas, that Hong Kong has a
full-fledged ecosystem of financial intermediaries and professional service providers.” This
promotional aspect of green bonds is meant to be increased domestically as government
officials declared that “the Government should actually do more publicity for the public works
projects financed through green bonds, so that their contribution to environmental protection
will be better known to the public.” 220 In the EU, EU’s green bond is promoted by the
Commission as a way to “repair the immediate economic and social damage brought about by
the coronavirus pandemic.”221

Limits of social legitimacy strategies using green bonds. The limit of this legitimacy-
seeking motivation stands in the reputational risk if the green bonds do not deliver to promised
environmental outputs. An in-depth study of Brazilian green bonds by geographers describes
how green bond issuances “that are officially committed to the implementation of sustainable

217
Ibid.
218
Ibid.
219
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 69.
220
Legislative Council, Official Record of Proceedings Wednesday (21 July 2021) 8593
<https://www.legco.gov.hk/yr20-21/english/counmtg/hansard/cm20210721-translate-
e.pdf#nameddest=mot01> accessed 18 November 2021.
221
Communication from the Commission to the European Parliament and the Council on a new funding
strategy to finance NextGenerationEU COM(2021) 250 final
<https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/com2021_25
0_en_act_part1_v3.pdf> accessed 18 November 2021.

52
management of forests”222 are in fact associated with “the expansion of the ecological frontier
in the Brazilian territory, stretching the boundaries of the area dedicated to tree plantations and
amplifying social and environmental tensions.”223 The authors of this study underlined that
“green bonds may come into being at the expense of other ways of living ecologically” and
generate, in addition to financial debt, social and ecological debt.224

Organisations’ demands for ethics and pedagogy. Green bonds also meet organisations’
demands for ethics and pedagogy. This rationale for issuing green bonds rests first on the
individual ethical beliefs of the members of these organisations (corporations, states, NGOs).
It also rests on the need for these individuals to acquire new knowledge about the changing
business realities in light of environmental challenges. But at the collective level, the
organisations themselves indicate that their rationale for issuing green bonds include the need
to train different departments of their organisation (for instance, the financial department and
the sustainability department) to cooperate. As such green bonds can improve their operational
efficiency.225

Green bonds and individual ethical beliefs. Organisations are made with individuals. These
individuals are in general increasingly concerned with environmental issues. Tripathy
identifies a generational divide between “first-generation climate finance practitioners having
heroic personal narratives and second-generation sustainable financiers being more career
focused and pragmatic in their personal narratives in terms of working to make a living in this
space.”226 Among the first generation, the few figures credited with the idea of issuing green
bonds were deeply climate committed finance practitioners. Key characters, such as a Swedish
banker named Flensborg,227 or Sean Kidney, who created the climate bonds initiative in 2009,
as well as others such as Tanguy Claquin, Suzanne Butcha or Ma Jun, are workers of the
finance industry who pursued, by developing climate finance, a personal combat based on
ecological values. Often after a health problem,228 they decided to turn their energy towards

222
Iagê Miola et al. ‘Bonos verdes en la ecología-mundo: capital, naturaleza y poder en la expansión
financiarizada de la industria forestal en Brasil’ (2021) 46 Relaciones Internacionales 161.
223
Ibid.
224
Ibid.
225
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 187.
226
Ibid.
227
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) [“Flensborg had been a banker his
whole life, and midway in his career he was diagnosed with a brain tumor and underwent a surgical
procedure to remove it. While in recovery, Flensborg pondered the meaning of his life, and became
adamant that once fully healed he would leave banking and go to try to save the world, in order to give
his life true meaning. However, once he fully recovered, he realized that it really was banking that he
was good at, and thus he sought to use his banking skills to do good in the world, rather than leave his
profession entirely. So it came to be that Flensborg championed the cause of green bonds at SEB when
the bank worked on the World Bank’s first green bond issuance”].
228
A cancer for Flensborg, a heart attack for Sean Kidney.

53
something they thought could be useful. This ethics is also related to knowledge. Some of
them have original academic backgrounds for bankers, such as Tanguy Claquin who holds a
PhD in climate science done under Hervé le Treut – a prominent member of the IPCC.

Green bonds and organisations’ ethics. On organisations’ side, the same couple ethics–
knowledge is observable. Corporations, banks or States strive for showing that they respect
certain ethical values. This respect is analysed as a way to attract the best talents.229 As such,
issuing a green bond can strengthen the commitments of its workforce, clients, and other
stakeholders. Regarding knowledge, the TEG finds that the process associated with green
issuance represents a “strong in-house knowledge-sharing and awareness building exercise
that connects the treasury, business, sustainability, investor relations and reporting
functions.”230 The Swedish government committee investigating the facilitating of green bonds,
noted that the Swedish issuers have found green bonds successful for a number of reasons,
including the enjoyment of the “soft” benefits such as knowledge sharing, assessed by issuers
as similarly important with price and market benefits.231 This knowledge sharing enabled “the
improved dialogue on sustainability with issuers and internally within the organisation.”232 A
report by CBI argues that green bond issuers receive advantages, including an increased
engagement with stakeholders and reinforced commitment to responsible company
management.233 The same can also be said of credit rating agencies, who heavily invested the
green bond market to develop their expertise on climate and environment-related risks. In
parallel, an ecosystem of firms and organisation drawn from the academic, audit, rating and
consulting worlds (referred to collectively as “external reviewers”) has developed to provide
advisory services on how to interpret and verify green projects.234 This pedagogical function
of green bonds echoes the emerging pedagogical function of some contracts.235

229
Aaron Maltais and Björn Nykvist, ‘Understanding the role of green bonds in advancing sustainability’
(2020) Journal of Sustainable Finance & Investment 10
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021 [“Operational
efficiency may be enhanced by, for example, attracting high quality employees, impacting the
productivity of employees motivated by sustainability commitments of the organisation, or identifying
new operational efficiency gains”].
230
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
231
Aaron Maltais and Björn Nykvist, ‘Understanding the role of green bonds in advancing sustainability’
(2020) Journal of Sustainable Finance & Investment 10
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021.
232
Ibid.
233
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
234
Ibid.
235
Judith Rochfeld, ‘Le contrat’ in Les grandes notions de droit privé (Presses Universitaires de France,
2013) 474.

54
Green bonds and organisations’ raison d’être. Institutional and organisational benefits
linked to green bonds also connect with the broader dynamic in favour of the definition, by
companies, of their “raison d’être” – a purpose that is not exclusively economic but also
includes environmental and social considerations. 236
Green bonds help the issuing
corporations to reflect on their sustainability purposes as the GBP recommend that issuers
position their green projects within their “overarching objectives, strategy, policy and/or
processes relating to environmental sustainability”. 237 The development of green finance
taxonomies by the CBI, the Chinese regulators and the EU also help corporations to position
their projects within collective and global environmental objectives.

3.1.2. FINANCIAL RATIONALES FOR ISSUING GREEN BONDS

Outline. The social and environmental rationales for issuing green bonds explained above
partially convert into financial advantages. This section analyses green bonds as an answer to
ESG preferences of the demand side, as a method to reduce information asymmetries between
investors and issuers and as way to handle climate-related financial risks better, to the point
that green bonds generally have a slightly lower interest rate – a “greenium”. In other words,
the rationale consisting in the ability of green bonds to contribute to public action goals
(exposed in the previous sub-section) translates into a set of private interest rationales,
culminating in a small price difference with plain bonds.

The ESG preferences of investors – origin of green finance. From the early days of green
finance, investors’ appetite for ESG product was understood as the driving rationale of the
green finance market. A 2015 case study of the handling of climate change by transnational
banks finds that the overarching driver of climate-related initiatives was business case logic.238
The author of the study explains that the prime motivator to create climate-related products
and services was client satisfaction. For a bank, the ability to minimize climate risks – credit,
investment, litigation, reputation, regulatory – tends to translate into enhanced profits, through
fee generation or via competitive edge. The early origins of the bond market (in 2007-2008)
are also presented by its main actors as a basic answer of the market to a new demand, or to

236
Code civil, article 1835.
237
International Capital Market Association, Green Bond Principles (2021)
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 18 November 2021.
238
Megan Bowman, Banking on Climate Change: How Finance Actors and Transnational Regulatory
Regimes are Responding (Kluwer Law International, 2015).

55
put in SEB’s words, “as a response to increased investor demand for engagement in climate-
related opportunities.”239

The ESG preferences of investors – recent developments. More recently, many studies
recognise the change in preferences of the demand side (investors and consumers) on the
financial markets. Pinto, de Klerk, de Villiers and Samkin note that corporate environmental
performance is of increasing importance to investors, public policy makers and the general
public. This change can be explained by the fact that retail investors may increasingly seek
sustainable investment products to better align their investment portfolio with their personal
and societal values.240 Such preferences are also visible at the generational level. For instance,
the majority of millennial investors indicate that they are interested in investing sustainably.
Millennials are reported to be twice as likely as traditional investors to invest in companies
that incorporate sustainability (ESG) practices.241 Although such sustainability considerations
are not new in the asset management industry, they are becoming increasingly mainstream.242
A recent industry survey has also shown that 68 percent of international investors plan to
increase their allocation to low-carbon related asset. 243 On the bond market, these ESG
preferences lead banks acting as underwriters of corporations or public entities’ bond
programmes to initiate the idea of issuing green bonds to meet investor demand for sustainable
investment products.244 The existence of a base of green focused investors is also recognised
by the principal green bond issuers in the world, such as the EU.245

The ESG preferences of investors – amplification by public authorities. In recent years,

decisions by public authorities amplified this demand of ESG product. Important bond buyers
such as the European Central Bank announced that their intention to increase green bonds

239
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 74.
240
Commission Staff Working Document, ‘European Financial Stability and Integration Review’ (May
2021) SWD(2021) 113 final, 31 <european-financial-stability-and-integration-review-2021_en.pdf
(europa.eu)> accessed 18 November 2021.
241
Ibid.
242
Ibid.
243
HSBC, Growing Investor Appetite for Green Assets Puts Pressure on Companies to Explain Their
Climate Strategies, 12 September 2017
<file:///C:/Users/Gr%C3%A9goire%20Lunven/OneDrive%20-%20The%20Chinese%20University%2
0of%20Hong%20Kong/Thesis/Chapter%20II/Hong%20Kong%20documents/Regulation/Hong%20K
ong%20Monetary%20Authority,%20Hong%20Kong's%20unique%20role%20in%20green%20financ
e.pdf> accessed 18 November 2021.
244
Aaron Maltais and Björn Nykvist Understanding the role of green bonds in advancing sustainability,
(2020) Journal of Sustainable Finance & Investment <https://doi.org/10.1080/20430795.2020.1724864>
accessed 18 November 2021.
245
Communication from the Commission to the European Parliament and the Council on a new funding
strategy to finance NextGenerationEU COM(2021) 250 final
<https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/com2021_25
0_en_act_part1_v3.pdf> accessed 18 November 2021.

56
purchases. 246 In Hong Kong, the Securities and Futures Commission recalls that “asset
managers are increasingly expected to integrate environmental, social and governance (ESG)
factors into the investment process and their advice to enable clients to make informed
investment decisions.”247

Green bonds as a method to reduce information asymmetries. Provided that information

on “green” in green bonds is true, green bonds can be construed as a method to reduce
information asymmetries. Information asymmetries are the difference of information between
two parties in a transaction. This comes as the seller usually knows better the product that he
sells than the buyer. In the case of a green bond, the issuer knows better the real situation of
his company than the investor. The main institution on the bond market for dealing with
information asymmetries is disclosure obligations (statutory obligations on the largest bond
markets such as the US or the EU). Mainstream disclosure obligations usually mandate the
publication of material information about the financial situation of the company, with the aim
to ensure investor protection. Green bonds can be considered as a tool to deal with
environmental information asymmetries. The voluntary green bond procedure developed by
the industry provides additional information to investors. Private issuers of green bonds
disclose the climate and green aspects of their bonds because investors reward them for
reducing information asymmetry. Shishlov, Morel and Cochran agree that the additional
information on the impact of green bonds is, for investors, an added value in comparison with
classical bonds.248 In addition, the information content of green bonds enables investors “to
communicate to clients and stakeholders how investments are contributing to sustainability”
which “makes green bonds a good first step into green investing and a strong signalling
tool.” 249 This value of green bonds as information asymmetry tools is also recognized by
expert groups 250 and states.251

246
European Central Bank, ECB to invest in Bank for International Settlements’ green bond fund, 25
January 2021 <https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210125~715adb4e2b.en.html>
accessed 18 November 2021.
247
Securities and Futures Commission, Strategic Framework for Green Finance, September 2018
<https://www.sfc.hk/-/media/EN/files/ER/PDF/SFCs-Strategic-Framework-for-Green-Finance---
Final-Report-21-Sept-2018.pdf> accessed 18 November 2021.
248
Igor Shishlov, Romain Morel and Ian Cochran, Beyond transparency: unlocking the full potential of
green bonds (Institute for Climate Economics: June 2016).
249
Aaron Maltais and Björn Nykvist Understanding the role of green bonds in advancing sustainability,
(2020) Journal of Sustainable Finance & Investment 11
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021.
250
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021
[“[green bonds] have provided bond investors with an unprecedented degree of transparency”].
251
Commission, ‘Action Plan: Financing Sustainable Growth’ COM(2018) 97 final 5 <https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018DC0097&from=EN> accessed 18
November 2021 [“Within the framework of the Prospectus Regulation, the Commission will specify by

57
Financial value of ESG tools reducing information asymmetries. Green bonds being
asymmetry information solvers is a powerful economic rationale. There is research evidencing
that increased transparency through disclosure of environmental and social performance
reduces information asymmetry and therefore reduces the cost of capital. De Klerk, Van
Staden and De Villiers have evaluated the relationship between share prices and the Corporate
Social Responsibility (CSR) disclosure of large UK companies and found that CSR disclosure
provided by a company are associated with higher share prices.252

Green bonds as a method to handle climate-related financial risks. Additional

environmental information enables investors to better identify the potential risks arising in
connection with their investments. Among these risks are climate-related financial risks. The
analysis of climate-related financial risks became a mainstream question thanks to Bank of
England’s Governor Mark Carney in 2015. In a speech to the Llyod’s of London,253 Mark
Carney gave a legitimacy to science and advocacy works regarding the interactions between
climate change and the financial sector.254 The Governor of the Bank of England alerted on
the economic risks generated by climate change itself and by the policies designed to mitigate
and adapt to climate change. This analysis gave rise to the two fundamental categories
established by the work of the TCFD: physical risks – the risks caused by climate change to
assets – and transition risks – the risk stemming from changes in consumer preferences, social
expectations, regulation and litigation. Academics and finance experts subsequently
intellectually refined and strengthened the case for prudential255 climate regulation.256

Key concepts of climate-related financial risks. The analysis of climate-related financial

risks led to the creation of three important concepts: stranded assets, the carbon financial
bubble and the green swan. All three concepts are interrelated. The concept of stranded assets
describes financial assets, such as a coal power plant, which may not be able to keep

Q2 2019 the content of the prospectus for green bond issuances to provide potential investors with
additional information”].
252
Marna De Klerk, Charl de Villiers, Chris J. Van Staden, ‘The influence of corporate social
responsibility disclosure on share prices’ (2015) 27(2) Pacific Accounting Review
<https://www.researchgate.net/publication/277569092_The_influence_of_corporate_social_responsib
ility _disclosure_on_share_prices> accessed 18 November 2021.
253
The Lloyd’s of London is an insurance and re-insurance market located in London.
254
Mark Carney, Breaking the tragedy of the horizon – climate change and financial stability (2015)
<https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-
and-financial-stability> accessed 18 November 2021.
255
‘Prudential’ refers to the imposition of prudence requirements over financial institutions, so that they
limit the risks they take.
256
Graham S. Steele, ‘Confronting the “Climate Lehman Moment”: The Case for Macroprudential
Climate Regulation’ (2020) 30 Cornell Journal of Law and Public Policy 109 ; Patrick Bolton and al.,
The Green Swann : Central Banking and Financial Stability in the Age of Climate Change, Bank of
International Settlement, January 2020 <https://www.bis.org/publ/othp31.pdf> accessed 27 July 2022.

58
functioning during their expected lifetime because of climate change regulations. 257 The
possibility of such regulations derives from estimates provided by the International Panel on
Climate Change (IPCC): given the quantity of Greenhouse Gas (GHG) left to emit in order to
reach the 2°C objective, between 2/3 and 4/5 of existing reserves258 of fossil fuel should not
be exploited. 259 The possibility of such regulations is also strengthened by the many
recommendations made by economists in favour of carbon taxes or carbon quotas.260 However,
political and social factors generally tend to paralyse such regulations, whose likeliness is only
weakly valued by financial markets. The carbon financial bubble describes the possibility that
the existence of stranded assets is not fully considered by financial markets, hence leading to
excessive valuation of assets.261 The green swan refers to the possibility that such discovery
of a carbon financial bubble might happen suddenly on the markets, for instance at the
occasion of climatic shocks, hence provoking brutal and non-linear financial reaction,
potentially leading to a systemic financial crisis.262

Green bonds as a tool to mitigate climate-related financial risks. As Park explains, green
bonds benefit from the fact that “investment managers increasingly seek to mitigate systemic
risks associated with climate change in their investment decisions” while, reciprocally,
“regulatory risk may also spur greater investment in green companies as a means for investors
to hedge against the possibility of carbon taxes or future regulation.”263 A study of the Swedish
green bond market confirms that risk reduction is the clearest advantage of green bonds from
the viewpoint of green bond market actors, as “all respondents […] expressed that the clearest
advantage to investing in green bonds is that one can invest in specific green projects or assets
that are independently verified as green without taking on any meaningful additional risk.”264
Another study confirms that banks issuing green bonds are less exposed to climate transition

257
Carbon Tracker, Stranded Assets <https://carbontracker.org/terms/stranded-assets/> accessed 18
November 2021.
258
Some of them only being proprietary assets, and as such, clear examples of stranded assets.
259
Mark Carney, Breaking the tragedy of the horizon – climate change and financial stability (2015)
<https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-
and-financial-stability> accessed 18 November 2021.
260
Jean Tirole, Carbon Pricing for a Climate Coalition (Toulouse School of Economics, 2016)
<https://www.ecologie.gouv.fr/sites/default/files/CEDD%20-%20Ref%20034.pdf> accessed 18
November 2021
261
Carbon Tracker, Carbon Bubble <https://carbontracker.org/terms/carbon-bubble/> accessed 18
November 2021 ; Manthos D. Delis, Kathrin de Greiff and Steven Ongena, ‘Being Stranded on the
Carbon Bubble? Climate Policy Risk and the Pricing of Bank Loans’ (2018) Swiss Finance Institute
Research Paper No. 18-10 <https://doi.org/10.2139/ssrn.3125017> accessed 18 November 2021.
262
Patrick Bolton and al., The Green Swann : Central Banking and Financial Stability in the Age of
Climate Change (Bank of International Settlement : 2020) <https://www.bis.org/publ/othp31.pdf>
accessed 18 November 2021.
263
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 1-48.
264
Aaron Maltais and Björn Nykvist, ‘Understanding the role of green bonds in advancing sustainability’
(2020) Journal of Sustainable Finance & Investment 10
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021.

59
risks, as “these lenders reduce their funding towards more polluting segments of the
economy.” 265 Green bonds could be less exposed to climate transition risks because the
activities they are invested in generally anticipate the evolution of the regulation, consumer
preference changes, etc. This reduced exposure to transition risks would happen only if
greenness is rigorously defined and is in adequation with long term political orientations.
However, it is also logical to recognize that green bond’s projects and companies are not less
exposed to physical climate risks than other companies, since the projects are as vulnerable to
extreme weather events or rising oceans as any other economic project.

Green bond’s price advantage: The “greenium”. Price is an important factor for demand of
green bonds, and therefore important for the effectiveness of the green bond market. The word
“greenium” has its origin at the Climate Bonds Initiative in 2016.266 It is a compound word
made of “green” and “premium” and it refers to the higher price or lower coupon for the issuer
that green bonds could potentially display. This greenium would mean that the issuer of a
green bond would benefit from lower cost of capital, but could be a disincentive for investors
to invest in green bonds. A greenium could also increase the risk for greenwashing by
attracting uncommitted issuers. When the inaugural green bonds were issued, the price was
not meant to differ from the price of conventional bonds.

Evidence of a “greenium.” However, market dynamics, such as supply and demand, have an
impact on pricing, and there are an increasing number of investors with requirements to invest
in sustainable projects. Green bond issues are usually significantly oversubscribed, and there
are recent international studies that indicate a slight positive return and positive benefits for
green bonds. Although there is no unanimity on the subject, most research suggest that
companies with high environmental performance benefit from a slightly lower cost of capital.
Except a study by Hachenberg and Schiereck267 showing that there are no significant price
differences between green and similar conventional bonds, most other studies agree to find a
“greenium.” There is some research that suggests that the yield of a euro or USD green bond
is around 2 basis points (or, in other words, 0,02%) lower than that of a conventional bond.268
Karpf and Mandel269 find a lower green bond yield in secondary markets in comparison to
conventional bonds of the same issuer. A recent study by the EU Commission Joint Research

265
Serena Fatica, Roberto Panzica and Michel Rancan, ‘The pricing of green bonds: are financial
institutions special?’ (2021) 54 Journal of Financial Stability 1-20.
266
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 60.
267
Britta Hachenberg and Dirk Schiereck, ‘Are green bonds priced differently from conventional
bonds?’ (2018) 19(6) Journal of Asset Management 383.
268
Olivier David Zerbib, ‘The effect of pro-environmental preferences on bond prices: Evidence from
green bonds’ (2019) 98 Journal of Banking and Finance 39.
269
Andreas Karpf and Antoine Mandel, ‘Does it Pay to Be Green?’ (February 24, 2017)
<https://ssrn.com/abstract=2923484> accessed 28 July 2022.

60
Centre shows that green bonds issued by supranational institutions and non-financial
corporates benefit from a premium compared to conventional bonds. Furthermore, repeat
issuers and issuers with an external review benefit from an additional premium compared to
one-time and external review-less green borrowers. 270 In Sweden, the green bond market
professionals share a consensus that “the yields for green bonds were slightly lower than for
other comparable bonds due to high demand for these investments. Although respondents did
not give specific quantifications for this yield difference, estimates offered ranged from 2 to 6
basis points.”271

Limits of “greeniums.” The premium for green bond issuers does not – at this stage –
represent a notable disincentive for investors, and, although low, it shows that investors have
an appetite for green bonds. Maltais and others find in their study that “the large majority of
interviewees are highly positive to green bonds, with only one investor indicating that lower
yields from green bonds were bringing into question their ability to invest in this asset class.272
From the issuer’s perspective, the greenium is useful as, in general, it covers the additional
costs of a green bond compared to standard bonds. This additional cost usually equates to
40.000 euros, and corresponds to the fees paid to the external verifier/reviewers for
certification and reporting). 273 However, authors in finance agree that green bond’s financial
characteristics are not the only cause of their attractiveness, given the small pricing and risk
profile differences with standard bonds.274

3.2. CONCEPTUAL DEBATES

Outline. The previous sub-section showed that a wide array of arguments – from the
contribution to international environmental treaties to the price advantage, from the broadest
public interest to the narrowest private one – support the issuance or the investment in a green
bond. The contribution of successive issuances to the conceptual debates around green bonds
reflected these rationales. Indeed, successive issuances fed two principal debates: debates on
the definition of “green” (3.2.1) and debates on the transparency linked to green bonds (3.2.2).

270
Serena Fatica, Roberto Panzica and Michel Rancan, ‘The pricing of green bonds: are financial
institutions special?’ (2021) 54 Journal of Financial Stability 1-20.
271
Aaron Maltais and Björn Nykvist, ‘Understanding the role of green bonds in advancing sustainability’
(2020) Journal of Sustainable Finance & Investment 10
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021.
272
Ibid 13.
273
Ibid 11.
274
Andreas Horsch and Sylvia Richter, ‘Climate Change Driving Financial Innovation: The Case of
Green Bonds’ (2017) 23(1) The Journal of Structured Finance 79-90.

61
3.2.1. CONTROVERSIES ON THE DEFINITIONS OF “GREEN”

Outline. Successive green bond issuances shaped the conceptual debates about the definition
of green activities financed by green bonds. Certain uses of proceeds proved controversial and
consequently triggered calls for reinforcing the green definitions. The overwhelming
allocation of proceeds to climate change mitigation projects also focused the conceptual debate
on the definition of the climate dimension of green activities. Finally, occasional mis-
adequation between the use of proceeds and the overall environmental profile of the issuer
also triggered a conceptual debate on the means to link the allocation of the green bond to the
environmental strategy of the issuer.

Controversial use of proceeds. A certain number of green bonds have financed contested
projects. The fact that such green bonds were generally abiding by market standards, such as
the Green Bond Principles, highlighted the insufficiency of such standards from an
environmental protection. The most famous example of such a problematic use of proceeds is
Repsol’s green bond, a 500 million euros bond issued in 2017. This green bond was excluded
from the main green bond indexes and shunned by some investors on secondary markets. The
bond proceeds were used to fund energy-efficiency improvements in chemical and refinery
facilities in Spain and Portugal. These improvements were meant to save 1,2 million tons of
CO2 annually, out of the 19,7 million tons of CO2 of direct emissions of the the company
(which does not take into account the CO2 released when the oil extracted and sold by Repsol
is burnt). The companies argued that it would substantially reduce its CO2 and methane
emissions, but critics replies that the bond was still invested in the perpetuation of fossil fuel
extraction and aligned with the steep decline in GHG emission recommended by the IPCC.
The fact that it had received a second party opinion from an external verifier did not prevent
its exclusion from the green bond market. 275 Another example is Mexico City Airport’s green
bonds. In 2016 and 2017, Mexico City Airport issued USD 6 billion of green bonds to fund a
new energy-efficient airport. Two problems arose: despite the bond having received green
ratings by Moody’s, S&P and Sustainalytics, many market actors challenged the possibility to
finance new airports with green bonds. Secondly, a political decision was made in 2018 to
abandon the airport project. Nonetheless, some of the green bonds remained outstanding,
raising the question of the nature of a green bond if the green projects are discontinued.276 As

275
Climate Bonds Initiative, Repsol: first oil and gas green bond (2017)
<https://www.climatebonds.net/2017/05/oil-gas-bond-we-knew-would-come-eventually-repsol-good-
gbps-not-so-sure-green-credentials> accessed 18 November 2021.
276
Jones Day, Mexico City Airport Trust completes $2 billion Green Bond offering for construction of
new Mexico City International Airport (2016)
<https://www.jonesday.com/en/practices/experience/2016/09/mexico-city-airport-trust-completes-$2-
billion-green-bond-offering-for-construction-of-new-mexico-city-international-airport> accessed 18
November 2021.

62
a whole, these controversial issuances stimulated the conceptual debates about the definition
of green and certainly contributed to make green finance taxonomies inescapable, given the
failure of standards without such taxonomies (such as the GBP) to prevent these problematic
issuances from happening.

Climate focus of the allocation of proceeds. Most the green bonds issued earmark the
proceeds for specific green projects. A majority of these projects have a focus on climate
change mitigation. According to research by Fatica,277 585 of around 1000 analysed bonds
supported mitigation, 318 pursued a blend of environmental objectives, while only 83 targeted
dedicated other environmental objectives (such as circular economy), of which only eight
aimed at climate change adaptation. A few issuances were directed at less usual objectives,
such as the “blue bonds” issued by Seychelles and the World Bank in October 2018 with the
objective of protecting oceans,278 and or a “Rhino bond” aimed at protecting biodiversity.279
This emphasis put on climate change orientated the debates on the definition of green towards
the climate aspects, since most of the green bonds would fall under criteria defined in this
realm. This can explain the continuous presence of the Climate Bonds Initiative as an
important actor of the conceptual debate, even after the concept of green bond promoted by
the ICMA overwhelmed climate bonds.

Controversies regarding the environmental profile of green bond issuers. A third type of
issuances-related conceptual controversy is whether the “green” characteristics of the bond
should extend to the issuer’s profile. Can a green bond be issued by an issuer who is not
classified as green? Even if the underlying projects of bond are green, shouldn’t the other
activities of the issuer be considered as well? Some examples of such controversies include
the China Three Gorges Dam’s green bond. The operator of China’s Three Gorges Dam issued
in 2018 a USD 840 million green bond whose proceeds were intended to be used for the
financing of wind power projects in Europe. The green bond was accused of greenwashing,
because the company had been cited as a source of significant water pollution and ecosystem
damages. 280 Another example concerns Saudi Electricity Company, a state-owned Saudi

277
Serena Fatica, Roberto Panzica and Michel Rancan, ‘The pricing of green bonds: are financial
institutions special?’ (2021) 54 Journal of Financial Stability 1-20.
278
The World Bank, Press release: Seychelles launches World’s first sovereign blue bond (2018)
<https://www.worldbank.org/en/news/press-release/2018/10/29/seychelles-launches-worlds-first-
sovereign-blue-bond> accessed 18 November 2021.
279
Spriha Srivastava, ‘New ‘rhino bonds’ to allow investors to help with wildlife conservation’ ( 2019)
CNBC <https://www.cnbc.com/2019/07/18/what-is-a-rhino-bond-here-is-all-you-need-to-know.html>
accessed 18 November 2021 [the “rhino bonds” do not reward investors with interests, but a prime is
paid to investors at the maturity of the bond if the population of black rhinoceros increased by 4 percent
over the five years during which the bond was outstanding].
280
Jinjoo Lee, ‘Green Bonds Need the Right Filter’ (July 2020) The Wall Street Journal
<https://www.wsj.com/articles/green-bonds-need-the-right-filter-11593509402> accessed 18
November 2021.

63
company. In 2020, the company raised EUR 1.3 billion from a green bond issuance in order
to invest in the installation of smart meters across its grid, despite the heavy reliance of the
grid on fossil fuels.281 Similarly, the Australian state of Queensland’s green bonds, although
dedicated to environmentally friendly projects such as the preservation the Great Barrier Reef,
was criticized because of this state’s policy support for coal. These issuances where the use of
proceeds of the green bond divorced from the overall credential or strategy of the bond issuer
prompted a policy debate on the means to link the green projects to the overall issuer’s
environmental behaviour.

3.2.2. CONTROVERSIES ON INFORMATION DISCLOSURES

Outline. Successive issuances also generated debates on the transparency linked to green
bonds. The blossoming of types of transparency practices triggered a reflection on
standardized and simplified format for information disclosure. The formal compliance with
information disclosure of controversial bonds also generated questions on the quality of the
information disclosed, and the independence of the third-party entities in charge of reviewing
the information. Ultimately, questions even arose on the very added value of disclosing
environmental information through bonds, which led to the conceptualisation of alternatives
to green bonds: sustainability-linked bonds.

Controversies on the types of transparency practices. The multiplication of types of

transparency practices triggered a reflection on standardized and simplified format for
information disclosure. Transparency practices on the green bond market are diverse. The
ICMA list several categories of transparency practices. First, green bond issuers can have
recourse to pre-issuance reviews. Pre-issuance reviews covers second party opinions, third
party assurance, green bond rating, or pre-issuance verification. Second party opinions are an
assessment of the issuer’s green bond issuance, framework or programme with the green bond
standard chosen by the issuer. A third-party assurance and green bond rating are similar to a
second-party opinion but respectively performed by an accounting firm and by a rating agency.
A pre-issuance verification is a type of review necessary to be certified according to the CBS.
Post-issuance review covers second or third-party review of allocation reports, review of

281
Jonathan Ford, ‘Ethical investment is about morals not markets’ (4 November 2020) The Financial
Times <https://www.ft.com/content/f794162c-3e45-4078-a7be-2e34fea5dd37> accessed 18 November
2021.

64
impact reports, and post-issuance verification. This blossoming of transparency practices
triggered calls for standardisation and simplification of the transparency procedures.282

Controversies on the quality of transparency practices. The formal compliance with

information disclosure of controversial bonds also generated questions on the quality of the
information disclosed, and the independence of the third-party entities in charge of reviewing
the information. Research conducted on transparency practices show that most of green bond
issuers formally comply with transparency requirements. A study conducted by the
Luxembourg Stock Exchange (LuxSE) indicated that more than 85 percent of issuers use some
form of pre-issuance review.283 Another analysis conducted by Natixis284 of 97 global issuer
and reporting profiles showed that 64 percent of issuers had provided some sort of third-party
opinion. Recent research by CBI also shows that 83 percent of issuance in 2020 versus 60
percent in 2019 had second-party opinions. However, impact measurements were included in
the scope of the external verification for only 27 percent of issuers in Natixis’ study. A report
by Baker McKenzie285 highlighted key issues impacting on the integrity of the market, such
as the deficiencies of reporting metrics. Controversial green bonds, such Hong Kong Airport
Authority’s green bond, have transparency disclosure that perfectly abide by the GBP, 286
casting a shadow on the ability of transparency rules to deter green bond issuers uncommitted
to environmental protection. The European Commission also highlighted many challenges in
terms of transparency, such as variable quality of reporting and potential lack of independence
or management of potential and actual conflicts of interest.287

282
Yue Wa Topin and Fabien Cobat, ‘Green Bond Funds' impact reporting: standardization remains a
leitmotiv’ Natixis (24 march 2022) <https://gsh.cib.natixis.com/our-center-of-expertise/articles/green-
bond-funds-impact-reporting-standardization-remains-a-leitmotiv> accessed 17 June 2022.
283
Luxembourg Green Exchange, Report on the analysis of green bond external reviews and reporting
– European Issuers (unpublished, draft paper prepared for EU TEG : 11 September 2018), quoted in
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
32
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
284
Natixis, Green Bonds 4.0 (January 2018) 46 quoted in EU Technical Expert Group on Sustainable
Finance, Report on EU Green Bond Standard (June 2019) 33
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
285
Baker McKenzie, Critical challenges facing the green bond market (September 2019)
<https://www.bakermckenzie.com/-/media/files/insight/publications/2019/09/iflr--green-bonds-
(002).pdf?la=en> accessed 18 November 2021.
286
Sustainalytics, Second-Party Opinion: Airport Authority Sustainable Finance
Framework (29 October 2021) <https://www.hongkongairport.com/iwov-
resources/file/sustainability/environment/sustainable-
finance/Airport_Authority_Sustainable_Finance_Framework_Second-Party_Opinion_Final.pdf>
accessed 17 June 2022.
287
Commission, Commission Staff Working Document Impact Assessment Accompanying the document
Proposal for a Regulation of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment and Proposal for a Regulation of the European
Parliament and of the Council on disclosures relating to sustainable investments and sustainability

65
Green bonds without transparency: sustainability-linked bonds. Some bond issuers,
dissatisfied with the transparency enabled by green bonds, have tried to build alternatives
without information disclosure. The principal alternative is sustainability-linked bonds. In
sustainability-linked bonds, there is no environmental transparency mechanism, but the yield
of the bond varies according to the issuer’s reach of pre-determined quantitative sustainability
targets. These targets are commonly called Key Performance Indicators (KPIs). If the KPIs
are not met, the investor receives financial compensation. These sustainability-linked bonds
(issued for instance by Enel, Suzano – Brazilian pulp & paper company – Novartis and Chanel)
have the advantage to create contractual incentives for attaining some environmental or social
objectives. On the other side, they are criticized for enabling bonds with less sustainability-
related information disclosure. This target-based approach is not incompatible with green
bonds as they exist today, and there is a possibility for some hybrid bonds to emerge in the
future.

4. THE NORMATIVE DENSIFICATION OF THE GREEN BONDS CONCEPT

Outline. The previous sections showed how the core rationale for issuing green bond is the
alignment with environmental public objectives, and consequently, how successive green
bond issuances made indispensable instruments for defining “green,” while transparency
standards were marginalized to the point of being suppressed in some environmental debt
securities alternative to green bonds. Section 4 exposes how green bonds turned into a
normative concept through the combined action of private standard setters and state regulators.
This fourth section also underlines conflicting rationales – environmental protection on one
hand, efficiency of financial market on the other – at the root of the normative concept of green
bond. Before explaining the rationales for green bonds’ normative developments (4.1), the
process of normative densification (4.2) and the resulting normative values of green bond
standards (4.3), this section explains what is understood by “normative densification” and why
this term was chosen.

Normative densification, legalization and transnational regulation. Collective research led

by French legal scholar Catherine Thibierge identified the process of normative densification
in 2014. Normative densification “consists in the strengthening of normativity,” in particular
in “the increasing capacity of a norm to provide a model.”288 This chapter uses this term of

risks and amending Directive (EU) 2016/2341 and Proposal for a Regulation of the European
Parliament and of the Council amending Regulation (EU) 2016/1011 on low carbon benchmarks and
positive carbon impact benchmarks (2018) SWD/2018/264 final, 16.
288
Catherine Thibierge, ‘Conclusion’ in Catherine Thibierge (dir.), La densification normative:
découverte d’un processus (Mare & Martin : 2014) 1122
<https://www.academia.edu/17163589/Densification_normative_lessentiel> accessed 18 November

66
“normative densification” because it can cover both the processes of legalisation and
transnational regulation identified by International Relations (IR) theorists, without the
inconveniences related to these two IR theories. Indeed, as Annegret Flohr explains, the
normative developments in the financial industry are at the crossroads of these two IR theories,
neither of which really fits what is observed. On the one hand, legalization posits that
“international politics have been characterized by an expanding role of Public International
Law (PIL) since the early 1990s ” as globalization “requires states to collaborate […] and to
base their cooperation on strong legal footings” leading to the replacement of “loose pledges
of cooperation” by “binding international agreements accompanied by independent judicial
institutions empowered to authoritatively interpret them.”289 This is not what is observed in
green finance, where very little formal international agreements deal with the issues at stake.
On the other hand, transnational regulation describes “international cooperation as being
increasingly reliant on private and informal governance structures”, in “a form of ordering
characterized by two elements: the rise of private or nonstate actors into positions of authority
and decision-making; and the use of non-binding or voluntary steering mechanisms.”290 Here
again, this is not what is observed in green finance, where non-binding and voluntary private
mechanisms are replaced or complemented by domestic state regulations. More accurately,
green bond rules seem to obey to a process of normative densification: they increasingly serve
a model for green bond issuances as their normative strength is increasing.

4.1. THE RATIONALES FOR GREEN BONDS’ NORMATIVE DENSIFICATION

Outline. This section presents the rationales for the normative development by private
standard-setting bodies and governments of the green bond concept. It describes the
environment-related rationales (4.1) and finance-related ones (4.1.1).

4.1.1. ENVIRONMENT-RELATED RATIONALES OF GREEN BOND NORMS MAKERS

Outline. Green bond norms makers, be they private organisations (for instance, the CBI) or
public authorities (for instance, the EU), mainly ground their normative work on climate
change challenges. The CBI takes a somewhat scientist approach, by pretending to translate

2021 [La densification normative consiste en “la montée en puissance de la normativité, au sens de
l’accroissement de la capacité d’une norme à fournir modèle, de la capacité d’un type de normes, de
dispositifs, à orienter et mesurer les comportements et activités, et plus largement de la capacité de
référence du droit, du management, de l’éthique, etc. ”].
289
Annegret Flohr, Self-regulation and legalisation: making global rules for banks and corporations
(Springer: 2014) 1.
290
Ibid 2.

67
the climate science into criteria applicable to finance. States or regional organisations tend to
base their normative work on other a set of political objectives and some pragmatic
considerations about the need to enrol private financial resources in the climate mitigation and
adaptation efforts.

The climate rationale of Climate Bonds Initiative. Regarding the CBI, the climate change
rationale is evidenced by many elements, starting with its foundation. The CBI was created at
the Copenhagen climate conference, in 2009, out of the Network for Sustainable Financial
Markets.291 Its statutes indicate that the CBI is a not-for-profit organisation whose object is
“the preservation and conservation of the environment for the public benefit, in particular […]
by a) serving as a catalyst to mobilise the global investment required in developing and
developed countries to address the threat of catastrophic climate change ; b) working to align
government policy, industry development and institutional finance toward the timely and
affordable deployment of global low carbon economy and c) ensuring the environmental
credibility of debt issuance and investment.” 292 In order to fulfil this objective, the CBI
developed the CBS in 2011. This standard began operating as a certification scheme in 2014,
with the certification of bonds financing solar farms in the United Kingdom.293 This standard
includes an innovation: the first sustainable finance taxonomy. This taxonomy is a table listing
climate friendly investments categories such as solar, wind, low carbon buildings, bioenergy,
water, agriculture and forestry and low carbon transport. For each category, the taxonomy set
technical criteria for qualifying the investment as climate compliant. The categories are
ultimately approved by an independent CBS Board made up of experts in finance, engineering,
environmental management, and law.294 Through this standard, the CBI aims to enable the
certification of investments consistent with the long-term objective of the Paris Agreement,
and as such to contribute to “make finance flows consistent with a low carbon and climate
resilient pathway.” CBI’s main rationale for issuing such a climate bonds standard is also to
start triggering the capital reallocation needed for meeting climate targets. In addition,
certification fees contribute to the financing of the NGO.295

291
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 74.
292
Climate Bonds Initiative, Articles of association of the Climate Bonds Initiative (as Amended by
special resolution on 19 August 2013) 2.
293
Ibid 83.
294
Climate Bonds Initiative, Standards and Certification Scheme (2020)
<https://www.climatebonds.net/files/files/Climate%20Bonds%20Standards%20and%20Certification
%20Scheme%20Brochure%202018.pdf> accessed 18 November 2021.
295
Climate Bonds Initiative, Financial Statement for the year ended 31 December 2019 (2020)
<https://www.climatebonds.net/files/company/info/files/cbi_accounts_2019_181220_-
_signed_final.pdf> accessed 18 November 2021.

68
Integrating climate science into financial markets. Another way to express CBI’s rationales
is to say that this NGO tries to integrate the findings of climate science into finance. The
references to climate science are pervasive in CBI’s documentation. In establishing the
Climate Bonds Standard, Climate Bonds analysts draws from numerous forms of expertise to
create different categories of green bonds for certification. Climate Bonds legitimizes its
standard through the organization of scientific and industry bodies of experts which design the
certification scheme. 296 This permanent reference to science, and its transformation into a
normative tool can draw criticisms for the overlooking of the political choices made under the
cover of applying climate science. However, CBI also uses climate science for pedagogical
purposes (for instance, in its yearly climate bonds conference) and for advocacy purposes, in
its role for instance of adviser to the financial regulators in several jurisdictions. In addition,
the CBI is not alone in trying to create norms based on the climate science rationale: the third-
party reviewer CICERO deploys the same rhetoric and was primarily composed of climate
scientists of the Oslo University. 297 The Sciences-Based Initiative and the 2°Investing
Initiative, in the broader field of sustainable finance and corporate social responsibility, are
also functioning on a similar sciences-based rationale. Scholars working with Earth System
methodologies also attempt make closer climate sciences and finance by uncover the links
between finance and environmental degradation, putting the emphasis on the non-linear effects
on climate change of certain financial decisions.298

Governments’ harnessing of green bonds to finance environmental policy goals. Another

crucial political rationale for regulating green bond is the need to better harness green bonds
for the financing of environmental policy goals. States are indeed facing extremely ambitious
financing objectives as regards the ecological transition. The global response to climate change
will require a redirection of investment representing a shift in the flows of finance. This is
reflected in the provision stating that finance flows need to be made consistent with a pathway
towards low greenhouse gas emissions and climate-resilient development (Article 2.1 (c)).
Many studies provide estimates of these financing needs. In 2012, the International Energy
Agency (IEA) estimated that an additional $36 trillion in clean energy investment was needed
through 2050 to have an 80 percent to limit climate change to 2°. This amount translated into
an average of $1 trillion additional investment per year compared to a “business as usual”

296
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 83.
297
Ibid 75.
298
Victor Galaz, Beatrice Crona, Alice Dauriach, Bert Scholtens and Will Steffen, ‘Finance and the
Earth System: Exploring the Links Between Financial Actors and Non-Linear Changes in the Climate
System’ (2018) 53 Global Environmental Change 296-97.

69
scenario.299 In 2021, the IEA’s estimate is even more considerable: “getting the world on track
for net zero emissions by 2050 requires clean energy transition-related investment to accelerate
from current levels [2,4 trillion] to around USD 4 trillion annually by 2030.”300 The OECD
suggests an even higher estimate, with investment needs of USD 6.9 trillion per year in the
next 15 years, in order to remain below 2°C.301 At the EU level, in the 2021-2030 period, the
achievement of the Union’s current 2030 climate and energy targets will require investments
in the energy system of EUR 336 billion per annum.302 In Asia, the Asian Development Bank
also estimates that climate adaptation costs for Asia Pacific are in the order of US$40 billion
per year between now and 2050.303 In China, it is estimated that Mainland China would need
an annual green investment of RMB3-4 trillion (USD480-640 billion).304

The need to mobilise the private sector. These considerable estimates lead many authors to
consider that public funds are insufficient and that a substantial part of these financing
resources will have to come from the private sector. Hence the need for a separate category of
green bonds. In other words, environmental financing needs imply a significantly redirection
of private capital flows towards more environmentally sustainable investments. The TEG
identifies the largest investment needs as “largely concentrated in sectors related to energy and
resource efficiency, such as infrastructure, real estate, and transportation”.305 The TEG also
notes that “traditionally these investments are mainly financed by debt, so the bond markets
are prescribed a vital role in filling this crucial environmental funding gap.” 306 The bond
market is also an inescapable field given its size. Precisely, other segments of the literature

299
International Energy Agency (IEA), Energy Technology Perspectives 2012: Pathways to a Clean
Energy System, (Paris: OECD/IEA, 2012), 1, http://www.iea.org/Textbase/npsum/ETP2012SUM.pdf ;
Mark Fulton and Reid Capalino, Investing in the Clean Trillion: Closing The Clean Energy Investment
Gap (January 2014) <https://www.ceres.org/sites/default/files/reports/2017-
03/Ceres_CleanTrillion_Report_012114.pdf> accessed 18 November 2021.
300
International Energy Agency (IEA), World Energy Outlook 2021 (2021)
<https://www.iea.org/reports/world-energy-outlook-2021/mobilising-investment-and-finance>
accessed 18 November 2021.
301
Organisation for Economic Cooperation and Development (OECD), Investing in Climate, Investing
in Growth: A Synthesis (2017) <https://www.oecd.org/env/cc/g20-climate/synthesis-investing-in-
climate-investing-in-growth.pdf> accessed 18 November 2021.
302
Commission, Contribution to the green deal and the just transition scheme (2021)
<https://europa.eu/investeu/contribution-green-deal-and-just-transition-scheme_en> accessed 18
November 2021
303
Asian Development Bank, Major Boost in Finance is Key to Helping Asia Manage Climate Change
(1 July 2015) <https://www.adb.org/news/features/major-boost-finance-key-helping-asia-manage-
climate-change> accessed 18 November 2021.
304
Hong Kong Monetary Authority, Green Finance: Hong Kong’s Unique Role (2018)
<https://www.hkma.gov.hk/media/eng/doc/key-information/insight/20180620e1a1.pdf> accessed 18
November.
305
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
8
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
306
Ibid.

70
highlight green bonds “as an innovation that can help increase sustainable infrastructure
investments […] by improving the liquidity of infrastructure assets.”307 The background paper
drawn up by the Green Finance Study Group of the G20 in 2016 also list, among the
advantages of green bonds, their ability to provide an additional source of green financing,
enable more long-term green financing, or facilitate the “greening” of traditionally brown
sectors. 308 The only limit to this instrumentalization of the bond market for financing
environmental policies is the lack of green projects in which to invest. However, this lack of
green projects could be due to the “uncertainty about what would be perceived as green by the
markets” and hence can be overcome by regulation.309

The US example. From the very inception of the green bond concept in the US, the US
authorities aimed at using the Better America Bond, the Clean Renewable Energy bonds and
the Energy Conservation Bonds to contribute to the financing of environmental objectives. For
instance, the Better America Bonds was intended by vice-president Al-Gore “to help
communities reconnect with their land and water, preserve green space for future generations,
and provide attractive settings for economic development.” 310 Importantly, the form of the
incentives (a tax credit attached to the bond) enabled the American authorities to finance
environmental policy goals while letting decentralized entities make the choices about the
precise investments financed. As an author puts it:

“This is not a big government program. The federal government will not […] micromanage
local zoning and land use decisions. States and communities will build this legacy themselves.
All decisions will be made at the state or local level. The federal government is just providing
them new tools they need to grow in ways that are best for them.”311

The EU example. In the EU, green bond regulation is, more than anywhere else, grounded in
the financing of environmental objectives. The EU set the European Green Deal Investment
Plan, which aims at mobilizing “EUR 1 trillion of sustainable investment over the next decade,
ensure a just transition for regions and workers affected by the green transition, as well as
establish a circular economy action plan, a biodiversity strategy and a zero pollution action

307
OECD, Mobilising Bond Markets for a Low-Carbon Transition (Éditions OCDE, Paris, 2017)
<https://doi.org/10.1787/9789264272323-en> accessed 1 October 2021.
308
G 20 Green Finance Study Group, G20 Green Finance Synthesis Report (15 July 2016)
<http://www.g20.utoronto.ca/2016/green-finance-synthesis.pdf> accessed 18 November 2021.
309
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
21
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
310
Clinton White House Archives, Clinton-Gore Livability Agenda: building livable Communities for
the 21st Century (1998) <https://clintonwhitehouse4.archives.gov/CEQ/011499.html> accessed 18
November 2021.
311
Ibid.

71
plan.”312 In the context, the EU Green Bond Regulation (EUGBR) has the objective “to better
exploit the potential of the single market to contribute to meeting the EU’s climate and
environmental objectives, by facilitating further development of the market for high quality
green bonds, while minimising disruption to existing green bond markets.”313 The EUGBR
aims at facilitating “this development by further clarifying how economic activities can be
combined with positive environmental impacts in a credible and measurable way.” 314 In
addition to the standard, the green bonds issued by the Commission are meant to finance the
EU NextGeneration plan, among which at least 30 percent of the total amount will finance
expenditures supporting climate objectives.

4.1.2. FINANCE-RELATED RATIONALES OF GREEN BOND NORMS MAKERS

Outline. There are two broad types of norms makers: private standard-setters and public
authorities. The development of the bond market is the main raison d’être of the ICMA – on
the main private standard-setters of the bond market. Regarding public authorities, their main
finance-related rationales for regulating green bonds are to ensure the integrity of the financial
markets and improve their efficiency.

ICMA’s nature and motivations. Unlike the CBI, the ICMA’s rationales for standardizing
green bonds are focused on the growth of the bond market for itself. The ICMA was formed
in July 2005 by the merger of the International Primary Markets Association and the
International Securities Markets Association. ICMA is the association for financial institutions
which play an active role – usually as managers, underwriters, and traders – in the primary and
secondary bond markets. These participants in the international capital markets created the
ICMA as a trade association with a view to establishing recognized standards of market
practice. Membership of ICMA brings to market participants the status and recognition, from
other institutions and issuers, necessary to take a major part in large euromarket deals. Member
of ICMA include banks, members of recognised stock exchanges, licensed dealers in securities

312
Commission, Communication from the Commission to the European Parliament and the Council on
a new funding strategy to finance NextGenerationEU COM(2021) 250 final
<https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/com2021_25
0_en_act_part1_v3.pdf> accessed 18 November 2021.
313
Commission, Commission Staff Working Document: Executive Summary of the Impact Assessment
Accompanying the document Proposal for a Regulation of the European Parliament and of the Council
on European green bonds, SWD (2021) 182 final <https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2021:0182:FIN:EN:PDF> accessed 18
November 2021.
314
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
23
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.

72
and affiliated organisations. The ICMA publishes, in the form of a rulebook, recommendations
to its members in relation to debt and equity issues. This handbook covers areas such as the
timing of a bond issue,315 the minimum content of certain documents316 or the timescale to be
allowed for payment of fees and commission to the managers”317 As a self-regulating body,
the ultimate sanction for non-compliance with ICMA’s rulebook is expulsion from the
Association. An expulsion provoked by persistent and serious breaches is considered by bond
market legal practitioners as resulting in a de facto exclusion of the market.318

ICMA’s rationales in serving as the secretariat of the GBP. The GBP were established in
January 2014 by a consortium of investment banks, including Bank of America Merrill Lynch,
Citi, and Crédit Agricole. These banks developed the bond principles through their teams
dedicated to the ESG or to bond underwriting. It means that the original drafters of the GBP
have, as their main interests, the growth of bond issuances, since their revenues derive from
the underwriting of bonds. The GBP were then entrusted to the ICMA, this organisation
serving as the secretariat of the GBP. ICMA’s secretariat of the GBP di not translate into an
increase of the GBP’s environmental objectives. On the contrary, the textual evolution of the
GBP points at a “de-normalization” of the text, year after years: the expressions or sentences
that could have suggested a legal commitment of the issuer to achieve an environmental benefit
were removed from the text. Another element materializes ICMA’s lack of interest for
environmental rationales: after more than seven years of existence, the GBP still do not include
any precise classification of the green projects.

Other organisations following similar goals. Other organisations related to green bond
standard-setting tend to follow similar rationales centred on the expansion of the green bond
market. ISO’s green bond standard is difficult to assess given that it is only accessible against
a fee, ISO’s main motivation is to produce a standard that will be as used by the industry as
possible, 319 which structurally tilt the rationales in favour of the market expansion at the
expense of other considerations. Green bond indexes, faced with intense competition with
other indexes, are notoriously lax in their environmental requirements.320 Many third-party
verifiers provide second-party opinions were the legal language for disclaiming any liability
in relation to the green bond is longer than the evaluation of the green credentials of the

315
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 203.
316
Ibid.
317
Ibid.
318
Ibid.
319
Personal interview with John Shideler – Chairman of the sub-comity 4 of ISO Technical Comity ISO
TC 207 Environmental Performance Evaluation, in charge of developing the ISO 14030 on
Environmental Debt Securities – 10 March 2018.
320
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 1-48.

73
bond,321 which reinforces the conviction than their model where the issuer pays the evaluation
is flawed.322

A rationale for government interventions on the green bond market: the shortcomings
of private green bond standards. The first political rationale is governments’ will to improve
the integrity and efficiency of green bond markets. The self-regulation the green bond market
is often seen has having failed to ensure the integrity of the bond market.323 There exist many
examples of green bonds that triggered controversies for their lack of genuine commitments
to environmental benefits, despite the fact that they were abiding by the GBP. Studies
identified an integrity problem linked to the important number of standards, which tend to
generate a regulatory race to the bottom and discourage the standard-setting bodies to
supervise the external reviewers.324 On the Swedish green bond market, a study showed that
“both investors and issuers called for more leadership, long-term planning, and stronger
climate policy from the state”325 in order to ensure the long term future of the green bond
market.

The EU example. The existence of the integrity issue played an important role in the
regulation process of green bonds in the EU. This integrity issue it is mentioned by the TEG
as an important hindrance for green bond issuers:

“Issuers will only proceed with green bonds if they do not create additional risks or liabilities
compared to the alternatives. […] In a limited number of cases, issuers have experienced
reputational issues from negative market comments from media, NGOs, shareholders, etc. As
a result, the fear of such adverse publicity for example because a deal is deemed “insufficiently
green” has prevented some issuers from tapping the market. This is particularly true for issuers
in economic sectors that are very important for the transition to a low carbon economy, but
where the identification of green assets and projects is not straightforward. 326

321
Paul Rose, ‘Certifying ‘Climate' in Climate Bonds’ (2019) 59 Capital Market Law Review 60.
322
Cristina M. Banahan, ‘The Bond Villains of Green Investment: Why an Unregulated Securities
Market Needs Government to Lay Down the Law’ (2019) 43 Vermont Law Review 841.
323
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
324
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54(1) Stanford Journal of International Law 46.
325
Aaron Maltais and Björn Nykvist, ‘Understanding the role of green bonds in advancing sustainability’
(2020) Journal of Sustainable Finance & Investment 14
<https://doi.org/10.1080/20430795.2020.1724864> accessed 18 November 2021.
326
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.

74
In line with the previous findings, the stakeholder feedback and impact assessment for the EU
Green Bond Regulation (EUGBR) proposal “both identified the main problem drivers to be
the lack of a consistent definition of what are environmentally sustainable ways to use of
proceeds green bonds, and the lack of ongoing supervision of external reviewers.” 327 The
proposal of EUGBR standards by the EU explicitly mentions in the recitals these integrity
rationale: “ For issuers, the lack of common definitions of green economic activities creates
uncertainty about what is considered to be legitimately green and they may face reputational
risks from potential accusations of greenwashing in certain sectors.”328 The self-regulation of
the green bond market is also generally deemed insufficient by regulators as regards economic
efficiency considerations. In the EU, recitals of the green bond standard proposal state that
“despite the widespread use of market standards for green bonds, it can be costly and difficult
for investors to determine the positive environmental impact of bond-based investments and
compare different green bonds” and that “for issuers, the fragmentation of market practices
can create additional costs.”329 Pursuing on the economic efficiency rationale, the Commission
also supports that the development of the EUGBR “also contributes to the EU’s long-term
competitiveness, as well as its economic and environmental resilience in multiple ways.”330

The Hong Kong example. In Hong Kong, integrity and efficiency rationales are closely
connected to the objective to make Hong Kong a competitive green finance hub and to connect
Hong Kong’s capital market with the Mainland. All of Hong Kong’s policies (the issue by the
government and public-sector controlled issuers of benchmark “green bonds,” the
establishment of a Green Finance Advisory Council or similar body to provide on-going focus
and assistance, establishing a Green Labelling Scheme, covering projects and securities, thus
attracting issuers and new investors to Hong Kong) were already announced in a 2016 report
on green finance by the Hong Kong Financial Services Development Council dedicated to
make of Hong Kong a competitive green finance hub. 331 This justification was later reiterated
at the occasion of the development of a green finance certification scheme by the Hong Kong

327
Ibid 7.
328
Commission, Commission Staff Working Document: Executive Summary of the Impact Assessment
Accompanying the document Proposal for a Regulation of the European Parliament and of the Council
on European green bonds, SWD (2021) 182 final 2 <https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2021:0182:FIN:EN:PDF> accessed 18 November
2021.
329
Ibid.
330
EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard (June 2019)
23
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/190618-sustainable-finance-teg-report-green-bond-standard_en.pdf > accessed 18 November 2021.
331
Hong Kong Financial Services Development Council, Hong Kong as a Regional Green Finance Hub
(FSDC Paper No.23, May 2016) <https://www.fsdc.org.hk/media/p4pfkwvj/green-finance-report-
english.pdf> accessed 18 November 2021.

75
Quality Assurance Agency332 and Hong Kong’s government green bond program, understood
as setting the benchmark for the emerging local green bond market.333 The development of
green bonds in Hong Kong is also conceptualized as a way to improve the efficiency of the
capital market connexions with Mainland China. The Hong Kong Monetary Authority worked
on a proposal to include green bonds issued in Hong Kong in the scope of tradable products
of Bond Connect – a scheme linking debt securities market between Hong Kong and the
Mainland. 334 The SFC also understood the development of green finance in Hong Kong as a
way “to complement the Mainland’s green development ambitions and to connect green
finance flows between the Mainland and the rest of the world.”335

4.2. THE PROCESS OF NORMATIVE DENSIFICATION OF THE GREEN BOND

CONCEPT

Outline. This section studies the result on the green bond concept of the normative activity of
private standard-setters and governments. The actors motivated by environment-related
rationales built a green bond concept understood as an innovative tool – green finance
taxonomies – used for distinguishing green assets from non-green ones (4.2.1). The actors
motivated by finance-related rationales led to a green bond concept understood as the
application of pre-existing transparency ESG standards to the bond market (4.2.2).

4.2.1. THE NORMATIVE DENSIFICATION OF GREEN FINANCE TAXONOMIES

Outline. Green bonds, in their Climate Bonds Standards definition, can be understood as a
process of normative densification of a new tool: green finance taxonomies. Indeed, at the
birth of climate bonds, green finance taxonomies were at best recommendations. They now
became laws in many jurisdictions.

The Climate Bonds Standards and green finance taxonomies. The Climate Bonds
Taxonomy was issued in 2013 by the CBI. This taxonomy initially aimed at defining activities

332
Legislative Council, Official Record of Proceedings (Wednesday, 8 November 2017) 1415
<https://www.legco.gov.hk/yr17-18/english/counmtg/hansard/cm20171108-translate-
e.pdf#nameddest=wrq05> accessed 18 November 2021.
333
HKMA, Press Release: Hong Kong Monetary Authority – HKSAR Government’s Green Bonds
Offering, 27 January 2021 <https://www.hkma.gov.hk/eng/news-and-media/press-
releases/2021/01/20210127-3/> accessed 18 November 2021.
334
Hong Kong Legislative Council, Official Record of Proceedings Wednesday, 9 May 2018 :
Promotion of green bonds, 9635 <https://www.legco.gov.hk/yr17-
18/english/counmtg/hansard/cm20180509-translate-e.pdf#nameddest=wrq17> accessed 17 June 2022.
335
Securities and Futures Commission, Strategic Framework for Green Finance, September 2018
<https://www.sfc.hk/-/media/EN/files/ER/PDF/SFCs-Strategic-Framework-for-Green-Finance---
Final-Report-21-Sept-2018.pdf> accessed 18 November 2021.

76
consistent with the 2°C objective of the Cancun Agreement, and later reinforced its objective,
in line with Paris Agreement’s “well below” 2°C and preferably 1,5°C objective. Bond issuers
can obtain from certifiers accredited by CBI a certification that their climate bond is compliant
with CBI’s taxonomy. Green taxonomies, nomenclatures or classifications are large tables
listing the categories of “green” or low-carbon projects. Most often, these tables include, for
each of these categories, the thresholds or criteria which make it possible to single out “green
projects”. It categorizes activities and set criteria for each activity. These taxonomies are
intended to guide the final allocation of proceeds from green or climate bonds.

Short genealogy of green finance taxonomies. Before the climate bonds taxonomy,
classifications of economic activities on the basis of their climate or environmental impacts
had been set up, in particular the Rio Markers set by the OECD and the Common Principles
for Climate Mitigation Finance Tracking set by a group of Multilateral Development Banks.
The Rio Markers were first issued as a pilot in 1998, and then as an Annex to regular reports
of the Creditor Reporting System on Aid Activities led by the OECD. The Rio Markers were
developed at the request of the secretariats of the 1992 “Rio Conventions” (on climate change,
biological diversity and desertification) in order to track environmental finance promised by
developed countries. The Rio Markers are a three-page table displaying activities which
financing is related to one of the three Rio conventions. For instance, an activity is classified
as related to the UN Framework Convention on Climate Change (UNFCCC) if this activity
meets a broad definition based on the objective set by the Article 2 of the UNFCCC. The other
important taxonomy was issued in 2011 by a group of MDBs and the International
Development Finance Club (IDFC). The Common Principles for Climate Mitigation Finance
Tracking (hereafter, “Common Principles”) is a list of activities eligible for classification as
climate mitigation finance. The Common Principles’ taxonomy aims at classifying activities
“as related to climate change mitigation if it promotes efforts to reduce or limit GHG emissions
or enhance GHG sequestration”. By taking model on technical standards (such as the ISO
standards), the CBI brought much more precision to these classifications of activities.

Normative densification of green finance taxonomies. The integration of a green finance

taxonomy into the Climate Bonds Standards certainly contributed to the normative
densification of the concept of green finance taxonomies. The International Standard
Organization (ISO) issued its own taxonomy in July 2022,336 giving to the concept of green
finance taxonomy the normative value of an international standard. Furthermore, in order to
regulate emerging green bonds markets, French, Chinese and EU authorities developed their
own green finance taxonomies through subsidiary legislation. These legal texts generated a

336
ISO, Standard 14030-3 Environmental performance evaluation — Green debt instruments — Part
3: Taxonomy (2022) <https://www.iso.org/standard/75559.html> accessed 28 July 2022.

77
considerable increase in the normativity of the taxonomy concept. It also helped to refine the
concept, with additional characteristics such as “do no significant harm principle” or
“minimum safeguards” further analysed in Chapter 4.

4.2.2. THE NORMATIVE DENSIFICATION OF TRANSPARENCY STANDARDS

Outline. Green bonds, in their Green Bond Principles definition, can be understood as a
process of application of pre-existing financial industry transparency ESG standards – in
particular the Equator Principles – to the bond market. However, this process is not
straightforward: in their adaptation to the bond market, the normative requirements of the
Equator Principles have been significantly weakened.

The Green Bond Principles (GBP). These principles focus on four key aspects of green
bonds: 1. Use of funds, 2. Project selection and evaluation, 3. Fund management, 4. Reporting.
Consequently, the green bonds which refer to these principles are supposed to include details
on the “green projects” benefiting from the proceeds of the bond, the publication of the
eligibility criteria used to retain these “green projects,” a tracing of the product of the
obligation, and a report documenting the allocation of funds over time. In the appendix to the
GBP, issuers are also encouraged to submit their green bond to an external review which may
take the form of a “second-party opinion,” an audit or a certification.337 As a whole, the GBP
are essentially a framework fostering transparency of ESG information related to bonds.

Origin of the GBP: the Equator Principles. The first version of the GBP – the GBP 2014 –
can be read as a partial transposition of the Equator Principles to the bond markets. The
Equator Principles,338 first published on 4 June 2003, are an environmental and social risk
management framework that applies to loans issued by private banks as part of project finance
operations. These principles of soft law provide minimum standards of due diligence. These
minimum standards are derived from standards developed by the IFC (International Finance
Corporation, a member of the World Bank Group). They apply to loans over $ 10 million
issued by private and public banks for projects in developing countries. These principles are
now widely accepted among project finance players: as of November 2021, 128 financial
institutions from 38 countries, representing almost all project finance, have signed the Equator

337
International Capital Market Association, The Green Bond Principles: Voluntary Process Guidelines
for Issuing Green Bonds (2021) <https://www.icmagroup.org/assets/documents/Sustainable-
finance/2021-updates/Green-Bond-Principles-June-2021-140621.pdf> accessed 18 November 2021.
338
Equator Principles Association, Equator Principles EP4 (July 2020) <https://equator-
principles.com/app/uploads/The-Equator-Principles_EP4_July2020.pdf > accessed 18 November 2021.

78
Principles. 339 The impact of these principles is nevertheless limited by several factors,
including the low weight of project finance in finance in general and their ineffectiveness in
contentious situations.340

The normative weakening of the Equator Principles through the GBP. The Equator
Principles, as a pioneering text of flexible environmental law applied to credit, served as an
inspiration for the 2014 GBP. This inspiration is evident since an intermediate text, the Green
Bond Framework (not to confuse with the green bond frameworks published by green bond
issuers under the GBP),341 published as preparatory work by the pioneers of the GBP, testifies
by its structure and its content of the affiliation between the Equator Principles and GBP. We
observe that a prescriptive weakening took place when switching from Equator Principles to
the Green Bond Framework, followed by a further weakening in the transition from the Green
Bond Framework to the GBP. The Equator Principles have 10 principles, 7 of which are
reformulated in the Green Bond Framework. Out of these 7 principles, only 4 remain in the
GBP. The equivalence between the Equators Principles, the Green Bond Framework and the
GBP is presented in Annex 2 of this thesis. Four of the Equator principles are not adopted in
the final version of the GBP: principle 3 (Applicable Environmental and Social Standards),
principle 5 (Stakeholder Engagement), principle 6 (Grievance Mechanism) and principle 8
(Covenants).

Further normative weakening in successive iteration of the GBP. As for the change from
the Green Bond Framework to the GBP, we observe a normative weakening compared to the
Equator Principles, with the abandonment of the principle 7 of the GBF (“Central Forums for
the Use of Proceeds Taxonomies”). Second, the evolution from GBP 2014 to GBP 2021
reveals a shift towards a more descriptive and less prescriptive text. Gains in descriptive
precision lie mainly in refining the categories which may cover eligible green projects. New
categories have been added, such as the Green Building category, and clarifications have been
made to the categories already existing in the 2014 text. However, the descriptive value that
can be recognized in GBP 2017 must be nuanced. The drafters of the GBP have in fact chosen
not to define what is “green.” Contrary to what the adjective “green”, included in the title,

339
Equator Principles, Members and Reporting <https://equator-principles.com/members-reporting/>
accessed 18 November 2021.
340
Ariel Meyerstein, ‘Transnational Private Financial Regulation and Sustainable Development: An
Empirical Assessment of the Implementation of the Equator Principles’ (2013) 45 New York University
Journal of International Law & Politics 487-594 ; David M Ong, ‘Public Accountability for Private
International Financing of Natural Resource Development Projects: The UN Rule of Law Initiative and
the Equator
Principles’ (2016) 85 Nordic Journal of International Law 201.
341
Bank of America, Merrill Lynch, The Green Bond Framework (October 2013)
<https://www.globalcapital.com/article/jbxq4j67wymj/framework-for-green-bonds> accessed 18
November 2021.

79
might imply, the GBP do not aim much to define what is green. It aims in fact at describing
the method for communicating the information on the use of the proceeds of the bond. The
GBP only recognizes a few non-limitative categories of green projects. On the other hand, we
notice that the prescriptive value of the text decreases from one version to the successive one.
For instance, in the 2014 version, the issuer had to declare in the "use of proceed" section of
the legal documentation of the green bond the eligible categories of green projects. From 2015
and in all subsequent versions, the green bond issuer must simply "correctly describe" in the
legal documentation the use of the product. The difference between the two is not insignificant:
describing in the “use of proceeds” section of bond prospectuses the categories of eligible
projects would engage green bond issuers in the eyes of most regulators.342

Normative densification through integration of the GBP in State regulations. Despite

representing a diminished version of the Equator Principles, the GBP enabled an important
normative densification of ESG standards on the bond market thanks to the integration of the
GBP in State regulations. Many State regulations of green bonds relied heavily on the four
green bond principles (use of proceeds, process for project evaluation and selection,
management of proceeds, reporting, plus the annex on external verification) such as the
Indian 343 and Japanese 344 green bond regulations as well as the proposal for an EU
regulation.345 All of these regulations follow, to a certain extent the general structure of the
GBP.346 The main green bond standards and their principal characteristics are presented in
Annex 1 of this thesis.

4.3. THE RESULTING NORMATIVITY OF GREEN BOND STANDARDS

Introductory remarks. This section presents the normative nature of green bond standards
used on the international green bond market. The focus is on the normative nature rather than
the legal nature of these standard because some standards expressly reject having any legal
nature. For instance, instead of presenting themselves as laws, green bond standards recognize
themselves as guidelines, standards, announcements, regulation, etc. The previous sections
provided an account of the process according to which green bond standards gained
normativity (understood as the capacity of a norm to provide a model). This section provides
a static account of green bond standards’ respective capacity to provide a model for green
bond issuances. This section differentiates between a stated normativity – indicated by stated

342
See Chapter IV.
343
Securities and Exchange Board of India, Disclosure Requirements for Issuance and Listing of Green
Debt Securities CIR/IMD/DF/51/2017 (2017).
344
Ministry of Environment (Japan), Green Bond Guidelines (2020).
345
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final.
346
See Chapter IV.

80
ambition of the text to provide such a model – (see figure 1) and an effective normativity –
estimated thanks to the context of each green bond standard (see figure 2).

Figure 1 : Stated normativity of green bond standards

GBP

ISO
Stated scope

Proposed EUGBR

Chinese GB

CBS

Stated stringency

This graph gives an overview of the normativity of the main green bond standards, as they
state it themselves. It shows the relative positions of standards according to their stated
stringency and scope (provided that the capacity of the norm to provide a model depends from
the capacity of this norm to define a precise model – stringency – and apply it – scope). The
further a standard is on the “stringency” axis, the more a standard pretends to determine the
model the green bond market actors must follow. The further a standard is on the “scope”
axis, the greater number of green bonds issuances the standard states it applies to. The
quantification is based on the rank of each standard in each axis (example: axis stated scope:
the CBS has 1 because it has the most reduced scope of all standards assessed; the GBP has
5 because it has the broadest scope of the standard assessed).

81
 Figure 2: Effective normativity of green bond standards

GBP

Chinese GB
Effective scope

CBS

Proposed EUGBR

ISO

Effective strigency given the context of the standard

This graph gives an overview of the effective normativity of the main green bond standards.
The further a standard is on the “effective stringency” axis, the more a standard determines
the model the green bond market actors must follow. The further a standard is on the “effective
scope” axis, the greater number of green bonds issuances the standard applies to. The
quantification works according to the same principle as in figure 1.

Low normativity guidelines. The Green Bond Principles (GBP) are “voluntary process
guidelines for issuing green bonds.”347 They are part of a set of sustainable finance “voluntary
frameworks” issued by ICMA “with the stated mission and vision of promoting the role that
global debt capital markets can play in financing progress towards environmental and social
sustainability.”348 These frameworks “outline best practices when issuing bonds serving social
and/or environmental purposes” and “promote transparency and disclosure.”349 The language
used in the GBP privileges the use of “should” (19 times) and avoids the use of must (0 time)
and shall (1 time, in the disclaimer section). The Green Bond Principles contain the following
disclaimer:

“The Green Bond Principles do not create any rights in, or liability to, any person,
public or private. Issuers adopt and implement the Green Bond Principles voluntarily
and independently, without reliance on or recourse to the Green Bond Principles and

347
International Capital Market Association, Green Bond Principles (2021) 2
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 28 July 2022.
348
Ibid 2.
349
Ibid 2.

82
 are solely responsible for the decision to issue Green Bonds. Underwriters of Green
Bonds are not responsible if issuers do not comply with their commitments to Green
Bonds and the use of the resulting net proceeds. If there is a conflict between any
applicable laws, statutes and regulations and the guidelines set forth in the Green Bond
Principles, the relevant local laws, statutes and regulations shall prevail.”350

Paradoxical normative force of the GBP. Despite its utter lack of stated normativity, the
GBP have an important effective normative force on the green bond market for three main
reasons: the ICMA – which acts as the secretariat of the GBP – is the most influential industry
association of the bond market; other green bond standards reference the GBP; and the GBP’s
updates accurately reflect certain important evolutions of the practices on the green bond
market. First, the simple fact that the GBP’s secretariat is ensured by the ICMA grants them
an implicit normativity. The ICMA is a self-regulatory organization and trade association
based in Zurich, which represents financial institutions active on the international capital
market worldwide. This organization publishes other standards that are crucial for operating
on the bond market, such as standard clauses to be integrated into bond contracts, or the content
of the bond syndicate communications. 351 Not respecting these standards may result in an
exclusion from the ICMA, which would amount to a de facto exclusion from the international
bond market. 352 The GBP have not reached yet the same normative status as ICMA’s
rulebook353 but they are nonetheless an indispensable condition to enter many green bond
markets, because green bond indices or large green bond investors require compliance with
the GBP. Second, the GBP are taken as model, referenced or recognized by green bond
standards with a higher normativity. As such, the GBP are conferred an added normativity.
For instance, the Argentinian financial regulator recognizes the GBP as a relevant international
standard;354 the ASEAN green bond standards recognizes to “based on the ICMA’s GBP as
they are internationally accepted and widely used for the development of national green bond
guidelines or standards issued globally;”355 ISO’s green bond standard also recognizes that it
“expands on the GBP to provide specific requirements and guidance for the designation and

350
Ibid 7.
351
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 221.
352
Ibid.
353
For instance, ICMA’s rulebook is only accessible in exchange of a hefty fee.
354
Comision Nacional de Valores and Organismo Regulador del Mercado de Capitales Argentino,
Lineamientos para la emision de valores negociables sociales, verdes, sustentables en Argentina (2019)
7.
355
The Association of Southeast Asian Nations (ASEAN), ASEAN Green Bond Principles (2018) 3.

83
verification of green bonds,”356 while the Thai green bond guidelines states that “the minimum
disclosure must comply with the ICMA’s standard.”357

The GBP as a global and evolving codification of green bond standards. The third element
that explains the paradoxical normative force of the GBP is their propension to accurately
capture certain important evolutions of the green bond market, through regular updates of the
GBP. As such, the GBP can be understood as a perpetually evolving global codification of
green bond standards around the globe. The GBP never stop evolving and integrating new
normative developments relative to green bonds. New normative requirements (for instance,
defining green according to their contribution to a taxonomy, or the rise of the do no significant
harm) that were developed by states of the CBI found their place in the GBP in a somewhat
watered-down fashion. ICMA’s codification of the practices of the green bond market is partial
– it seeks to minimize as much as possible the requirements weighing on financial actors – but
nonetheless comprehensive, insofar as no important evolution on the green bond market is
absent from the GBP. Because the GBP accurately indicate the average or under-average
normative requirements expected on the green bond market, it is almost universally adopted
by issuers and investors alike.

Other low normativity guidelines, guides and frameworks. Other green bond normative
documents share with the GBP an absence of constraint put on the parties to a green bond
transaction. The Japanese green bond guidelines clearly indicate that thy “are legally non-
binding and no legal penalties will be imposed even if a certain action does not comply with
the elements (including elements described with the word “should”) described in the
Guidelines.”358 Multiple stock exchanges or national financial regulators issued guidelines or
guides with very little or no normative ambition, such as the guides published by the Autorité
Marocaine des Marchés de Capitaux,359 the Santiago Exchange,360 the Bolsa y Mercados de
Valores de la República Dominicana,361 or Brazilian financial industry associations.362 Despite
their absence of formal normative value, the prescriptive authority of indices and exchanges
relies on the possibility that non-compliant bonds may be excluded or removed.363 External

356
ISO, Environmental performance evaluation — Green debt instruments 14030-1 (2021) 7.
357
Securities and Exchanges Commission, Thailand, Guidelines on Issuance and Offer for Sale of Green
Bond, Social Bond and Sustainability Bond (2018) 1.
358
Ministry of Environment, Japan, Green Bond Guidelines (2020) 12.
359
Autorité Marocaine des Marchés de Capitaux, Green, Social & Sustainability Bonds Guide (2018).
360
Santiago Exchange, Guia del segmento de bonos verdes y bonos sociales (version 2 : 2018).
361
Bolsa y Mercados de Valores de la República Dominicana, Green Bonds Guide (2020).
362
Brazilian Federation of Banks (FEBRABAN) and Brazilian Business Council for Sustainable
Development (cebds), Guidelines for Issuing Green Bonds in Brazil (2016).
363
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54 Stanford Journal of International Law 21.

84
verifiers such as CICERO – the leading second opinion provider364 – designed a referential
made of “shades of green.” The Investor Network on Climate Risk (a North American non-
profit organization convened by Ceres that advocates for leadership in sustainability) has
articulated its ‘expectations’ on behalf of investors in green bonds in a statement to guide
issuers and other market participants. 365 Finally, Multilateral Development Bank (MDBs)
developed influential green bond frameworks. The World Bank and the European Investment
Bank were precursors in developing green bonds. These banks created quasi-standards, such
as reporting template, to guide issuers in disclosing the impacts of green bonds.366

Mandatory language but no enforcement mechanism. Some green bond guidelines and
standards are slightly more normative than the guidelines mentioned in the previous paragraph
because the language used (shall, must) indicates the existence of obligations. However, these
standards do not set any mechanism to ensure a minimum level of compliance with these
obligations, such as certification or oversight by a regulator. The ASEAN green bond standard
is in this case. The ASEAN GBS “aims to provide more specific guidance on how the GBP
are to be applied across ASEAN in order for green bonds to be labelled as ASEAN Green
Bonds.” The standard was developed by the ASEAN Capital Markets Forum, which is “a
forum which comprises capital market regulators from ASEAN countries whose primary task
is to promote greater integration and connectivity of regional capital markets.”367 This standard
uses mandatory language and indicates that ASEAN green bonds must comply with the
standard, but there is not enforcement mechanism set. Similarly, one national regulator –
Philippines’ Securities and Exchange Commission – issued in 2018 “guidelines for issuances
of green bonds under the ASEAN green bond standard.” These Philippines guidelines are part
of a “Memorandum Circular” aimed at supplementing “the requirements of Section 8 and 12
of the Securities Regulation Code.”368 In these green bond guidelines, the SEC uses a language
suggesting the existence of obligations but it does not seem that these are legal obligations,
and the only possible enforcement mechanism is the possibility given to the SEC to “reserve
the right to direct any Issuer from using the “ASEAN Green Bond” label.”369 In Thailand, the

364
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 51 ; CICERO, Second Opinions
<https://www.cicero.oslo.no/en/second-opinions> accessed 2 March 2022.
365
Ceres – Investor Network on Climate Risk, A Statement of Investor Expectations for the Green Bond
Market (2015).
366
Paul Rose, ‘Debt for Climate: Green Bonds and Other Instruments’ (2020) Research Handbook on
Climate Finance and Investment Law (Edward Elgar, forthcoming 2021); Ohio State Legal Studies
Research Paper No. 595, Available at SSRN: https://ssrn.com/abstract=3750862 [mentioning the
existence, among templates, “tabular structure that provides information on, among other things, the
amount of funds raised, the amount spent to date, a brief description of the project”].
367
The Association of Southeast Asian Nations (ASEAN), ASEAN Green Bond Principles (2018) 4
368
Securities and Exchange Commission, (Philippines) Guidelines on the Issuance of Green Bonds
under the ASEAN Green Bonds Standards (2020) 1.
369
Ibid 4.

85
Guidelines on Issuance and Offer for Sale of Green Bond, Social Bond and Sustainability Bond
seems to fit in the same category of normative documents using mandatory language but
without clear legal value nor enforcement mechanism.370

A medium normativity standard: the CBS. By opposition to simple guidelines or guides,

other types of green bond normative texts claim the name of standard. This is the case of the
CBS. The CBS was developed by the CBI. CBI is a NGO based in London that was launched
in 2009 at the United Nation’s Conference of the Parties’ Climate Change summit in
Copenhagen to mobilize climate finance. Its first CBS was issued in 2010 and accompanied
by a taxonomy of economic activities compliant with a low-carbon and climate-resilient
trajectory. As explained by the CBI, “the Climate Bonds Standard sets out clear criteria to
verify certain green credentials of a bond or other debt instrument.”371 This standard “aims to
provide a robust approach to certifying that the proceeds are being used to finance and
refinance projects & assets that are consistent with the rapid transition to a low carbon &
climate resilient future.” The standard is the base of a certification scheme run by the CBI.
This certification scheme “allows investors, governments and other stakeholders to prioritize
‘low carbon and climate resilient’ investments with confidence that the funds are being used
to deliver a low carbon and climate resilient economy.”372 The standard uses the word “shall”
multiple times (71) and acknowledges that ““shall” indicates a requirement; “should” indicates
a recommendation; “may” indicates a permission; “can” indicates a possibility or a
capability.” 373 The CBS also enjoys a relatively strong degree of normativity through
integration into national standards, such as the French GreenFin label 374 or through the
certification contracts. These standards lack the coercive authority of government, but they
rely on “market-based signals to regulate through peer pressure, reputational leverage and
other market-based mechanisms.”375

Another medium normativity standard: the ISO green debt instrument standard. The
standard most similar to the CBS in terms of normativity is the ISO (the International
Organization for Standardization) green debt instrument 14030. This standard is divided in
four parts: ISO 14030-1: process for green bonds ; ISO 14013-2: process for green loans ;

370
Securities and Exchange Commission (Thailand), Guidelines on Issuance and Offer for Sale of
Green Bond, Social Bond and Sustainability Bond (2020).
371
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 3
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 28 July
2022.
372
Ibid 3.
373
Ibid 9.
374
Décret n° 2015-1615 du 10 décembre 2015 relatif au label « Transition énergétique et écologique
pour le climat».
375
Alex Oche, 'Comparative Analysis of Green Bond Regimes in Nigeria and China' (2020) 11 Journal
of Sustainable Development Law and Policy 170.

86
ISO 14030- 3: taxonomy (or other suitable taxonomy) ; ISO 14030-4 verification programme
requirements. The objective of ISO 14030-1: process for green bonds is to “expand on the
Green Bond Principles (GBP)” in order “to provide market participants and other interested
parties with a common framework for designating a bond as green.”376 This objective is meant
to be achieved “by setting requirements for the allocation of funds to projects, assets and
supporting expenditures and reporting requirements on the results of expected impacts.”377
The ISO standard share the same normative language as the CBS (shall, should, may and can),
and the ISO standard can also be used for a certification. The normative authority of the ISO
is of course stronger than CBI’s, as the ISO “is a worldwide federation of national standards
bodies (ISO member bodies).” 378 ISO standards have also a strong normative value in
international economic law. In addition, some regional or national standardization
organizations – such as the European Committee for Standardization – are legally bound by
agreements to develop common standards with the ISO.379 In addition, certain local green bond
certification schemes, such as The Green and Sustainable Finance Certification Scheme
developed by the Hong Kong Quality Assurance Agency, takes inspiration from ISO’s green
bond standard. 380

High normativity green bond regulations. This category of norms gathers national green
bond regulation issued in India, Nigeria, Indonesia, China and the EU. In India, the Securities
and Exchange Board of India (SEBI) issued in 2017 a circular entitled Disclosure
Requirements for Issuance and Listing of Green Debt Securities. This Circular was issued
under the powers conferred to the SEBI under the 1992 Securities and Exchange Board of
India Act.381 This circular uses a language suggesting the existence of obligations, although
the normative value of a circular from the SEBI in India is quite low. In Nigeria, the Securities
and Exchange Commission issued in 2018 rules on green bond.382 The rule uses mandatory
language, but legal scholars note the lack of enforcement mechanism. 383 In Indonesia, the
Financial Services Authority issued in 2017 a regulation on the issuance and the terms of green
bond. This regulation possesses all the characteristics of a legal text: it uses mandatory

376
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) V.
377
Ibid 7.
378
Ibid 6.
379
Agreement on Technical Co-operation between ISO and CEN (Vienna Agreement) (1991)
<https://boss.cen.eu/media/CEN/ref/vienna_agreement.pdf> accessed 2 March 2022.
380
Hong Kong Quality Assurance Agency, Green Finance Certification Scheme (GFCS) Handbook
(2018).
381
Securities and Exchange Board of India, Disclosure Requirements for Issuance and Listing of Green
Debt Securities CIR/IMD/DF/51/2017 (2017) 4.
382
Securities and Exchange Commission (Nigeria), Green Bonds Issuance Rules (2018).
383
Alex Oche, 'Comparative Analysis of Green Bond Regimes in Nigeria and China' (2020) 11 Journal
of Sustainable Development Law and Policy.

87
language, contains sanctions in case of no compliance with its provisions and contains
provisions about its coming into force.384 However, the country with the most comprehensive
regulatory set is China. There are four essential national regulatory documents on green bonds:
the People’s Bank of China (PBOC) Announcement (2015) No. 39, the Guidelines on Green
Bond Issuance by the National Development and Reform Commission, China Securities
Regulatory Commission’s Guiding Opinions for Supporting the Green Bonds and National
Association of Financial Market Institutional Investors’ Guidelines on Green Debt Financing
Tools for Non-Financial Enterprises. China’s green bond regime does not have the statute of
law but is nonetheless mandatory on all green bond issuances in China.385

High normativity: the proposed EUGBR. A technical group (the TEG) appointed by the
European Commission drafted a soft law voluntary green bond standard in 2019. 386 On the
basis of this draft, the Commission also proposed a regulation which aims at setting “uniform
requirements for issuers of bonds that voluntarily wish to use the designation “European green
bond” or “EuGB” (European green bonds) for their environmentally sustainable bonds made
available to investors in the Union.” 387 This regulation aims at establishing a registration
system and supervisory framework for external reviewers of European green bonds. The
proposed EU green bond regulation defines green and sustainable assets by reference to the
already existing EU Taxonomy regulation. In EU law, a regulation “shall have general
application [and] shall be binding in its entirety and directly applicable in all Member
States.”388 As such, the proposed EU green bond regulation would be directly applicable in all
potential domestic regulation inside EU member states. In would not prevent member states
from setting their own green bond schemes, but according to Article 1 of the Taxonomy
regulation member states would have to base green bond schemes on the EU taxonomy.

Restricted scopes. Many standards have a scope restricted to a certain market, or a certain
type of bonds. Among soft law standards, the CBS is only applicable to bonds with a climate
mitigation objective and certified under this standard. Similarly, the ASEAN standard is
limited to bonds issued in ASEAN countries or invested in ASEAN project. These limitations
of scope are shared by domestic regulations in India, Indonesia, Thailand, Malaysia, Japan,

384
Financial Services Authority (Indonesia), Regulation of Financial Services Authority on the Issuance
and Terms of Green Bonds 60 /POJK.04/201 (2017).
385
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021) 16.
386
European Union Technical Expert Group on Sustainable Finance, EU Green Bond Draft Standard
(2019).
387
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final.
388
Article 288 of the Consolidated Version of the Treaty on the Functioning of the European Union
[2012] OJ C 326/49.

88
Philippines and China. This last country goes even further in the limitation of the scope of its
different guidelines: each guideline covers a specific category of bonds. PBOC’s
Announcement regulates green bond issuance for interbank bond, while the Guiding Opinions
from the China Securities Regulatory Commission regulates bonds sold on stock exchanges
and the China’s National Association of Financial Market Institutional Investors’ Guidelines
apply to green bonds issued by non-financial enterprises on the interbank market.

Extended scopes. Other standards have very extended scopes. The GBP for instance, is
applicable to all kind of bonds. This expansive scope is increased by the fact that the GBP are
included in reference in many green bond standards, and are therefore indirectly applied where
these sectorial or domestic standards apply. The ISO standard on green debt instrument covers
bond and loans. Among domestic regulations, the Nigerian guidelines enable all kinds of
actors – state government, local government, corporation or supranational agency – to issue a
green bond. Interestingly as well, the EUGBR “is intended to be usable by any bond issuer,
including issuers of covered bonds as well as securitisations, [and] to be usable by issuers both
within and outside the Union.”389 The only apparent limit to this enlarged scope seems to be
the necessity for issuers to have a legal personality, leaving excluded certain securitization
issuers, which under certain Member States’ national laws, do not need to have a legal
personality.390

5. CONCLUSION

This chapter exposed the process by which green bonds became a concept charged with a
normative value. It also described the result of this process regarding the normativity of
existing and projected green bond standards. As regards the process of normative densification,
this chapter described how the green bond idea emerged in the early 2000s. Multiple green
bond conceptions surged at first, to later coalesced into two dominating concepts. Investors
received well this new financial product which echoed the larger sustainability-oriented
transformation of finance. After this initial stage of emergence, financial and non-financial
rationales led hundreds of entities globally to issue green bonds. These successive issuances
contributed to the conceptual elaboration of green bonds. Issuance-related controversies on the
definition of “green”, environmental information disclosures and the nature of the “green”
commitments triggered conceptual evolutions. Finally, environmental protection and market
efficiency considerations led standard-setting bodies and public regulators to develop green

389
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final.
390
European Central Bank, Opinion of the European Central Bank of 5 November 2021 on a proposal
for a regulation on European green bonds (CON/2021/30) 8.

89
bond norms. Through these rules, the green bond concept gained in normative value. Two core
elements of the green bond concept underwent a process of normative densification:
transparency standards and green finance taxonomies. Both are tied together in standards of
unequal normativity, ranging from guidelines to state and regional regulations.

This chapter enables the identification of the two essential facets of the green bond concept.
The first facet is organised around the market efficiency/integrity rationales, which translate
into transparency/ information disclosure instruments. The second facet revolves around
environmental protection rationales, materialized by green finance taxonomies. These two
aspects of the green bonds concept also tend to reflect a classical distinction in civil law
systems between private law – dealing with private interests, such as investors protection and
public law – dealing public interests such as environmental protection. This broad divide
provides the frame for the following two chapters.

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CHAPTER III: THE ENVIRONMENTAL CONTRIBUTION REGIME

ABSTRACT

The third chapter of this thesis inquires into green finance taxonomies’ abilities to provide a
stable definition of the public interest to the green bond market. This chapter does so through
tracing the genealogy of green finance taxonomies, analysing these taxonomies’ structures and
the emerging requirements and obligations attached to them. This chapter concludes on the
singularity and novelty of green finance taxonomies, which can be interpreted as a form of
environmental strategic planning applied to finance. Unlike Park and Forsbacka, who posited
that environmental transparency was the mainstay of green bonds’ legal framework, this thesis
argues that environmental strategic planning fulfils this core function. By extension,
environmental strategic planning is also necessary to setting legal frameworks for any other
sustainable finance products.

1. INTRODUCTION

Background. Over the 20 years or so of the development of green bonds, the question of how
to define “green” investments repeatedly came back as a fundamental and thorny issue. Several
systems have been experimented. Some consisted in establishing some broad list or categories
of economic activities considered as environmentally friendly. Other delegated the power to
approve the green qualification of projects to an administrative authority. Yet others invented
classification schemes – or taxonomies – in order to classify activities according to their
abilities to respect precise criteria showing their contribution to achieving environmental
objectives. This latter tool proved the most successful. Consequently, green finance
taxonomies are the main focus of this chapter. Since the beginning of the 2010s, a number of
these taxonomies were adopted. Organisations such as the OECD, the World Bank, the central
bank of China or the EU Commission developed the most widely used taxonomies. This
instrument became so successful that the scope of application of some taxonomies now
extends well beyond the green bond market. However, green finance taxonomies are not
perfect. On the contrary, they have difficulties escaping two pitfalls, over-simplification or
over-complexity. Another point of contention is the claim to be science-based that most
taxonomies make, whereas, like anything with legal value, taxonomies are also the result of
value-based, contextual and political judgements.

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Objective: analysing the legal regime defining green bonds’ environmental benefit. This
chapter turns to the pretension by some green bond regimes to define environmental benefits
brought about by green bonds. In other word, this chapter delves into the ways “green” is
defined. The position held by some green bond standards such as the GBP is that transparency
is enough to define green, since green bond issuers disclose how they define green, and the
market – on the basis of such disclosure – judges, by buying or not the bond, whether such
definition of green is “acceptable.” Other green bond standards, such as the CBS, chose to
define what is green, or climate compliant, with technical criteria relating to CO2 emissions,
or other environmental metrics. This chapter aims at understanding how such systems seeking
to define the environmental benefits of a bond are legally structured, what obligation they
create, and what are the incentives for having economic activities qualified under taxonomies.
It mostly revolves around green finance taxonomies as taxonomies have become the main way
to define ‘green.” As such, while the next chapter (on environmental transparency) is more
focused on private law instruments ensuring transparency in the green bond transactions, this
chapter is more concerned with public law instruments dealing with environmental benefits
(which are essentially benefits for the public).

Distinction between transparency and environmental contribution. As exposed in the

previous chapter, green bonds’ standardization has revolved on two main blocs: environmental
transparency and contribution to environmental objectives. This third chapter excludes from
the analysis the tools – called sustainable finance taxonomies – used for determining
environmental contributions of financial actors or products. While taxonomy-based
disclosures are often among the provisions included in transparency standards, taxonomies are
not transparency requirements per se. Taxonomy standards translate public policy objectives
relating to environmental protection into technical criteria defining what assets are green in
the financial field. By opposition, transparency standards enable green bond issuers to inform
investors about the green characteristics of the bond. Transparency standards primarily aim at
protecting investors’ interests. On the contrary, taxonomies ensure the adequate translations
of public environmental objectives into detailed requirements – as such, they protect a public
interest. Taxonomies and transparency standards are therefore two bodies of rules, answering
to different finalities with different mechanisms. Hence, transparency standards relate more to
private and financial law while taxonomy standards relate to public and environmental law.
There is also a chronological reason for analysing taxonomies and transparency standards
separately. Transparency standards were developed first, while taxonomies appeared a few
years after. 391 Lastly, transparency standards and taxonomies have different scopes of

391
Igor Shishlov, Romain Morel and Ian Cochran, Beyond transparency: unlocking the full potential of
green bonds (Institute for Climate Economics: June 2016).

92
application: while transparency standards usually only apply for green bonds, green finance
taxonomies often apply to other financial products or actors as well. For all these reasons, this
chapter focuses on transparency standards while the next one deals with sustainable finance
taxonomies.

Distinction between environmental benefit, impact and risk. The regime defining
environmental benefit for green bond is worth analysing because it adds an additional
dimension to other sustainable finance approaches. The specificity of green bonds’ taxonomies
is that they aim at defining environmental benefits. Most (but not all) financial instruments
labelled as green are either aimed at environmental impact or at environmental risk.
“Environmental impact” approaches try to minimize negative impact and maximize positive
ones. The emphasis is put on the measurement of such consequences of the activity on the
environment. Impact is sometimes rewarded by investors with a sustainability mandate. Green
bonds and taxonomies are different insofar as there is not always the measurement of an impact.
Certain activities (such as solar panels for instance) are, in many taxonomies, qualified as
green without any impact measurement: the taxonomy merely assumes that this activity holds
environmental benefit. In this way, taxonomies are a form of environmental strategic planning
listing the activities that an institution established as environmentally beneficial. The
distinction between environmental benefit and financial risk is easy to grasp: financial risk
approaches392 aim as protecting financial actors from financial losses linked to climate change.
The financial risk approach is not about reducing the risks related to climate change (through
adaptation or mitigation for instance). It is about reducing the risks for financial actors to make
financial losses because of climate change. This approach mainly consists in requiring firms
to conduct information disclosures so that investors are informed and presumably can
withdraw their money from it before it collapses as a consequence of climate change policies
or effects. Taxonomies do not aim at protecting from any climate-related financial risks
(although they maybe protect against climate transition risks), they only show a desired list of
investments from the perspective of standard setters or financial regulators.

Structure of this chapter. After this introduction, the second section retraces the genealogy
of green finance taxonomies and their development dynamics (2). Then, this chapter analyses
the structure of green finance taxonomies (3), before turning to the requirements and
obligations attached to them (4). Finally, this chapter concludes on the strengths and limits of
taxonomies as legal instruments (6).

392
Such as the Task Force on Climate-related Financial Disclosures, Final Report: Recommendations
of the Task Force on Climate-related Financial Disclosures (2017) iii
<https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf> accessed March
14th 2022.

93
 2. GENEALOGY OF GREEN FINANCE TAXONOMIES

Outline. Inquiring into the genealogy of green finance taxonomies is necessary to understand
why green finance taxonomies became the major tool for determining green bonds’
environmental benefits. This inquiry starts from the origins of green finance taxonomies in
MDBs and international organisations (2.1) and leads to the adoption of taxonomies by the
green bond market (2.2).

2.1. ORIGINS OF GREEN FINANCE TAXONOMIES IN MDBS AND INTERNATIONAL

ORGANISATIONS

Outline. The two foundational proto green finance taxonomies are the Rio Markers, developed
by the OECD, and the Common Principles on Tracking Climate Mitigation Finance, developed
by a group of MDBs. Both were developed to assess the contribution of projects or activities
to the attainment of environmental objectives set by international environmental conventions.

Objective and methodology. This section is built on a genealogical inquiry of the green
finance taxonomies developed for the green bond market. By genealogical, it is understood
here that the precursors of each taxonomy are identified thanks to taxonomies’ preambles,
preparatory documents and the declarations of their drafters. The objective of this section is to
understand better where this concept of green finance taxonomy comes from. Indeed, it seems
important to demystify an instrument that conveys the idea that it is based on rational thinking
or even on science.393 On that point, it is interesting to note that the terminology varied a lot,
what is called now taxonomy having been named framework, catalogue, list, marker, or
nomenclature (see figure 3).

393
The first meaning given by the Oxford English Dictionary is “Classification, esp. in relation to its
general laws or principles; that department of science, or of a particular science or subject, which
consists of or relates to classification; esp. the systematic classification of living organisms.”

94
Figure 3: Family tree of green finance taxonomies

ESG classifications. Classification systems have been used for decades in the field of ESG
investing to determine the eligibility of assets and other sustainable investment products.
These systems were initially mainly “bottom-up” or private-system approaches. In these
classification systems, eligibility criteria were developed by fund managers or specialist
service providers.394

The origin of the Rio Markers. As showed on the graph, the Rio Markers can be considered
as the first known ancestors of green finance taxonomies, insofar as it was the first
transnational systematic attempt to classify activities with the aim to qualify them as
environmental finance. The OECD issued the Rio Markers as a pilot in 1998, and then as an
annex to regular reports of the Creditor Reporting System on Aid Activities run by the OECD.
The Credit Reporting System (CRS) 395 is a database on official development assistance,
official aid and other lending to developing countries and countries in transition. The Rio
markers were developed at the request of the secretariats of the Rio Conventions (Framework
Convention on Climate Change, the Convention on Biological Diversity and the Convention
to Combat Desertification, all signed in 1992). Under these three conventions, developed

394
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 9 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 1 October 2021.
395
The CRS had been established in 1967 by the World Bank and the OECD with the aim of providing
the participants with information on indebtedness and capital flows.

95
countries committed to provide finance to developed countries, in order to assist them. The
Conventions secretariats have requested the OECD to examine whether the relevant data could
be obtained through donors’ reporting to the CRS.

Rio Markers’ structure: the methodology. The Rio markers consist in some methodological
explanations and an indicative thirty-page long table396 for guidance by sector/subsector, with
examples of qualifying activities. In order to characterize Rio Markers’ methodology, the
OECD documents distinguish between purpose-based and impact-based methodologies. The
Rio Markers identify activities according to “their stated objectives and purpose and not
primarily in relation to their relevance or outcomes or possible positive side-effects.”397 This
distinction is fundamental to understand the difference between green finance taxonomies and
other sustainable finance tool based on impact or risks. From the very beginning, green finance
taxonomies identify activities according to the finalities they pursue, not their impacts or their
expose to sustainability risks.

Rio Markers’ table. The Rio Markers also contain a table for technical guidance regarding
the qualification of activities as environmental finance. The Rio Markers table displays two
key components: (1) Four general definitions of eligible activities which reflect the objectives
of the Rio Conventions regarding biodiversity, climate change mitigation and adaptation398
and efforts again desertification (2) Four sets of general criteria under each general definition.
Regarding climate change, a more detailed table is added. This climate change table is
introduced by a disclaimer: “[this table] is not an exhaustive or prescriptive list. It is meant to
facilitate the application of markers to activities in different sectors, but it is by no means
prescriptive, nor does it contain binding rules on scores to assign or not assign for each
sector”.399 The climate change table displays three more components: (1) Sector; (2) rationale
for scoring; (3) examples of qualifying activities. In practice, many developed countries use
the Rio Markers in their official communications under the UNFCCC to report the climate
finance they provide.400

MDB-IDFC’s Common Principles – preliminary remarks. The next important step is the
Common Principles. Since 1992, MDBs act as trustees for the operating entities of the

396
DAC Working Party on Development Finance Statistics, Converged Statistical Reporting Directives
for the Creditor Reporting System (CRS) and the Annual DAC Questionnaire,
DCD/DAC/STAT(2018)9/ADD2/FINAL annex 19 [It is now thirty-page long in its latest version, but
it was only three-page long in 1998].
397
Ibid 53.
398
With the caveat that adaptation is not explicitly an objective of the UNFCCC.
399
Ibid 60.
400
Development Assistance Committee, OECD DAC Rio Markers for Climate Handbook (2016) 8
<https://www.oecd.org/dac/environment-
development/Revised%20climate%20marker%20handbook_FINAL.pdf> accessed 15 March 2022.

96
UNFCCC Financial Mechanism. As such, they have been providing a significant portion of
the public climate finance. In 2011, a group of MDBs and the International Development
Finance Club (IDFC) issued, as an annex to their Common Principles for Climate Mitigation
Finance Tracking (hereafter, “Common Principles”), a list of activities eligible for
classification as climate mitigation finance. Compared to the Rio Markers, the Common
Principles represent a shift from a purposed-based classification (Rio Markers) to an activity-
based classification, as the Common Principles “focus on the type of activity to be executed,
and not on its purpose, the origin of the financial resources, or its actual results.” 401 The
Common Principles also introduce the concept of “project” – which is the concept favoured in
the GBP over the concept of “activities” 402 – in the classification, by mentioning that
“mitigation activities or projects can consist of a stand-alone project, multiple stand-alone
projects under a larger program, [etc].”403

MDB-IDFC’s Common Principles – classification characteristics, usages and posterity.

The taxonomy only covers mitigation activities and projects, organized as a table which
contains nine categories (Renewable Energy, Lower carbon and efficient energy generation,
Energy efficiency, etc) further sub-divided into 28 sub-categories. For each category, an
example of activity is provided, but no criteria are set. For instance, the three first examples
for the sub-category “electricity generation” are “wind power; geothermal power (only if net
emission reductions can be demonstrated); solar power (concentrated solar power,
photovoltaic power).”404 These Common Principles served as the ground for many taxonomies
developed by MDBs, such as the climate lending criteria by the EIB. The Common Principles
acknowledge two main limitations to its taxonomy. First, the taxonomy is “activity-based as
[it] focuses on the type of activity to be executed”405 but it does not track the actual results of
the activity. Second, the classification is not accompanied by GHG accounting reporting
because the MDBs did not agree on a joint GHG methodology. A second version of these
Common Principles for Climate Mitigation Finance Tracking has been issued in 2015, with
the first version of the Common Principles for Climate Change Adaptation Finance Tracking

401
Joint climate finance group of multilateral development banks (MDBs) and the International
Development Finance Club (IDFC), Common Principles for Climate Mitigation Finance Tracking
(version 2: 2015) 2.
402
It is difficult to tell why the GBP drafters chose “projects” rather than “activities.” Several reasons
could explain: the main environmental and social standard applicable to private finance were the
Equator Principles, which were applicable to project finance ; the GBP drafters probably considered
that it was easier to define the greenness of projects than activities ; given that bonds normally mainly
finance general corporate purposes (therefore, no identifiable projects), restricting green bond to
projects was maybe a way to be sure that mainstream bonds would never be disqualified as non-green.
403
Ibid 2.
404
Ibid 3.
405
Ibid 2.

97
was issued. A third version of the mitigation finance principle was issued in 2021,
“strengthened in the context of the Paris Agreement.”406

2.2. THE ADOPTION OF GREEN FINANCE TAXONOMIES BY THE GREEN BOND

MARKET

Outline. Classifying economic activities according to their ability to serve environmental

purposes entered the green bond market thanks to an NGO and important standard setter, the
CBI. CBI’s taxonomy had considerable impacts for the regulation of the market (2.2.1) and
many important financial actors announced further taxonomy developments (2.2.2). The
development of taxonomies may be eased by the lack of successful alternative solutions (2.2.3).

2.2.1. THE EFFECT OF THE CLIMATE BONDS TAXONOMY

Outline. The Climate Bonds taxonomy was the first instrument useable by the private sector
to define activities aligned with public climate change objectives. It inspired the Chinese Green
Bond Catalogue, which in turn spurred the development of the EU sustainable finance
taxonomy.

The Climate Bonds taxonomy. The Climate Bonds Taxonomy was published in 2013 by the
Climate Bonds Initiative (CBI), an NGO focused on the development of green and climate
bonds already presented in the Chapter II. This taxonomy 407 aims at defining activities
consistent with the 2° C objective of the Cancun Agreement, later integrated in and modified
(well-below 2°C and if possible 1,5°C) by the Paris Agreement. Compared to the 2011 version
of the MDB-IDFC Common Principles, CBI’s taxonomy added additional precision. In
addition to defining categories of green/climate mitigation-oriented activities, CBI’s
taxonomy introduced qualitative and quantitative criteria applicable to some of the activities.
For instance, in the 2021 Climate Bonds Taxonomy, geothermal electricity generation
facilities (economic activity) shall have direct emissions of less than 100gCO2/kWha
(criterion).408 As another example, the construction of a hydroelectric power plant 409 could
qualify as “climate” provided that an environmental and social risks assessment is performed
and that the power density is superior to 5W/m2 or that the GHG emissions of electricity

406
Joint climate finance group of multilateral development banks (MDBs) and the International
Development Finance Club (IDFC), Common Principles for Climate Mitigation Finance Tracking
(version 3: 2021)
<https://www.eib.org/attachments/documents/mdb_idfc_mitigation_common_principles_en.pdf>
accessed 15 March 2022.
407
Climate Bonds Initiative, Climate Bonds Taxonomy, (2021)
<https://www.climatebonds.net/files/files/CBI_Taxonomy_Jan2021.pdf > accessed 15 March 2022.
408
Ibid 2.
409
Also mentioned in the Common Principles 2011, but without any quantitative threshold.

98
generated are inferior to 100gCO2e/kWh (calculated over a 100 year life-time of the
infrastructure). 410 The CBI introduced this taxonomy in the bond market by offering
certification of bonds on the basis of such taxonomy. This certification was accompanied by
an efficient communication organized by CBI’s CEO, Sean Kidney, who talks for instance of
CBI’s taxonomy as “the shopping list of the Paris Agreement,” 411 i.e. a simple way to
understand where to invest in order to help state to achieve their climate objectives. CBI’s
taxonomy gained further recognition by setting the criteria according to procedures inspired
by international standardisation organisations.412

From CBI’s taxonomy to the People’s bank of China’s Green Bond Catalogue. According
to Sean Kidney, 413 the taxonomy of China’s central bank was designed on the basis of a
proposal made the CBI to Chinese officials – a claim supported by the reference of CBI’s
taxonomy in the preamble of the green bond catalogue. 414 The PBOC was the first public
authority in the world to establish a green finance taxonomy in 2015. This Green Bond
Catalogue (the Catalogue) is around thirty page-long and expands and sophisticates CBI’s
taxonomy. The Catalogue proceeds in exactly in the same way as CBI’s taxonomy: categories
and sub-categories of economic activities are associated with criteria, often including
quantitative thresholds, conditioning the “green” qualification. This Chinese taxonomy, and
its successive expansions or updates in 2021,415 served as the basis for the important green
bond market.416 However, the inclusion – at least in the original 2015 version – of certain

410
Ibid 4. The CBI provides precision regarding this criteria in a sector criteria document. Hydropower
Criteria Climate Bonds Initiative, The Hydropower Criteria for the Climate Bonds Standard &
Certification Scheme (March 2021) <https://www.climatebonds.net/files/files/Hydropower-Criteria-
doc-March-2021-release3.pdf> accessed 19 July 2022.
411
National University of Singapore, CIL COP 26 SPECIAL! A Conversation with Sean Kidney, CEO,
Climate Bonds Initiative (2021) <https://www.youtube.com/watch?v=pne1Tq2CJcU> accessed 15
March 2022.
412
Climate Bonds Initiative, Standards: Sector Criteria (2021)
<https://www.climatebonds.net/standard/sector-criteria> [CBI’s Criteria Development Process follow
the ISEAL code of good practice. ISEAL works in cooperation with ISO to set a code of good practice
for standardization].
413
Personal communication to the author, summer 2019.
414
People’s Bank of China, Preparation Instructions on Green Bond Endorsed Project Catalogue (2015
Edition) 2.
415
People’s Bank of China, National Development and Reform Commission and China Securities
Regulatory Commission, Catalogue of Green Bond Supported Projects (2021 Edition) (2021) [中国人
民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知], 银发
〔2021〕96 号].
416
Climate Bonds Initiative, China green bond market report 2020 (2021)
<https://www.climatebonds.net/files/reports/cbi_china_sotm_2021_06d.pdf> accessed 15 March 2022.

99
activities (such as “clean coal” 417 and other fossil fuel activities) triggered international
critiques.418

From PBOC’s Catalogue to EU’s taxonomy. Possibly as an effort to compete with China
for the definition of green financial standards, the EU started in 2016 to develop its own
taxonomy. The Commission appointed two successive groups, the High-Level Expert Group
on sustainable finance (HLEG)419 (2016-2018), followed by the Technical Expert Group on
sustainable finance (TEG) (2018-2020) to advise and then assist the Commission as regards
sustainable finance. Both groups were composed of respectively 20 and 35 members “from
civil society, the finance sector, academia and observers from European and international
institutions,”420 many of which were professionals of the green bond market and even members
of the CBI (including its CEO, Sean Kidney, member of both the HLEG and the TEG). The
HLEG informed the 2018 action plan of the Commission on sustainable finance, while the
TEG designed drafts of different legislative pieces, such as the EU taxonomy.421 As shown in
the figure below, the 2018 action plan of the Commission grants a central place to the
taxonomy. The draft taxonomy published by the TEG was integrated into an EU Regulation
in 2020 422 and is progressively completed by delegated acts establishing the technical
criteria.423 This EU taxonomy represent a jump in complexity (further explored in following
sections), spanning for instance over already several hundred page-long and certainly much
more when completed.

417
A more efficient way to burn coal.
418
For instance, Shuang Liu, ‘Will China Finally Block “Clean Coal” from Green Bonds Market?’
(2020) World Resource Institute <https://www.wri.org/insights/will-china-finally-block-clean-coal-
green-bonds-market> accessed 15 March 2022.
419
European Commission, High-Level Expert Group on sustainable finance (HLEG)
<https://ec.europa.eu/info/publications/sustainable-finance-high-level-expert-group_en> accessed 15
March 2022.
420
European Commission, Technical expert group on sustainable finance (TEG)
<https://ec.europa.eu/info/publications/sustainable-finance-technical-expert-group_en> accessed 15
March 2022.
421
EU Technical Expert Group on Sustainable Finance, Taxonomy Report, March 2020
<https://ec.europa.eu/info/files/200309-sustainable-finance-teg-final-report-taxonomy_en> accessed
15 March 2022.
EU Technical Expert Group on Sustainable Finance, Taxonomy Report: Technical Annex, March 2020
<https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2
00309-sustainable-finance-teg-final-report-taxonomy-annexes_en.pdf> accessed 15 March 2022.
422
European Commission, EU taxonomy for sustainable activities <https://ec.europa.eu/info/business-
economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-
activities_en#preparatory> accessed 15 March 2022.
423
Commission, ‘Commission Delegated Regulation (EU) supplementing Regulation (EU) 2020/852
of the European Parliament and of the Council by establishing the technical screening criteria for
determining the conditions under which an economic activity qualifies as contributing substantially to
climate change mitigation or climate change adaptation and for determining whether that economic
activity causes no significant harm to any of the other environmental objectives’ COM (2021) 2800
final.

100
Figure 4: Centrality of the taxonomy in the EU sustainable finance plan. According to the
Action Plan from the Commission (March 2018), the EU taxonomy is meant to occupy a
central place in EU’s financial regulatory architecture. Source: Commission, ‘Action Plan:
Financing Sustainable Growth’ (2018)

2.2.2. FURTHER TAXONOMY DEVELOPMENTS

Outline. Since the EU chose to develop a sustainable finance taxonomy, a relentless flow of
taxonomy-related policy papers appeared. Following these policy papers, new actors are
starting to develop taxonomies with new degrees of ambition.

Expansion of policy design on taxonomies. Many organisations engaged with the taxonomy
field in recent years. The World Bank published in 2020 a guide called Developing a National
Green Taxonomy which includes “recommendations for the drafting of national green
taxonomies, as well as a comparison of several existing taxonomies, in an attempt to support
countries in their efforts to clarify to market participants the types of activities that are deemed
environmentally sustainable.” 424 This guide is based on the World Bank’s experience in
supporting taxonomies development in several countries, such as Colombia, Malaysia,
Mongolia, and South Africa. In the same objective of fostering taxonomy development, the
International Platform on Sustainable Finance (IPSF) and the United Nations Department of

424
World Bank, Developing a national green taxonomy (2020) 7
<https://documents1.worldbank.org/curated/en/953011593410423487/pdf/Developing-a-National-
Green-Taxonomy-A-World-Bank-Guide.pdf> accessed 15 March 2022.

101
Economic and Social Affairs issued on the request of the G20 Sustainable Finance Working
Group a paper setting out the “high level principles for jurisdictions and markets” applicable
to taxonomy development.425 In addition to building the knowledge necessary to develop new
taxonomies, some organisations published comparisons of taxonomies in order to reach
harmonized taxonomies. The first one of this kind was the white paper “The need for a
common language in Green Finance” published by the European Investment Bank and the
Green Finance Committee of China Society for Finance and Banking in 2017.426 In 2021, the
IPSF Taxonomy Working Group co-chaired by the EU and China published the Common
Ground Taxonomy – Climate Change Mitigation Instruction report. 427 Such “in-depth
comparison exercise that puts forward areas of commonality and differences between the EU
and China’s green taxonomies” is intended to be used “to improve the comparability and future
interoperability of taxonomies around the world,”428 with the final aim to unify green capital
markets in order to increase the amounts of finance mobilized for environmental aims.

New actors investing in setting up taxonomies. The first taxonomies have been developed
by international organisations (the OECD and EU), a group of multilateral development banks,
a private standard involved on the bond market (CBI) and a state (China). New actors
developed, are in the process of developing (in 2021-2022), or announced their intention to
develop taxonomies. Among states, Bangladesh, Chile, Columbia, Georgia, Japan,
Kazakhstan, Korea, India, Indonesia, Malaysia, Mongolia, New-Zeland, Philippines, Russia,
South-Africa, Sri Lanka, Thailand and Vietnam published taxonomies, draft of taxonomies or
taxonomies roadmaps.429 National taxonomies enable the development of taxonomies adapted
to local stakes. For instance, Colombia’s Taxonomía Verde “is the first national green
taxonomy to incorporate land use, with 59 percent of the GHG emissions in the country

425
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
426
European Investment Bank and the Green Finance Committee China Society for Finance and
Banking, The need for a common language in Green Finance: Towards a standard-neutral taxonomy
for the environmental use of proceeds (2017).
427
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021).
428
Ibid 6.
429
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021); Garnick Gondjian, Cédric Merle, Sustainable Taxonomy development
worldwide: a standard-setting race between competing jurisdictions (2021)
<https://gsh.cib.natixis.com/our-center-of-expertise/articles/sustainable-taxonomy-development-
worldwide-a-standard-setting-race-between-competing-jurisdictions> accessed 15 March 2022.

102
coming from [land use choices].”430 Among international organisations, the ISO started to
develop a taxonomy for its green debt instruments standard.431 The ASEAN is also developing
its own taxonomy, in collaboration with Singapore.432 The G20 published a Roadmap of the
G20 Sustainable Finance Working Group which includes the objective of taxonomy
comparability and interoperability across jurisdictions.433 Although state or inter-state actors
seem to overcome the formerly dominating private actors, some private groups are still
working on new green finance taxonomies, such as in Canada or in Australia.434 As the joint
complaint from five former Japanese prime ministers regarding the EU taxonomy, 435 as well
as diverse recriminations from other interest groups 436 show, taxonomy-making is an
important power stake. Defining which economic activities are considered as “green,” and
consequently worthy of support, is a matter of strategical importance for public and private
powers alike, who try to add their own industries or products in the list. Therefore, being in
a position of impose one’s own taxonomy is fiercely looked after by many entities.

The emergence of taxonomies with new degrees of ambitions. The first taxonomies had the
tendency to be focused on climate mitigation. However, many entities are now developing
taxonomies covering other environmental issues, such as the EU, whose taxonomy cover five
other environmental objectives beyond climate mitigation (such as biodiversity conservation,
waste disposal, etc). The EU Sustainable Finance Platform published a Social Taxonomy draft
which has been drafted upon the EU Commission’s request.437 The EU sustainable platform
(or other EU actors) also released a consultation for considering extending EU’s taxonomy to
significantly harmful activities and non-significant impact activities.438 In addition, the UNPD

430
Laetitia Braga, ‘Colombia is leading the path for Green Finance in Latin America’(2021) Climate
Bonds Initiative <https://www.climatebonds.net/2021/10/colombia-leading-path-green-finance-latin-
america> accessed 17 June 2022.
431
ISO, Standard 14030-3 Environmental performance evaluation — Green debt instruments — Part
3: Taxonomy (2022) <https://www.iso.org/standard/75559.html> accessed 28 July 2022.
432
Green Finance Industry Taskforce, Identifying a Green Taxonomy and Relevant Standards for
Singapore and ASEAN (2021) <https://abs.org.sg/docs/library/gfit-taxonomy-consultation-paper>
accessed 15 March 2021
433
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
434
Ibid 16, 48.
435
Giorgio Mancuso, ‘Open letter from five former Prime Ministers of Japan to the EU on nuclear
power’ Pressenza (2022) <https://www.pressenza.com/2022/02/open-letter-from-five-former-prime-
ministers-of-japan-to-the-eu-on-nuclear-power/> accessed 15 March 2022.
436
Vanessa Havard-Williams, Ruth Knox and Raza Naeem, ‘EU Taxonomy Regulation: delay to
technical screening criteria’ Linklaters (2021) [“the Commission has received over 46,000 replies to its
consultation on the delegated act”].
437
EU Platform on Sustainable Finance, Final Report on Social Taxonomy
Platform on Sustainable Finance (February 2022)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/280222-sustainable-finance-platform-finance-report-social-taxonomy.pdf> accessed 15 March 2022.
438
EU Platform on Sustainable Finance, Public Consultation Report on Taxonomy extension options

103
and China International Center for Economic and Technical Exchange released in June 2020
an SDG Taxonomy. In Japan, Canada and Australia, private interest groups are designing
“transition” activities taxonomies, putting the emphasis on “not-yet-green” economic
activities.439

2.2.3. THE MARGINALISATION OF ALTERNATIVE SOLUTIONS TO TAXONOMIES

Outline. The concept of taxonomy may have had such a success in part due to the lack of
success of alternative methods for qualifying sustainable finance. In this section, three broad
possibilities are briefly discussed: the granting of the green qualification by an authority,
information obligation and impact-based methods. This discussion outlines some of the
weaknesses of these alternatives that may have played a role in their marginalisation.

The granting of the green qualification by an authority. Two systems of green or

sustainable finance can be identified as functioning in full or in part on this basis: the early US
green bond system (as presented in Chapter 2), and the environmental finance allocated
through the operating mechanisms of the Rio Convention, such as the Global Environment
Facility (GEF) and the Green Climate Fund (GCF). As regards the US system, the Better
America Bonds provide a good example. In this scheme, “state, local and tribal governments”
were incentivized – through tax-cuts for investors – to issue bonds dedicated to “preserve open
space, protect water quality, and clean up brownfields.”440 In particular, the proceeds of these
tax-incentivized bonds were due to be allocated to project improving the local environmental
of disfavoured communities. The projects financed had to be accepted by the Environmental
Protection Agency (EPA) on the basis of principled criteria.441 This solution had the advantage
of reducing the need for complex classification system, but gave an important discretion to the
EPA and engendered an important administrative burden for the project initiators and the EPA.
In a relatively similar fashion, under the financial mechanisms of Rio Conventions (including,
indirectly, as financial mechanisms of the Paris Agreement), the boards of the operating

linked to environmental objectives (July 2021)

<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/sustainable-finance-platform-report-taxonomy-extension-july2021_en.pdf> accessed 15 March 2022.
439
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021); Garnick Gondjian, Cédric Merle, Sustainable Taxonomy development
worldwide: a standard-setting race between competing jurisdictions (2021)
<https://gsh.cib.natixis.com/our-center-of-expertise/articles/sustainable-taxonomy-development-
worldwide-a-standard-setting-race-between-competing-jurisdictions> accessed 15 March 2022.
440
Council on Environmental Quality, Livable Communities Better America Bonds (1999)
<https://clintonwhitehouse4.archives.gov/CEQ/better_bonds.html> accessed 15 March 2022.
441
Robert A Fisher, 'Better America Bonds: Better Is in the Eye of the Beholder' (2000) 25 William &
Mary Environmental Law & Policy Rev 23.

104
instruments such as the GEF and the GCF are given an important role in validating the projects
financed.442 The projects have to respect a set of detailed rules, but in last instance, political
considerations such as an equilibrium between countries of projects play an important role in
the final decisions of the boards. These boards are also criticized for their bureaucratized
processes and the time an application takes to be processed. 443 As a result, supporters of
sustainable finance did not consider such an example has a model to replicate. We cannot use
GEF and CCF’s shortfalls to draw general lesson on benefits or drawbacks in general of the
granting of green qualification by an administrative authority,444 but this a fact that GEF and
CCF’s examples did not constitute an advocacy in favour of a green labelling scheme run by
an international administrative body.

Information obligation for defining green. In the absence of an authority – which

corresponds to the situation of international capital markets, which do not have a single global
authority to regulate them – an alternative for deciding what is green is to resort to procedures
that enable a multiplicity of small authorities – on the financial markets, investors – to decide.
These procedures are in essence what will be presented in the next chapter. Green bond
standards, as other green finance products such as green funds, aimed at defining “green”
thanks to the disclosure of information that would enable investors to choose, and by these
choices, to eliminate from the market the inadequate products. To some extent, this procedural
system based on the disclosure of information is similar to many obligations in EU consumer
or data protection law which consist in informing the consumer about the characteristics of the
product. The problem with such approaches is the limited rationality of consumers445 and the
asymmetry of power between them and the entities selling the products. In green finance, an
additional hindrance is the fact that the interest purportedly protected is the environment and
not directly the interest of the investors, who therefore have little incentive to grant
consideration to the information presented to them. Consequently, this way of regulating green
finance has been perceived as prone to green-washing.446

Impact-based methods. A last group of methods consist in impact-based method, tailored to

the situation of each project. This method accepts any green project as long as they represent
a progress compared to the initial situation of the entities. It often consists of drawing a

442
Laurence Boisson de Chazournes, ‘Is There Room for Coherence in Climate Financial Assistance?’
(2015) 4 Laws 541–558.
443
Ibid.
444
For many international organisations share GEF and CCF’s bureaucratic issues, including the fact of
being under the control of states interested in hindering the functioning of these very institutions.
445
Even institutional investors, despite their vast resources, are often limited in their rationality by the
mandates they received to maximize the short-term financial (and exclusively financial) value of their
investments.
446
Alain Grandjean, Julien Lefournier and Gaël Giraud, L’illusion de la finance verte (Editions de
l’Atelier 2021).

105
comparison between a Business-as-usual scenario and a scenario with the green financing.
Taxonomies differ from such impact-only method insofar as taxonomies are lists of activities
chosen by a central authority to be considered as green (sometimes because of their low
environmental impact, sometimes for other reasons such as their socially desirable nature).
The problem of impact-only methods, implemented in the Clean Development Mechanism for
instance, is their complexity and the existence of loopholes that hamper their ability to achieve
genuine environmental outcomes. 447 The impact can also be rewarded or penalised by the
investors themselves, but such arrangements often lead to perverse incentives where the
investor financially benefits from the non-reaching of environmental objectives. In addition,
impact-based systems are either narrow-impact focused (for instance, scope 1) or
comprehensive-impact oriented (Scope 2, scope 3), but in this case, there is a danger to be
taken in an infinite regression, where positive and negative impacts can be endlessly assessed.
Comprehensive-impact systems can be very heavy to carry out. The weighing of positive and
negative impact is also an eminently political task, since this is about deliberating about the
common good. As a whole, systems based on the only realisation of a certain impacts lost
some of their appeal in recent years.

3. STRUCTURE OF GREEN FINANCE TAXONOMIES

Outline. This section analyses the structure of green finance taxonomies, by identifying their
structural elements. Green finance taxonomies establish certain principles and objectives that
give unity to the classification (3.1). They set categories delineating the human activities that
are assessed in the classification (3.2). Most of taxonomies set criteria applicable to the
categories of activities (3.3). Finally, the taxonomies impose safeguards, or minimum levels
of social and environmental performance that must be met (3.4). Given that most green finance
taxonomies currently take model either on the Chinese or EU taxonomies, this section focuses
on these two taxonomies.

3.1. PRINCIPLES AND OBJECTIVES

Outline. Green finance taxonomies often establish certain normative elements that have an
over-riding normative value over the rest of the taxonomy. These elements consist mainly in
objectives and principles. The principles are composed of science-based principles, market-
based ones, as well as emerging principles of taxonomy harmonisation and inter-operability.

Objectives. As explained in the previous section regarding the development of taxonomies,

most of these classifications are based on the ability of certain activities to contribute to a given

447
Benoît Mayer, The international law on climate change (Cambridge University Press 2018) 140-3.

106
objective. In the EU Taxonomy Regulation, these objectives are climate change mitigation,
climate change adaptation, sustainable use and protection of water and marine resources,
transition to a circular economy, pollution prevention and control, protection and restoration
of biodiversity and ecosystems.448 The climate change mitigation objective in the taxonomy is
directly modelled on the objective of treaties on climate change. The EU taxonomy regulation
directly quotes the UNFCCC and refers to the Paris Agreement:

“An economic activity shall qualify as contributing substantially to climate change mitigation
where that activity contributes substantially to the stabilisation of greenhouse gas
concentrations in the atmosphere at a level which prevents dangerous anthropogenic
interference with the climate system [emphasis added – Article 2 of the UNFCCC] consistent
with the long-term temperature goal of the Paris Agreement through the avoidance or
reduction of greenhouse gas emissions or the increase of greenhouse gas removals.”449

The notion of “substantial contribution” is detailed by criteria analysed in the section 3.3 of
this chapter. This Article 10 of the EU Taxonomy Regulation shows the importance of the
reference to the international law on climate change in the EU taxonomy. This importance is
a common feature to many taxonomies, such as the Rio Markers, or CBI’s taxonomy. But the
Chinese taxonomy makes the choice to define the objectives according to its own national
priorities. In the 2021 version of the Green Catalogue (the taxonomy first issued in 2015 by
China’s central bank), there are six overarching categories of environmental economic
activities, 450 that are interpreted by the IPSF as pursuing three environmental objectives:
“environmental improvement, climate change response and more efficient resource
utilization.” 451 The MDB’s Common Principles taxonomy recognizes that there might be
tensions between taxonomies directly based on international law objectives and national
strategies, noting that activities qualified in the Common Principles “does not automatically
imply that the activity is aligned with the countries’ low-carbon, climate-resilient development
pathways.”452

448
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13.
449
Ibid Article 10 (definition of activities permitting a “Substantial contribution to climate change
mitigation”).
450
People’s Bank of China, National Development and Reform Commission and China Securities
Regulatory Commission, Catalogue of Green Bond Supported Projects (2021 Edition) (2021) [中国人
民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知], 银发
〔2021〕96 号].
451
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021) 15.
452
International Development Finance Club et al, Common Principles for Climate Mitigation Finance
Tracking (Version 3 – 18 October 2021) [“For example, a hydropower project (that complies with the

107
Science-based principles. Since CBI popularized the concept of taxonomy in climate finance,
the advocacy of taxonomies took a markedly scientistic tone. CBI’s communication in favour
of its taxonomy relied heavily on the idea that it is based on climate science. For instance, the
reference to climate change science takes the form of frequent referencing of the IPCC reports,
or other scientific publications on GHG emissions and their effect on ecosystems and human
societies. In addition, CBI’s taxonomy is meant to be based on the technical expertise of
industry specialists.453 Hence, this principle according to which taxonomies should be based
on science encompasses two main aspects: the grounding of these taxonomies in the science
of climate change and the reference in these taxonomies to technical expertise in the diverse
economic sectors surveyed (for instance: energy production, or steel production). These two
aspects are present as well in the EU taxonomy regulation, which states (requirements for
technical screening criteria) that the technical screening criteria of the taxonomy shall “be
based on conclusive scientific evidence and the precautionary principle enshrined in Article
191 Treaty on the Functioning of the EU.”454 Furthering this science-based principle, the EU
taxonomy regulation states that the technical criteria shall be “be quantitative and contain
thresholds to the extent possible, and otherwise be qualitative”455 and that “the Commission
shall regularly review the technical screening criteria […] in line with scientific and
technological developments.” 456 The Chinese taxonomies do not explicitly formulate such
grounding in science and technology, but there is no hint that they fundamentally depart from
such principle. On the contrary, emerging principles of taxonomy harmonisation and inter-
operability – further explained in below – between taxonomies mention that taxonomies
should be science-based, i.e. that taxonomies “should be objective in nature, supported by
clearly defined and disclosed metrics and thresholds that align with the best available
science.”457

Market-based principles. Taxonomies that result from non-state standardization processes,

such as the ISO and the CBI’s, are very clear in the fact that they take into account market
practices. The EU Taxonomy Regulation also indicates in its Article 19 that the technical

climate change mitigation eligibility criteria) may be inconsistent with a country’s resilient development
pathway if such investment increases the probability of electricity shortages as a result of falling rainfall
in the coming years”].
453
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished).
454
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Article 19.
455
Ibid.
456
Ibid.
457
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021) 33.

108
criteria “take into account the potential market impact of the transition to a more sustainable
economy.” 458 The regulation adds that the criteria “cover all relevant economic activities
within a specific sector and ensure that those activities are treated equally if they contribute
equally towards the environmental objectives set out in Article 9 of this Regulation, to avoid
distorting competition in the market.”459 This care for the market was also formalised in EU
Taxonomy Regulation under the technology neutrality principle, according to which criteria
shall “identify the most relevant potential contributions to the given environmental objective
while respecting the principle of technological neutrality, considering both the short and long-
term impact of a given economic activity.”460 The Chinese taxonomies do not include any
consideration for the market impacts or practices.

Emerging principles of taxonomy harmonisation and inter-operability. A certain number

of high-level documents are formulating principles designed to enable the harmonisation and
inter-operability of different taxonomies. In particular, the UNDESA document lists seven
principles that all taxonomies should respect:461 positive contribution to support SDGs, the
respect of the do no significant harm principle (activities identified do no significant harm to
any of the SDGs), be science-based, be dynamic (“taxonomies need to be regularly reviewed
and updated to reflect the market change and development of green and sustainable
technologies”),462 be transparent and verified and a last principle of comprehensive impact
assessment (according to which taxonomies “should consider the entire impact of an investee
entity’s activities, both from its operational activities and from the value chain and usage of
its products and services”).463

Principles-based taxonomies. While the objectives and principles mentioned above normally
serve as the foundation of the rest of the taxonomy (the categories, criteria and safeguards),
some green finance taxonomies consist only in principles. This is the case of the Malaysian
and Japanese taxonomies. As noted above, the third approach is a “principles-based approach”
to taxonomies exemplified by Malaysia and Japan. For instance, the Climate Change and
Principle-based Taxonomy released by Bank Negara Malaysia “provides a set of principles to

458
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Article 19.
459
Ibid.
460
Ibid.
461
These seven principles are also reproduced in the following document: International Platform on
Sustainable Finance, Common Ground Taxonomy – Climate Change Mitigation Instruction report
(2021).
462
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 35 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
463
Ibid 35.

109
assess and categorize economic activities based on the extent to which they meet climate
objectives and promote the transition to a low-carbon economy. It then includes a non-
exhaustive list of examples of the types of investments that meet the overarching principle.”464

3.2. CATEGORIES OF ACTIVITIES

Outline. Taxonomies delineates human activities in order to qualify them or not as green.
Elements in the normative construction of the categories can be either based on environmental
objectives or on normative classifications of the whole economy. Most categories in
taxonomies combine the two approaches.

Categories based on environmental objectives. Most green finance taxonomies started by

being restricted to categories of economic activities that were identified because they directly
pursued an environmental objective. This is the case, for instance, of the Green Catalogue.
Categories in the green catalogue are based on six main environmental categories built on their
contribution to the three main objectives identified in section 3.1: energy saving and
environmental protection industry; clean production industry; clean energy industry; ecology
and environment-related sector; sustainable upgrade of infrastructure; green services.465 This
mode of category construction is very close to CBI’s climate taxonomy, where the main
categories were first the most indisputable activities aligned with climate objectives, such as
solar or wind generated electricity, before extending towards more questionable activities
(such as hydropower or coal or oil with carbon capture & storage) and creating more
sophisticated criteria for handling these categories. In general, taxonomies using categories
based on environmental objectives only require light technical criteria for qualifying the
activity as green, since the category itself is already essentially green. On the contrary,
taxonomies using categories following whole-economy classification need sophisticated
technical criteria in order to qualify as green categories of activities that are not already
presumed to be green. Environmentally-based categories therefore have the advantage to
enable the use of presumptions.

Categories based on whole-economy classifications. Taxonomies developed thanks to

important administrative resources sometimes take an ambitious approach that aims at creating
categories corresponding to a comprehensive set of human or economic activities. Examples
of such approach for categories building are provided by the Rio Markers and the EU

Ibid 11-12.
464

People’s Bank of China, National Development and Reform Commission and China Securities
465

Regulatory Commission, Catalogue of Green Bond Supported Projects (2021 Edition) (2021) [中国人
民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知], 银发
〔2021〕96 号].

110
taxonomy regulation. The Rio Markers were based on categories of activities financed by
official development aid. Therefore, these activities are not exclusively economic but also
include activities such as education, or government reinforcement of capacities. Unlike the
Rio Markers, the EU taxonomy is based on a classification of exclusively economic activities,
the NACE (Nomenclature des activités économiques de la Communauté Européenne). 466
NACE designates “the various statistical classifications of economic activities developed since
1970 in the European Union (EU).” 467 This classification enables the collection and
presentation of a large range of statistical data relating to different economic fields. Because
the use of this common framework is mandatory within the European statistical system,
statistics produced under NACE are comparable at European and, often, at world level.468
However, nowhere does the taxonomy regulation mandates the use of the NACE system, but
the Commission acknowledges the use of this framework in the methodological explanations
of the impact assessment of the delegated acts.469 In the delegated acts relating to climate
change, the Commission does not use the entirety of the NACE categories, but focuses on the
NACE activities that have the highest CO2 impact.470 It seems that this use of whole-economy
categories is bound to expand, as the Common Ground taxonomy designed by the IPSF use an
international equivalent to NACE, the UN International Standard Industrial Classification of
All Economic Activities.471 This classification is used in Singapore while equivalents (such as
the NACE) deriving from it are used in the EU and countries such as Vietnam or South Africa.
The China Taxonomy uses its own classification system which is largely based on the
Industrial Classification for National Economic Activities of China.472

Transversal categories: enabling and transitional activities. Some categories are neither
based on a specific environmental objective, nor on a classic whole-economy classification.
Enabling and transitional activities were introduced in the EU Taxonomy Regulation as

466
The official acronym is in French. It translates as “Statistical Classification of Economic Activities
in the European Community.”
467
Eurostat, NACE Background <https://ec.europa.eu/eurostat/statistics-
explained/index.php?title=NACE_background> accessed 15 March 2022.
468
Ibid.
469
European Commission, Commission Staff Working Document: Impact Assessment Report.
Accompanying the document : Commission Delegated Regulation (EU) (draft) supplementing
Regulation (EU) 2020/852 of the European Parliament and of the Council SWD(2021) 152 final 26.
470
European Commission, Commission delegated regulation (draft) amending Delegated Regulation
(EU) 2021/2139 as regards economic activities in certain energy sectors and Delegated Regulation (EU)
2021/2178 as regards specific public disclosures for those economic activities C(2022) 631 / 3, 8
<https://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2022-
631_en.pdf> accessed 15 March 2022.
471
United Nations, Economic Statistics: Introduction to ISICS
<https://unstats.un.org/unsd/classifications/Econ/isic> accessed 15 March 2022.
472
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 11 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.

111
activities that describe a mode of contribution to achieving certain environmental objectives.
Enabling activities are defined by Article 16 as economic activities that “directly enabling
other activities to make a substantial contribution to one or more of those objectives, provided
that such economic activity: (a) does not lead to a lock-in of assets that undermine long-term
environmental goals […] ; and (b) has a substantial positive environmental impact […].”473
Transition activities are restricted to the field of climate change mitigation. They are defined
by Article 10 (2) as economic activities :

“for which there is no technologically and economically feasible low-carbon alternative” and
that appear to support “the transition to a climate-neutral economy consistent with a pathway
to limit the temperature increase to 1,5 0 C above preindustrial levels, [..] and where that
activity: (a) has greenhouse gas emission levels that correspond to the best performance in the
sector or industry; (b) does not hamper the development and deployment of low-carbon
alternatives; and (c) does not lead to a lock-in of carbon-intensive assets […].”

A sign of their success, these categories were included in the 2021 version of the MDB-IDFC
Common Principles,474 and the ICMA and CBI both drafted policy papers relating to transition
finance.475

Further developments: “red”, “amber” and “white” activities. In a March 2022 report, the
Platform on Sustainable finance set by the European Commission proposed to add three
categories to the existing green category. The red category would gather activities with
“unsustainable, significantly harmful performance where urgent, managed
exit/decommissioning is required” and “unsustainable performance requiring an urgent
transition to avoid significant harm.”476 “Amber” activities would be “activities that operate
between significantly harmful and substantial contribution performance levels and could

473
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Article 16.
474
Joint climate finance group of multilateral development banks (MDBs) and the International
Development Finance Club (IDFC), Common Principles for Climate Mitigation Finance Tracking
(version 3: 2021)
<https://www.eib.org/attachments/documents/mdb_idfc_mitigation_common_principles_en.pdf>
accessed 15 March 2022.
475
Climate Bonds Initiative, Financing credible transition: How to ensure transition label has impact?
(2020) <https://www.climatebonds.net/files/reports/cbi_fincredtransitions_final.pdf> accessed 15
March 2022
; International Capital Market Association (ICMA), Climate Transition Finance Handbook Guidance
for Issuers (2020) <https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Climate-
Transition-Finance-Handbook-December-2020-091220.pdf> accessed 15 March 2022.
476
EU Platform on Sustainable Finance, The Extended Environmental Taxonomy: Final Report on
Taxonomy extension options supporting a sustainable transition (March 2022) 7-8
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/220329-sustainable-finance-platform-finance-report-environmental-transition-taxonomy_en.pdf>
accessed 17 June 2022.

112
qualify for Taxonomy-recognised investment as part of an intermediate/amber transition plan.”
“White” activities would finally be “low environmental impact activities: […] activities that
do not have a significant environmental impact and should not be regarded as either red, amber
or green.”477

3.3. GREEN CRITERIA

Outline. Criteria bring sharper edges to green categories, by setting quantified and detailed
requirements for the activity to be qualified as “green”. Among taxonomies, one can
distinguish between simple criteria and more complex ones. Criteria also have various level
of environmental ambition.

Simple criteria: CBI’s and PBoC’s taxonomies. CBI’s taxonomy gave the model for simple
criteria. The CBI attributed to some of the categories of activities listed in its taxonomy a
simple criterion to respect in order to be qualified as climate-compliant. For instance,
geothermal electricity generation installation shall have “direct emissions [of] less than
100gCO2/kWh.”478 These criteria have ambiguous benefits. On the one hand, the criteria are
often simplistic, selecting only one of the many dimensions regulated by existing
environmental and social laws. On the other hand, CBI taxonomy’s criteria are often more
ambitious than existing environmental and social laws. They draw on laws enacted in
developed countries, 479 or on objectives enshrined in international law 480 . The Green
Catalogue is similar to CBI’s taxonomy, the main difference being that its criteria are more
sophisticated. The Chinese Green Catalogue’s criteria are often based by reference to Chinese
standards and are often pluri-dimensional, with two or three quantitative indicators for each

477
Ibid.
478
Climate Bonds Initiative, Climate Bonds Taxonomy, (2021) 2
<https://www.climatebonds.net/files/files/CBI_Taxonomy_Jan2021.pdf > accessed 15 March 2022.
479
Oliver Padraig, ‘Solar Energy and the Climate Bond Standard – Background Paper to eligibility
criteria: Solar
Technical Working Group,’ (2013) Climate Bonds Initiative
<www.climatebonds.net/files/files/standards/Solar/Solar%20Criteria%20Background%20Paper.pdf>
accessed 5
June 2021 [For instance, Climate Bonds Initiative’s expert group for its ‘solar criteria’ referred to the
feed-in
tariff legislation developed in Spain].
480
For instance, the 2°C temperature objective, often referenced among sustainable finance taxonomies
and
originating from the international law on climate change.

113
sub-activity. Criteria are expressed as a quantified threshold, 481 a reference to a technical
standard482 or a simple descriptive statement483 or combinations of the three.

Complex criteria: EU’s sustainable finance taxonomy. EU’s taxonomy represents a jump
in complexity compared to CBI and PBoC’s criteria. The Taxonomy Regulation of 2020
mandates the Commission to develop “technical screening criteria” in order to detail, for each
specific economic activity, what it means to substantially contribute to any the six
environmental objectives listed by the regulation. In addition, the Regulation mandates the
Commission to establish “for each relevant environmental objective, technical screening
criteria for determining whether an economic activity in respect of which technical screening
criteria [detailing substantial contribution] have been established […] causes significant harm
to one or more of those objectives.”484 In the regulation, the six articles defining “substantial
contribution” to environmental objectives provide some list of means according to which
activities can contribute to the environmental objectives. For instance, Article 10 (on climate
change mitigation) provides that an economic activity qualifies as contributing substantially
to climate change mitigation when it increases “clean or climate-neutral mobility” or switches
“to the use of sustainably sourced renewable materials.”485 In a more concise way than for
“substantial contribution,” Article 17 gives precision regarding the means according to which
activities can harm environmental objectives. Article 19 of the Regulation sets transversal
requirements applicable to all technical screening criteria defining substantial contribution.
Delegated acts adopted by the Commission specify these criteria.486 As of July 2022, only the

481
People’s Bank of China, National Development and Reform Commission and China Securities
Regulatory Commission, Catalogue of Green Bond Supported Projects (2021 Edition) (2021) [中国人
民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知], 银发
〔2021〕96 号] 19 [e.g.: “No less than 8 percent of the photoelectric conversion efficiency for silicon-
based film cell module”].
482
Ibid 7 [e.g.: “The newly-built buildings should meet following standards: 1. Newly-built industrial
buildings: no less than two stars of the Evaluation Standard for Green Industrial Building (GB/T50878-
2013)”].
483
Ibid 3 [(“Manufacturing and trading of energy-saving hydraulic and pneumatic power generation
machinery and component.”)].
484
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, articles 10 to 15.
485
Ibid Article 10.
486
European Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing
Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical
screening criteria for determining the conditions under which an economic activity qualifies as
contributing substantially to climate change mitigation or climate change adaptation and for determining
whether that economic activity causes no significant harm to any of the other environmental objectives
OJ L 442/1; European Commission delegated regulation (EU) 2021/2178 of 6 July 2021 supplementing
Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and
presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive
2013/34/EU concerning environmentally sustainable economic activities, and specifying the
methodology to comply with that disclosure obligation L 443/9 ; European Commission Delegated
Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated Regulation (EU) 2021/2139 as

114
delegated acts regarding the first two environmental objectives of the Taxonomy (climate
mitigation and adaptation) have been adopted.487

Levels of ambition of criteria in taxonomies. The requirements set by criteria in taxonomies

reflect different levels of environmental ambition. Criteria are the elements of taxonomies that
apply to economic actors (unlike the objectives, principles and categories, that are building
blocks of taxonomies, and do not have immediate effects upon actors). As such criteria
represent a choice between contradictory forces: international law vs domestic policy priorities,
science vs politics, the market vs the environment. Certain differences between taxonomies
illustrate these tensions. For instance, the Green Catalogue does not hesitate to give names of
places or regions and explain that projects can be green if they are located in specific places.
On the contrary, the criteria in the EU taxonomy are entirely deterritorialized. Instead, the EU
taxonomy, by quoting the UNFCCC and the Paris agreement in the definition of “substantial
contribution” to climate change, ambitions to set the criteria as almost direct application of the
international law on climate change, thereby granting them universal values. This universal
ambition of EU taxonomy is strengthened by frequent reference to the science-based nature of
EU criteria. Political controversies regarding the inclusion of gas and nuclear energies in the
taxonomy also recall that these choices are not as much grounded in science as they are in
political preferences. 488 Indeed, claims that the taxonomy is “science-based” are clumsily
explained in the Taxonomy impact report and, as such, rather debatable. For instance, the
impact assessment of the EU Taxonomy Regulation states: “When setting the ambition level,
this report considers all available scientific reference points that can be applied to the selected
activities. These include climate scenarios, sectoral pathways, and requirements stemming
from existing sectoral legislation.” 489 The categorization of climate scenarios, sectoral
pathways and existing sectoral legislation as “scientific point of references” is inconsistent as

regards economic activities in certain energy sectors and Delegated Regulation (EU) 2021/2178 as
regards specific public disclosures for those economic activities OJ L 188/1.
487
European Commission, Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing
Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical
screening criteria for determining the conditions under which an economic activity qualifies as
contributing substantially to climate change mitigation or climate change adaptation and for determining
whether that economic activity causes no significant harm to any of the other environmental objectives
OJ L 442/1.
488
Christopher Pitchers, ‘Why is the EU's green investment label for nuclear and gas so controversial?’
Euronews (9th February 2022) <https://www.euronews.com/my-europe/2022/02/01/why-is-the-eu-s-
green-investment-label-for-nuclear-and-gas-so-controversial> accessed 15 March 2022.
489
European Commission, Commission Staff Working Document : Impact assessment report
Accompanying the document Commission Delegated Regulation (EU) (draft) supplementing
Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical
screening criteria for determining the conditions under which an economic activity qualifies as
contributing substantially to climate change mitigation or climate change adaptation and for
determining whether that economic activity causes no significant harm to any of the other environmental
objectives, SWD(2021) 152 final, 20.

115
these items do not belong to science (in particular the legislation). It reveals the fragility of the
grounding of the taxonomy’s criteria on the science. A later part of the report suggests that, in
fact, market practices are the crucial element for setting the level of ambition of the criteria.
The report states: “to define the level of ambition, […] when an activity can already be
performed in a “low-carbon way”, the criteria are set according to these [market] practices.
When it is currently not feasible to carry out an activity with low-emissions, the criteria are
set to incentivise the best market practices, provided that they are still aligned with the
transition to a climate-neutral economy consistent with a pathway to limit the temperature
increase to 1,5°C, do not hamper the development of low-carbon alternatives and avoid lock-
in of carbon intensive assets.”490

3.4. DO NO SIGNIFICANT HARM PRINCIPLE AND SOCIAL SAFEGUARDS

Outline. Taxonomies do not only define how economic activities provide environmental
contributions or environmental benefits. Some of them also define thresholds or requirements
to prevent these activities from generating significant social and environmental harms. Two
main types of rules have been developed: “do no significant harm” principles and social
safeguards.

“Do no significant harm” principle. The CBI’s taxonomy was the first to design criteria
intended to prevent certain green projects such as dam, to cause negative impacts on other
environmental issues (such as biodiversity) or social ones (removal of population) that could
make the project less desirable or less acceptable in spite of its climate benefits. Following the
CBI, the EU has been at the forefront of the development of “do no significant harm” within
green taxonomies by systematizing CBI’s approach. The “do no significant harm” principle
was not in the HLEG proposal for a taxonomy in 2018, but it has been introduced by the
Commission in its 2018 proposal for a regulation.491 This principle can be understood as a way
for the EU taxonomy maintain the public’s good opinion of green finance, as it ensures that
qualified activities do not realise environmental gains at the expense of social aspects. This is
a difference with many other taxonomies, that only assess the contribution of activities to
environmental goals, without considering potential harms done by this activity. The EU
Taxonomy mandates that qualified activities substantially contribute to one of the six
environmental objectives, while not doing significant harm to any of the other five. Article 17
of the Taxonomy Regulation defines environmental harm for each of the six objectives of the

490
Ibid 123.
491
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13 Article 12.

116
taxonomy. For instance, for climate change mitigation, a significant harm entails that this
“activity leads to significant greenhouse gas emissions.” 492 The “do no significant harm”
assessment must be conducted while taking into account the life cycle assessment of the
services and products considered.

Do no significant harm criteria and practice. The very broad definition of significant harm
in the article 17 is detailed in the delegated acts. In these acts, significant harm is often defined
with quantitative thresholds. For instance, for geothermal energy generation, the do no
significant harm to the climate mitigation objective493 is “the direct GHG emissions of the
activity are lower than 270gCO2e/kWh.”494 As the OECD remarks, more than 80 percent of
the “Do No Significant Harm” (DNSH) criteria refer to existing EU environmental
regulation. 495 Since its inclusion in EU taxonomy, this principle was adopted in other
taxonomies being developed, such as ISO’s. In addition, the UNDESA included the “do no
significant harm” principle among its principles for ensuring the compatibility of
taxonomies.496 The “do no significant harm” criteria have an interesting characteristic, insofar
as they can be used to define “red” or “brown” taxonomies, i.e. taxonomies of environmentally
and/or socially undesirable activities, such as carbon intensive activities (e.g. electricity
generation with coal).497

Social minimum safeguards. The EU taxonomy is also at the forefront of the development
of minimum social safeguards applicable to green activities. Under Article 18 of the EU
Taxonomy Regulation, economic activities must respect the requirements of minimum social

492
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Article 17.
493
For instance, this do no significant harm criteria would be useful to help qualifying geothermal
energy as making a substantial contribution to another environmental objective of the taxonomy, such
as climate change adaptation.
494
European Commission, Annex 2 to the Commission Delegated Regulation (EU) (draft)
supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by
establishing the technical screening criteria for determining the conditions under which an economic
activity qualifies as contributing substantially to climate change mitigation or climate change
adaptation and for determining whether that economic activity causes no significant harm to any of the
other environmental objectives, C(2021) 2800 final, 135 <https://eur-
lex.europa.eu/resource.html?uri=cellar:d84ec73c-c773-11eb-a925-
01aa75ed71a1.0021.02/DOC_3&format=PDF> accessed 15 March 2022.
495
OECD, Developing Sustainable Finance Definitions and Taxonomies : 2. Overview of sustainable
finance definitions and taxonomies (2020) <https://www.oecd-ilibrary.org/sites/cdb1fb77-
en/index.html?itemId=/content/component/cdb1fb77-en> accessed 15 March 2022.
496
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 35 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
497
Green Finance Industry Taskforce, Identifying a Green Taxonomy and Relevant Standards for
Singapore and ASEAN (2021) 56 <https://abs.org.sg/docs/library/gfit-taxonomy-consultation-paper>
accessed 15 March 2021.

117
safeguards including but not limited to the OECD Guidelines for Multinational Enterprises,
the UN Guiding Principles on Business and Human Rights, the International Labour
Organization Declaration on Fundamental Principles and Rights at Work and its Eight
Fundamental Conventions, and the International Bill of Human Rights. China has also
minimum safeguards in place, although they do not appear in a systematic fashion for each
activity listed specific the Green Catalogue referencing relevant domestic policies and
standards. These requirements focus on Environmental, Health and Safety issues – which
include the Regulations on Labour Security Inspection and the Sanitary Standards for the
Design of Industrial Enterprises.498

4. REQUIREMENTS BUILDING ON GREEN FINANCE TAXONOMIES

Outline. As explained in the section 4.3 of Chapter 2, the context of green bond standards499
makes it possible to identify different degrees of normativity, from simple financial industry
recommendations to national and international500 law. Since the context of the standards is
analysed in section 4.2 of Chapter 2, the present section focuses on the text of green bond
standards and other regulatory texts referring to these standards. This chapter seeks to identify
elements suggesting the presence of requirements (understood as legal obligations and norms
that are close to the threshold for being considered as legal obligations) building on green
finance taxonomies. This section does not address the green criteria, analysed in the previous
section. Green criteria represent the normative substance of taxonomies. This section surveys
the requirements using green finance taxonomies insofar as these requirements refer to
taxonomies to mandate or forbid something. As such, green finance taxonomies are the basis
for requirements of allocation (of financial resources to green activities) (4.1) and
requirements of information (from companies or financial actors to the financial market, about
the degree of alignment of these actors’ activities with green finance taxonomies) (4.2) that
apply to green bonds, but also to other realms of green finance. A few other requirements and
incentives escape these two first types (4.3).

498
International Platform on Sustainable Finance, Common Ground Taxonomy – Climate Change
Mitigation
Instruction report (2021) 29.
499
Green bond standards are understood as the rules regulating green bonds, hence including
taxonomies and transparency rules.
500
Such as EU law.

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4.1. REQUIREMENTS OF ALLOCATION

Outline. Some taxonomies501 are the basis for requirements of full or partial allocation of
financial resources to eligible activities. Some elements of the taxonomy – such as do no
significant harm criteria – can also be used for certain allocation requirements.

Full allocation of green bond proceeds. Some taxonomies such as the Climate Bonds
Taxonomy or the EU taxonomy are the basis for requirements to allocate all the proceeds of
the green bonds to the eligible activities. The Climate Bonds Taxonomy is not a normative
document per se, but it is included in the certification contracts signed between the CBI and
bond issuers. According to the Climate Bonds Standard, all the proceeds raised from climate
bonds must be allocated to eligible activities under CBI’s taxonomy.502 Similarly, the proposed
EUGBR regulation would mandate that 100 percent of the proceeds of EU Green Bonds be
allocated to activities eligible under the EU Taxonomy Regulation. The recital 8 of the
proposed regulation explains that only the EU taxonomy will be used to define the green
proceeds raised with EUGBR.503 Because the technical criteria of the taxonomy regulation
were not ready when the EU decided the issuance of its green bonds, the green bond issued by
the EU do not have to allocate the proceeds to taxonomy eligible activities. 504 Further
amendment proposals (ultimately rejected) made by the EU Parliament rapporteur of the
EUGBR even supported the idea of excluding taxonomy’s gas and nuclear activities from the
scope of eligible green activities for green bonds, leading to green bonds using only a sub set
of EU taxonomy’s activities.505

501
Some taxonomies, such as the EU’s as of July 2022, is only the basis of information requirements as
the EU green bond standard is still only a regulation project. The Rio Markers were also purely oriented
towards information.
502
Clauses 5.1 (allocation of proceeds to nominated projects and assets) 9.1 and 10.1 Climate Bonds
Initiative, Climate Bonds Standards (2017)
<https://www.climatebonds.net/files/files/Climate%20Bonds_Standard_Version%203_0_December%
202017.pdf> accessed 28 July 2022.
503
As it states: “[…] in order to provide investors with clear, quantitative, detailed and common
definitions, the requirements set out in Article 3 of [the taxonomy regulation] should be used to
determine whether an economic activity qualifies as environmentally sustainable. Proceeds of bonds
that use the designation ‘European green bond’ or ‘EuGB’ should exclusively be used to fund economic
activities that either are environmentally sustainable and are thus aligned with the environmental
objectives set out in Article 9 of [the Taxonomy Regulation] or contribute to the transformation of
activities to become environmentally sustainable [enabling and transition activities of the Taxonomy
Regulation].”
504
European Commission, Commission Staff Working Document: Next Generation EU – Green Bond
Framework, SWD(2021) 242 final
<https://ec.europa.eu/info/sites/default/files/about_the_european_commission/eu_budget/nextgenerati
oneu_green_bond_framework.pdf> accessed 15 March 2022.
505
John Ainger, ‘EU Lawmakers Ditch Green Bond Standard Plan to Cut Nuclear, Gas’ (13 May 2022)
Bloomberg <https://www.bloomberg.com/news/articles/2022-05-13/eu-lawmakers-ditch-green-bond-
standard-plan-to-cut-nuclear-gas> accessed 28 July 2022.

119
Issue regarding the application in time of the taxonomy to EUGBR. Since the taxonomy’s
technical criteria are expected to be revised occasionally to adapt to technical innovations in
the activities listed,506 the question arises about which version of the taxonomy to apply to a
green bond that can have a lifetime of 10 or 20 years. According to recital 10 of the proposed
EUGBR, “issuers should be able to apply the technical screening criteria applicable at the
moment the European green bond was issued when allocating the proceeds of such bonds to
eligible fixed assets or expenditures, until maturity of the bond.”507 A similar solution is found
regarding financial assets financing green activities: “the underlying economic activities
funded by those financial assets should comply with the technical screening criteria applicable
at the moment the financial assets were created.”508 However, “where the relevant delegated
acts are amended, the issuer should allocate proceeds by applying the amended delegated acts
within five years.”509 Therefore, the issuers would be given 5 years to adapt to the revisions of
the technical screening criteria.

Partial allocation of proceeds. China’s Green Catalogue and France’s GreenFin State label
are examples where green finance taxonomies are used to mandate only partial allocation of
green proceeds, either in the case of green bonds or green funds. Guidelines set by China’s
National Development and Reform Commission, the top economic planning body, only
require 50 percent green bond proceeds to be directly allocated to eligible activities and
“allow as much as 50 percent of green bond proceeds to be used to repay bank loans and
replenish working capital.” 510
Nonetheless, the People’s Bank of China mandates full
allocation of proceeds to green projects for a certain type of green bonds – green financial
notes.511 Similarly, the label GreenFin set by French legislation, defines green funds on the
basis of a partial allocation of their proceeds to taxonomy eligible activities. CBI’s taxonomy
is included by reference in the label. The label states that “for a private equity fund to receive
this label, it must have 75 per cent of the Net Asset Value of the fund in securities from issuers
with at least 50 percent of their sales compliant with the CBI taxonomy.” 512

506
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Article 19 [“The Commission shall regularly review the technical screening criteria referred to
in paragraph 1 and, where appropriate, amend the delegated acts adopted in accordance with this
Regulation in line with scientific and technological developments”].
507
European Commission, Proposal for a Regulation of the European Parliament and of the Council
on European green bonds COM/2021/391 final, recital 10.
508
Ibid
509
Ibid.
510
Alice Huang, ‘China’s $113 Billion Green Bonds Caught in Jumble of Rules’, Bloomberg (2021)
<https://www.bloomberg.com/news/articles/2021-06-21/china-s-113-billion-of-green-bonds-caught-
in-jumble-of-rules> accessed 15 March 2022.
511
Ibid.
512
Décret n° 2015-1615 du 10 décembre 2015 relatif au label « Transition énergétique et écologique
pour le climat» ; United Nations - Department of Economic and Social Affairs (UN- DESA) and

120
The lack of explicit allocation requirement in the Green Bond Principles (GBP). The GBP
do not include a green finance taxonomy, therefore there is no surprise that no allocation
requirement based on a taxonomy can be found. As the GBP make clear, they do not set any
substantial requirement as the GBP “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.” However, two elements in
the text of the GBP suggest the existence of an implicit requirement according to which the
issuer must allocate the entirety of the proceeds to the projects he determined as green. First,
the definition of green bond, given at the beginning of the GBP, states: “green Bonds are any
type of bond instrument where the proceeds or an equivalent amount will be exclusively
applied to finance or re-finance, in part or in full, new and/or existing eligible Green Projects
(see Use of Proceeds section below) […].”513 In addition, the GBP also mention, under the
“Use of Proceed” heading that “the cornerstone of a Green Bond is the utilisation of the
proceeds of the bond for eligible Green Projects.”514 Given the importance of the GBP for
green bonds normalisation, this implicit requirement influence sovereign authorities when they
draft their own green bond rules.

Use of “do no significant harm” criteria for allocation requirements. EU law uses an
element of the EU Taxonomy (the “do no significant harm” criteria) for imposing allocation
obligations derived from the EU taxonomy. These allocation obligations apply to the funds
attached to the Recovery and Resilience Facility. The Regulation establishing the Recovery
and Resilience Facility provides that no measure (i.e., no reform and no investment) included
in a Member State’s Recovery and Resilience Plan should generate significant harm to any of
the six environmental objectives within the meaning of Article 17 of the Taxonomy
Regulation.515 To substantiate compliance with the do no significant harm principle, Member
States are not required to refer to the “technical screening criteria” established according to
the Taxonomy Regulation, but they have the option to rely upon them.516 The scope of the do
no significant harm principle seems to expand to beyond the scope of the Taxonomy

International Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify,

verify and align investments to sustainability goals (2021) 26 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
513
ICMA, Green Bond Principles (2021) 3 (emphasis added).
514
Ibid 4.
515
European Commission, Do no significant harm: Technical Guidance by the Commission (2021)
<https://ec.europa.eu/info/sites/default/files/2021_02_18_epc_do_not_significant_harm_-
technical_guidance_by_the_commission.pdf> accessed 15 March 2022.
516
Ibid 6.

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Regulation: certain funding available for academic research is submitted to the DNSH
contained in article 17 of the Taxonomy Regulation. 517

4.2. REQUIREMENTS OF INFORMATION

Outline. Information requirements built on taxonomies since the inception of climate finance
taxonomies. The Rio Markers established recommendations of reporting applicable to
developed states while MDBs’ taxonomy was the basis of a reporting that MDBs committed
to provide. The EU taxonomy also imposed taxonomy-based information obligations upon
large corporations and issuers of financial products (bonds not included). Green bond
standards also generalised transparency requirements based on taxonomies – this last point is
the subject of Chapter IV.

Requirements of information in the Rio Markers. The Rio Markers is soft law developed
by the Development Assistance Committee (DAC) of the OECD and form part of a system of
soft law reporting obligations applicable to member States of the OECD. These markers
contribute to the DAC’s mission to gather, on an annual basis, statistics on official
development assistance (ODA) and other resource flows to developing countries from bilateral
and multilateral development co-operation providers.518 The Markers are incorporated into
“Reporting Directives” approved by the DAC Working Party on Development Finance
Statistics.519 According to these directives, the Rio markers “should be applied” to all bilateral
ODA, except of few remaining types of ODA, such as general budget support or debt relief.520
The Rio Markers can be voluntarily applied by reporting States to “Other Official Flows”. On
the basis of the taxonomy set by the Markers, the reporting obligations or recommendations
work as follow: a scoring system with three values is used, in which financed activities are
“marked” as either (i) targeting the Rio conventions as “a “principal” objective (score “2”) or
(ii) as a “significant” objective (score “1”), or (iii) not targeting the objective (score “0”).” 521
For instance, an activity conducted under one of the action plan or strategy called by Rio
Conventions (for instance e.g. NDCs under the UNFCCC) “automatically qualifies as
principal objective, as the Conventions provide the motivation for the design of the activity.”522

517
European Commission, Horizon Europe: Programme guide (2022) 38
<https://ec.europa.eu/info/funding-tenders/opportunities/docs/2021-
2027/horizon/guidance/programme-guide_horizon_en.pdf> accessed 15 March 2022.
518
Development Assistance Committee, OECD DAC Rio Markers for Climate Handbook (2016)
<https://www.oecd.org/dac/environment-
development/Revised%20climate%20marker%20handbook_FINAL.pdf> accessed 15 March 2022.
519
Working Party on Development Finance Statistics, Converged Statistical Reporting Directives for
the Creditor Reporting System (CRS) and the Annual DAC Questionnaire,
DCD/DAC/STAT(2018)9/ADD2/FINAL.
520
Ibid §198.
521
Ibid 51.
522
Ibid 52.

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Requirements of information in MDB-IDFC’s Common Principles. The Common
Principles are guidelines drafted by a group of MDBs and the International Development
Finance Club (IDFC), applicable to these same MDBs, in order to track climate mitigation
finance. These principles make clear that they do not aim at preventing MDBs from financing
activities that would not comply with the criteria set by the Common Principles. The principles
make clear that the application of the Common Principles is “voluntary and open to any
financial institution willing to track and report climate mitigation finance.”523 The MDBs and
the IDFC commit to apply the Common Principles in their respective “tracking and reporting
of climate change mitigation finance.”524

Obligations of information in the EU taxonomy – pre-issuance disclosures for financial

products. The EU taxonomy took the form of a regulation, complemented by delegated acts
drafted by the Commission. In EU law, a regulation “shall have general application [and] shall
be binding in its entirety and directly applicable in all Member States.”525 The obligation of
information set by the Taxonomy Regulation applies to financial products and corporations.
Regarding financial products, 526 financial market participants must communicate pre-
contractual taxonomy disclosures when making available financial products. There are two
main broad possibilities. If the financial product promotes environmental characteristics or has
sustainable objectives, financial market participants must communicate in the pre-contractual
disclosures “a description of how and to what extent the investments underlying the financial
product are directed towards environmentally sustainable activities as defined by the
taxonomy, specifying the percentage of investments made in these green activities.”527 Second
broad possibility, if financial market participants offer non-green financial products, they must
include in the pre-contractual documentation a statement indicating that “the investments
underlying this financial product do not take into account the European Union's criteria for
environmentally sustainable economic activities.”528

Obligation of information in the EU taxonomy – disclosures from large corporations. The

Taxonomy Regulation also sets disclosure obligations applicable to large corporations. These

523
Joint climate finance group of multilateral development banks (MDBs) and the International
Development Finance Club (IDFC), Common Principles for Climate Mitigation Finance Tracking
(version 3: 2021) 6
<https://www.eib.org/attachments/documents/mdb_idfc_mitigation_common_principles_en.pdf>
accessed 15 March 2022
524
Ibid.
525
Consolidated versions of the Treaty on European Union and the Treaty on the Functioning of the
European Union [2016] C 202/01, Article 288.
526
Bonds and therefore green bonds are not included in the definition of financial product in EU law.
527
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, articles 5 and 6.
528
Ibid Article 7.

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companies must include in their non-financial or consolidated non-financial statements “a
description of how and to what extent the activities of the company are associated with
economic activities that qualify as environmentally sustainable.”529 In particular, non-financial
companies have to publish “the proportion of their turnover derived from products or services
associated with economic activities that qualify as environmentally sustainable, as well as the
proportion of their investment and operating expenses related to assets or processes associated
with these same green activities defined by the taxonomy.” 530 A delegated act under this
Article details the different key performance indicators, or Key Performance Indicators, and
forms of disclosure applicable to the different types of corporations.531

4.3 OTHER REQUIREMENTS AND INCENTIVES

Outline. Certain requirements do not fit in the two types analysed above. Certain requirements
are transversal, while three main types of requirements attached to taxonomies are emerging:
requirements in the field of financial prudential regulation and fiscal obligations.

Transversal requirements. Green finance taxonomies sometimes set obligations that are
neither obligations of allocation nor obligations of information. For instance, the EU taxonomy
also applies to measures adopted by Member States or by the European Union relating to
financial products or corporate bonds that are made available as green. Under Article 4 of the
Taxonomy Regulation, Member States and the European Union shall apply the taxonomy “to
determine whether an economic activity qualifies as environmentally sustainable for the
purposes of any measure setting out requirements for financial market participants or issuers
in respect of financial products or corporate bonds that are made available as environmentally
sustainable.” This obligation for Member States and the EU to apply the taxonomy for any
sustainable finance measure amounts to forbidding the design of national taxonomies within
the EU. For instance, France’s GreenFin label532 – a state supported label defining green funds
– will have to be based in the future on the EU taxonomy. In addition, the European Union
itself is subject to Article 4 of the Taxonomy Regulation, and as such will integrate the
taxonomy in all its measures relating to the definition of environmentally sustainable financial

529
Ibid Article 8.
530
Ibid Article 8.
531
European Commission, Commission delegated regulation (EU) 2021/2178 of 6 July 2021
supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying
the content and presentation of information to be disclosed by undertakings subject to Articles 19a or
29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and
specifying the methodology to comply with that disclosure obligation L 443/9.
532
Décret n° 2015-1615 du 10 décembre 2015 relatif au label « Transition énergétique et écologique
pour le climat».

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products and corporate bonds. These measures include the incoming EU Ecolabel for Retail
Financial Products and EU standards for green bonds as well as green mortgages.

Emerging prudential 533 requirements. As part of the EU Action Plan, launched by the
Commission in March 2018 as part of the Capital Markets Union, the Commission committed
to introduce a “green supporting factor” in the EU prudential rules for banks and insurance
companies. A green supporting factor is a rule of calculation that favours green investments
(for instance, investments in green bonds) when banks calculate the capital ratios they must
respect under prudential regulation. In its revised strategy, the Commission reiterated a similar
commitment, announcing its will to “integrate sustainability risks in the risk management
systems of banks and in the prudential framework for insurers.”534 This includes measures
such as amendments to the Capital Requirements Regulation and Capital Requirements
Directive “to ensure the consistent integration of sustainability risks in risk management
systems of banks, including climate change stress tests by banks” and amendments to the
Solvency II Directive in order “to consistently integrate sustainability risks in risk management
of insurers, including climate change scenario analysis by insurers.” 535 Similarly, the
recognition by the European Central Bank (ECB) of climate change as a source of risk for
financial stability, as well as an objective that the ECB must pursue in support of EU’s policy
objective, contributed to start to implement incentives for green assets. The ECB announced
that green assets might be the object of less stringent eligibility requirements for collateral and
will be favoured in the asset buying policy.536

Emerging taxonomy-based requirements related to credit and green finance

environmental performance. Member states in the EU are also considering using the
taxonomy to establish mechanism applicable to credits and insurances delivered by state
agencies to exporters. For instance, in France, the Directorate-General of the Treasury
proposed the creation of “a climate reward mechanism for export project support (through
credit-insurances) for activities deemed sustainable based on the EU Taxonomy.” 537 The

533
Prudential regulation is the regulation of the risks taken by financial institutions. For more details on
the conceptualisation of prudential regulation and climate risks, please refer to section 3.1.2 of Chapter
II.
534
European Commission, EU Sustainable Finance Strategy Factsheet (2021)
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/210706-sustainable-finance-strategy-factsheet_en.pdf> accessed 15 March 2022.
535
European Commission, Communication from the Commission : Strategy for Financing the
Transition to a Sustainable Economy COM(2021) 390 final 15 <https://eur-
lex.europa.eu/resource.html?uri=cellar:9f5e7e95-df06-11eb-895a-
01aa75ed71a1.0001.02/DOC_1&format=PDF> accessed 15 March 2022.
536
European Banking Federation, Green finance: Considering a Green Supporting Factor (2021)
<https://www.ebf.eu/regulation-supervision/green-finance-green-supporting-factor-is-a-sensible-
idea/#:~:text=The%20European%20Commission%20and%20the,sustainable%2C%20climate%2Dneu
tral%20economy> accessed 15 March 2022.
537
Gouvernement français, Rapport au Parlement : Plan climat pour les financements exports

125
People’s Bank of China started to grade financial institutions depending on the amount of
green bonds they hold. This grading aims at evaluating the 24 major Chinese banks’
performance in green finance.538

Emerging fiscal incentives. The EU Commission 2008 Action Plan included proposals to link
the EU taxonomy to fiscal policies. This has already been implemented, not on the basis of
taxonomies, but in relation with green bonds or other green loans. From the origin of green
bonds in the US, tax incentives had been designed. They took the form of a tax exemption or
a tax-credit. An issuer borrows money at a lower rate of interest when issuing a tax-exempt
bond. For the investor, the lower interest received was compensated for by the fact that the
interest received was not subject to federal income tax.539 Similarly, close to US’s municipal
green bonds, France has a mechanism of green loan. However, instead of granting a tax
exemption or a tax credit, the government directly pays the interest to the bank. This eco-loan
aims to increase energy saving and reduce GHG emissions in the building sector. It was part
of the Grenelle I law and had been adopted in the 2009 « loi de finance ». The eco-loan at zero
interest is dedicated to the financing of energetic efficiency works in old building in order to
make the building less GHG emitting. This loan can be of a maximum 30,000 euros and can
be granted to the owner or the syndicate of owners of the building. In order to ensure the
efficiency of the measure, the State signed conventions with banks which can offer this
contract. Similar incentives are offered to industrial companies if they invest in green industrial
equipment. In this case, the loan can range from 100 000 to 3 million euros.

5. CONCLUSION

This chapter has retraced the origins of green finance taxonomies and their development
dynamics. This chapter showed that green finance taxonomies find most of their source in
public authorities, be they the OECD or multilateral development banks. However, all the
taxonomies (including the taxonomies developed by NGOs or financial industry bodies)
compete for being applied to the broadest scope and influence the design of other taxonomies
by national institutions with less regulatory capacity. Therefore, some institutions and states
are exercising some power on others, dictating how “green” is to be defined and what
unintended consequences should be accepted, for instance whether funding should be made
available for nuclear energy or for large hydroelectrical plants. Then, this chapter analysed the

<https://www.tresor.economie.gouv.fr/Articles/c6a1851e-e102-40e6-9d59-
96661357bc5f/files/6287e5a5-6d7a-4a80-bc51-c9150fc42d9b> accessed 15 March 2022.
538
Hilal Atici, ‘PBOC to grade financial institutions on green bonds’ (2021) Green Central Banking
<https://greencentralbanking.com/2021/06/15/pboc-grade-financial-institutions-green-bonds/>
accessed 15 March 2022.
539
Robert A Fisher, 'Better America Bonds: Better Is in the Eye of the Beholder' (2000) 25 William &
Mary Environmental Law & Policy Rev 23.

126
structure of green finance taxonomies. This section showed that taxonomies are organized in
a complex way, built on principles and objectives, categories of economic activities, criteria
and social and environmental safeguards. This original new institutional construction has
already pervasive legal effects, on financial markets, corporations and states, domestically and
internationally. The obligations created on the basis of these taxonomies encompass
obligations of allocation, of information as well as other requirements and incentives. In the
end, questions arise regarding the nature of these green finance taxonomies. Despite their
technicalities and their apparent grounding in environmental sciences, taxonomies are also
legal objects projecting a normative vision of what should be the economy in the future.

Taxonomies as a new type of strategic planning. According to the words of EU’s technical
expert group on sustainable finance, EU’s green finance taxonomy aims at “defining the
universe of activities that will remain in a net-zero emissions economy in 2050”540. As such,
EU’s sustainable finance is not simply a tool to organize or standardize financial information
but can also interpreted as a new form of strategic environmental planning intended for shaping
the future state of the economy. This connection between taxonomies and strategic planning
is also reinforced by the Chinese taxonomy, where the taxonomies regularly reference the
overall economic strategic planning of the economy. Applying strategic planning to finance
would not be an absolute novelty in history. In France for instance, in the aftermath of World
War II, authorities created a council ambitioning to be the “parliament of credit and money”541
tasked to plan the allocation of credit delivered by private and public banks. Called the Conseil
National du Crédit (National Council of the Credit)542, this institution aimed at introducing
democracy and deliberation in the financial system, while directing the financial sector
towards post-war reconstruction. 543 Green finance taxonomies could be understood as a
reiteration of this type of strategic planning applicable through credit, this time focused not on
post-war reconstruction, but on the ecological transition. The greatest contribution of green
bonds to the evolution of financial regulation could be this reactivation of strategic planning
applicable to finance. Unlike Park and Forsbacka, who posited that environmental
transparency was the mainstay of green bonds’ legal framework, this thesis argues that
environmental strategic planning fulfils this core function. By extension, environmental

540
EU Technical Export Group on Sustainable Finance, Taxonomy, Technical Report, June 2019, 24
<https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/1
90618-sustainable-finance-teg-report-taxonomy_en.pdf> accessed 15 March 2022.
541
Patrice Bambeau, ‘Réinventer la monnaie. L'illusion des « trente glorieuses monétaires,’ Alternatives
Economique (2016).
542
Loi n° 45-15 du 2 décembre 1945 relative à la nationalisation de la Banque de France et des grandes
banques et à l'organisation du crédit, articles 12-14.
543
Alain Grandjean et Nicolas Dufrêne, Pour une monnaie écologique (Odile Jacob, 2020) 107.

127
strategic planning is also necessary to setting legal frameworks for any other sustainable
finance products.

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 CHAPTER IV: THE TRANSPARENCY REGIME

ABSTRACT

As explained in Chapter II, private regulators have been instrumental in building the
transparency regime for green bonds, with the primary aim of enabling investors to know the
characteristics of the green bond they invested in. That is why Chapter II concluded that
transparency rules were to be analysed using a private interest standpoint. However, the
development of the environmental contribution regime analysed in Chapter III transformed
the transparency regime of green bonds. Transparency for green bonds does not consist
anymore in information disclosure about any characteristic of the bond, but about the degree
of alignment with the strategic environmental planning set in green finance taxonomies. The
pre-issuance disclosures and the post-issuance reporting rules analysed in this chapter
therefore bear on the alignment of the issuers’ projects or activities with public environmental
objectives or policies. This type of environmental information differs from the dominant type
of information regulated by financial law. Financial information matters mainly to investors,
while environmental information matters in general to the state, the civil society and investors.
Green bonds contribute to “publicise” (or “de-privatise”) financial law. This evolution triggers
some challenges regarding interactions between green bond regimes and international
financial regulation, in particular regarding the definition of materiality and the role of third
parties involved in transparency processes. In addition, green bond regimes foster the
emergence of a third kind of sustainable finance transparency that is neither built on impact or
risk, but on alignment with public plans. This chapter differs from Forsbacka’s analysis insofar
as she considers green bonds transparency as a form of impact reporting; and from Park’s
analysis insofar as he analyses the private origin of green bond rule-making without
considering the publicisation of the content of these rules.

1. INTRODUCTION

Background. Transparency is a core principle of international financial regulation. This is due

to the considerable influence of US financial regulation, which was itself based on information
disclosure. The transparency orientation of US financial legislation is, in part, explainable by
the influence of economic theories such as the efficient market hypothesis developed by

129
Chicago School economists.544 As a consequence, an important part of the rules applicable on
the financial markets derive from this transparency principle. As explained in the previous
chapter, environmental information communicated through green bonds may reduce the
market’s perception of certain risks, such as financial risks stemming from the climate
transition. As such, environmental information in green bonds represents something valuable
from investors’ perspective. However, investors’ limited time and analytical resources for each
bond implies that environmental information communicated through green bonds must be
standardized. It also matters that this information is produced in a format that enables
comparison with other bonds. Therefore, when the financial industry started to develop green
bond standards, the requirements mainly took the form of guidance regarding the
environmental information that green bonds should disclose to the market.

Objective of this chapter: identify transparency requirements applicable to the

international green bonds market. This chapter aims at identifying transparency
requirements applicable to green bonds on international capital markets. By “identification,”
this chapter refers to collecting and understanding the provisions in transnational green bond
standards that relate to transparency. “Transparency” describes the disclosure of information
by one party to a green bond transaction to the other parties and to financial or environmental
regulators. Another important term of this objective is the term “requirement”: this term is
preferred to obligation, because many provisions in green bond standards have an ambiguous
normative value. They are not always clear legal obligations sanctioned by a judge, but they
are nonetheless required to enter the green bond market, and, as such, are normative
requirements. The last important term of the sentence formulating the objective of this chapter
is the expression “international green bond market.” This market is the one to which the
international financial regulation applies, as further detailed in the general introduction of this
thesis.

Analytical method. “To identify” transparency requirements first implies to collect them
among green bond standards applied on the international green bond market. “To identify”
also means to interpret these provisions, in order to expose clearly the meaning of these
standards. “To identify” finally encompasses the analysis of these standards. This analysis
includes three elements: first, an inquiry into the legal nature of these standards – to understand
their potential normative effects ; second, a systematization of these standards – to understand
their common structure ; and third, two comparisons, between green bond standards – to

544
Cally Jordan, International Capital Markets: Law and Institutions (Second Edition, Oxford 2021) 7
(the efficient market hypothesis postulates that markets are efficient because they automatically reflect
in prices all the information available. Therefore, the more information is available, the better the
markets function).

130
understand how each one of them stands in relation to the other – and between green bond
standards and existing international financial regulation – to understand what green bond
standards add to existing norms.

Structure of the chapter. This chapter starts by analysing the transparency requirements
created by these standards, explaining how these requirements are structured before and after
the time of issuance and how these requirements empower external reviewers. This section
shows that transparency requirements increasingly bear on information in relation to green
finance taxonomies (section 2). The next section discusses the interactions of green bond
standards with the financial regulation applicable to standard bonds. It shows that adding
environmental information to financial disclosures challenges key notions of international
financial regulation (section 3). As a conclusion, this chapter underlines the changes to
transparency in international financial regulation brought by green bonds (section 4).

2. TRANSPARENCY REQUIREMENTS

Outline. Transparency requirements resting on green bond issuers are organized around the
issuance: some of the transparency requirements apply before the issuance of the bond (2.1);
some other requirements arise after the issuance – during the lifetime of the bond (2.2). Some
of the transparency requirements do not rest on bond issuers but on external reviewers, both
before and after the issuance of the bond (2.3). Transparency requirements have evolved
towards a greater role of green finance taxonomies.

2.1. PRE-ISSUANCE DISCLOSURES

Outline. Green bond standards recommend or require pre-issuance disclosures in ad-hoc green
bond documentation (2.1.1) as well as into the regular documentation of the bond (2.1.2).
Whereas some green bond standards used to allow green bond issuers define in their pre-
issuance disclosures their own green finance taxonomy, a growing consensus tends to restrict
this possibility and requires pre-issuance disclosures based on recognized taxonomies.

2.1.1 AD-HOC GREEN BOND DOCUMENTATION

Outline. Green bond standards recommend or require pre-issuance disclosures in ad-hoc green
bond frameworks. The GBP and other standards back these provisions up with transparency
principles and set the detailed content of such frameworks. Green bond frameworks should
include information about the allocation of proceeds, the process for project evaluation and
selection, the management of proceeds and the reporting. Other documents can be mandated
as well, for instance in case of certification. All this ad-hoc green bond documentation
increasingly bears on information based on green finance taxonomies.

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Method. In this subsection, the first standard to be analysed is the GBP, followed by other
major green bond standards compared to the GBP. This prominence given to the GBP is
explained by the fact that this standard indeed was the most influential to define the ad-hoc
green bond documentation disclosed as part of the pre-issuance disclosures for green bonds.
Therefore, the requirements of the GBP form the backbone of all the other major green bond
standard on this point. Taking the GBP as the central point of the analysis reveals the existence
of a broadly common green bond regime relating to pre-issuance ad-hoc green bond
documentation.

Green Bond Framework. The key recommendation of the GBP is the publication of a
document drafted by the green bond issuer where the information on the environmental
characteristics of the bond is gathered. According to the GBP:

“issuers should explain the alignment of their Green Bond or Green Bond programme
with the four core components545 of the GBP in a Green Bond Framework or in their
legal documentation. Such Green Bond Framework and/or legal documentation
should be available in a readily accessible format to investors. It is recommended that
issuers summarise in their Green Bond Framework relevant information within the
context of the issuer’s overarching sustainability strategy.”546

The publication of such a green bond framework is also required by the CBS, according to
which “issuers seeking Climate Bond Certification […] to a bond prior to its issuance shall
[…] prepare a Green Bond Framework which describes how each of the requirements in the
Climate Bonds Standard will be met by the Issuer for the relevant bond.”547 The ISO standard
does not explicitly impose the publication of the green bond framework, but explains that “the
information provided by the issuers in accordance with [clause] 8.1 [pre-issuance reporting] is
commonly named a “green bond framework.”548 Article 8 of the proposed EUGBR “clarifies
that the bond may only be offered to the public in the Union after prior publication of the
European green bond factsheet,”549 where the “European green bond factsheet” in a functional
equivalent to a green bond framework. The Chinese guidelines do not mandate the publication

545
The “four core components” provide details about the content of the disclosures.
546
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 7
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
547
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 15
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.
548
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 9.
549
European Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of
the Council on European Green Bonds’ COM(2021) 391 Final 13.

132
of a green bond framework, since most of the information is expected by the Chinese authority
to be located in the green bond prospectus. In the first years of the green bond market, green
bond frameworks mandated by the GBP were the way for green bond issuers that did not seek
certification by the CBI to expose their own definition of “green.” As such, green bond
frameworks could look like some coarse and simplified sui generi green finance taxonomies.

Principles. Certain green bond standards, such as ISO’s, introduce the requirements by the
enunciation of principles. Out of the seven principles listed by the ISO standard, four relate to
transparency, and three to the determination of what is “green,” studied in the previous chapter.
Regarding transparency, the four principles are: transparency: “reports and communication on
the environmental aspects are based on an open, comprehensive and understandable
presentation of information” 550 ; accuracy: “bias and uncertainties are reduced as far as is
practical” 551 ; completeness: “all relevant information is included” 552 ; and relevance:
“information and data are selected that are appropriate to the needs of the intended user.”553

Information to be disclosed: 1– allocation of proceeds. As explained in the above, the Green

Bond Framework, according to the GBP, should explain the alignment of the green bond with
the four core components of the GBP. The first of these components is the allocation of
proceeds. The GBP recognizes a non-limitative list of objectives and categories of eligibility
for Green Projects – in which the proceeds of the bond should be invested. This list includes
some basic environmental objectives, such as climate change mitigation, climate change
adaptation and natural resource conservation and basic categories, such as “renewable energy
(including production, transmission, appliances and products)” or “energy efficiency (such as
in new and refurbished buildings, energy storage, district heating, smart grids, appliances and
products).”554According to this first component, issuers are therefore recommended to disclose
how their green bond projects fits within the categories mentioned, or any other category (since
the list is not limitative). As explained in Chapter III, section 2.2.3, this type of reporting based
on broad environmental objectives and categories has been progressively marginalised as a
way to define green, for its lesser degree of precision compared to taxonomies. From 2014 to
2021, the GBP did not mention the possibility that allocation of proceeds reporting could be
done on the basis of green finance taxonomy. In the 2021 version of the GBP acknowledged

550
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 4.
551
Ibid 5.
552
Ibid 5.
553
Ibid 5.
554
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 4
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.

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that the existence of “several current international and national initiatives to produce
taxonomies and nomenclatures”555 that “may give further guidance to Green Bond issuers as
to what may be considered green and eligible by investors.”556 In addition, the 2021 version
of the GBP added a link to a set of national and market-based taxonomies kept on ICMA’s
website.

Information on the allocation of proceeds in other standards. The GBP’s evolution on the
taxonomies in allocation of proceeds pre-issuance reporting reflect the centrality of taxonomy-
based reporting in several major green bond standards. The ISO standard mandates the
publication of an impact assessment, 557 that the issuer shall make available to investors a
description of “the eligible green projects, assets and supporting expenditures to be financed
or refinanced” 558 as well as “the environmental objectives […] of eligible projects, assets and
supporting expenditures financed or refinanced by the green bond, and the name of the
taxonomy selected.”559 The factsheet in the EU proposed standard requires information about
the intended allocation of bond proceeds, including a description of the “intended qualifying
green projects.”560 The information relating to these projects includes information to track to
which green projects the funding goes (share of green projects financed before or after the
issuance, share of projects co-financed) and information about the alignment with the EU
taxonomy, as the issuer must provide information about the category of economic activity the
projects belong to and the projects’ environmental objectives as referred to in the Taxonomy
Regulation. 561 The CBS does not include any direct reference to its own taxonomy in
allocation reporting as references to CBS taxonomy are concentrated in the process for project
evaluation and selection (see next paragraph). In terms of allocation reporting, the CBS only
mandates that the issuer establish a list of Nominated Projects and Assets which can be kept
up to date during the term of the bond, being noted that Nominated Projects & Assets shall not
be nominated to other Certified Climate Bonds or other labelled green bonds. 562 Other
provisions in the CBS regarding allocation reporting seek to ensure that no double counting of

555
Ibid 5.
556
Ibid 5.
557
European Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and
of the Council on European green bonds’ COM(2021) 391 final 1.
558
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 17.
559
Ibid.
560
European Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and
of the Council on European green bonds’ COM(2021) 391 final 3
561
Ibid.
562
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 9
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.

134
green bond proceeds happens. PBOC’s standard does not contain pre-issuance disclosure
requirements about proceeds allocation.

Information to be disclosed: 2– the process for project evaluation and selection. The GBP
recommend that issuers “clearly” communicate to investors the environmental objectives of
the eligible green projects, “the process by which the issuer determines how the projects fit
within the eligible Green Projects categories”563 and “some complementary information on
processes by which the issuer identifies and manages perceived social and environmental risks
associated with the relevant project(s).”564 In addition, the GBP encourage issuers “to position
the information communicated within the context of the issuer’s overarching objectives,
strategy and policy”565 and to provide information on the alignment of projects with official or
market-based taxonomies.

Information on the process for project evaluation and selection in other standards. Here
again, the CBS, ISO and the EUGBR mandate broadly similar disclosure than the GBP, but
the CBS, ISO and EUGBR require more precisions, in particular because these mandated
disclosures are taxonomy-based. In the CBS, issuers must disclose the “process to determine
whether the Nominated Projects & Assets meet the eligibility requirements specified in [the
taxonomy section] of the Climate Bonds Standard.”566 The ISO mandates a disclosure of “a
description and the findings of the process for the evaluation and selection of projects, assets
and supporting expenditures implemented by the issuer.”567 In the ISO standard, the process
for the evaluation and selection of projects is based on a green finance taxonomy chosen by
the issuer568 which can be ISO’s or a taxonomy defined by any “public or private initiatives;
publicly available; locally appropriate; accepted nationally, regionally or internationally;
commonly acknowledged by market participants”569 as long as the chosen taxonomy respects
the principles established by the ISO.570 The EUGBR green bond factsheet mandates a heavy
taxonomy-based reporting as regards process for project selection. It requires “a description
of the processes by which the issuer will determine how projects align with the taxonomy

563
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 5
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
564
Ibid.
565
Ibid.
566
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 10
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.
567
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) clause 8.1.1.
568
Ibid clause 5.3.
569
Ibid.
570
Ibid.

135
requirements”,571 “a description of the relevant technical screening criteria referred to in [the
Taxonomy Regulation],” 572 “a specification of which delegated acts adopted under the
[Taxonomy Regulation] are taken into account”573 and “information on the methodology and
assumptions to be used for the calculation of key impact metrics in accordance with [the
delegated acts adopted under the Taxonomy Regulation].”574 The factsheet of the EUGBR also
requires disclosure regarding “information on how the bond aligns with the broader
environmental strategy of the issuer”575 and “the environmental objectives referred to in [the
Taxonomy Regulation] pursued by the bond.”576

Information to be disclosed: 3– Management of Proceeds. This requirement is not fully a

disclosure requirement, but a requirement which creates the conditions for transparency.
According to the third core component of the GBP, “the net proceeds of the Green Bond, or
an amount equal to these net proceeds, should be credited to a sub-account, moved to a sub-
portfolio or otherwise tracked by the issuer in an appropriate manner […].”577 In the green
bond framework, issuers are therefore led to indicate how they will manage or track the
proceeds of the bond.578 Inherited from project finance standards designed by the World Bank,
this requirement aims at generating the conditions for transparency relating to the use of the
proceeds. The CBS, the PBOC guidelines and the ISO standard also display such a requirement.
However, the EUGBR standard drops this requirement, and only maintains the idea that the
proceeds should be fully allocated to eligible projects.

Information to be disclosed: 4 – Reporting. Although the reporting mainly concerns the

information about the environmental impact of the proceeds – and as such, is a post-issuance
type of disclosure, green bond standards set pre-issuance disclosure requirements explaining
this post-issuance reporting. According to the fourth core component of the GBP, “issuers
should make, and keep, readily available up to date information on the use of proceeds to be
renewed annually until full allocation, and on a timely basis in case of material
developments.”579 This recommendation relates to post-issuance disclosures. However, the

571
Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and of the
Council on
on European green bonds’ COM(2021) 391 final 1.
572
Ibid.
573
Ibid.
574
Ibid.
575
Ibid.
576
Ibid.
577
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 6
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
578
This “management of proceeds” requirement also relates to post-issuance disclosures.
579
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 6

136
GBP also recommends that issuers explain how they will comply with this requirement in their
pre-issuance disclosure, the green bond framework.580 The CBS contains similar reporting
provisions, mandating disclosure in the pre-issuance disclosure of information about the post-
issuance disclosure mechanisms. The CBS states that “the intended approach to providing
Update Reports and/or undertaking periodic Assurance Engagements during the term of the
bond to reaffirm conformance with the Climate Bonds Standard”581 should be disclosed in pre-
issuance documents. The ISO standard also mentions, among the mandatory pre-issuance
requirements “the expected environmental impact or performance of eligible projects, assets
and supporting expenditures and, where appropriate, examples of key environmental
performance indicators for each type of eligible project, asset and supporting expenditure,”582
as well as “the issuer’s planned frequency for reporting on performance indicators associated
with the environmental impacts of financed or refinanced projects, assets and supporting
expenditures” 583 and “the issuer’s planned frequency of reporting on conformity with this
document.” 584 The proposed EUGBR’s factsheet (pre-issuance disclosure) also includes
information about post issuance disclosure. The issuer must communicate “a link to the
website where allocation reports and impact reports will be published”585 and “an indication
of whether allocation reports will include project-by-project information on amounts disbursed
and the expected positive and negative environmental impacts.”586 PBOC’s guidelines do not
include guidance regarding pre-issuance disclosures of information relating to post-issuance
disclosures. This can be due to two reasons: first, the guidelines are already a few years old
and do not incorporate later development of the practice on the international green bond
market ; second, in a system strongly supervised by a central authority, the finality of such
disclosures about future reporting (to pressure issuers to publicly commit to post issuance

<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
580
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 7
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022. [“Issuers should explain the alignment of
their Green Bond or Green Bond programme with the four core components of the GBP (i.e. Use of
Proceeds, Process for Project Evaluation and Selection, Management of Proceeds and Reporting) in a
Green Bond Framework”].
581
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 11
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.
582
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) clause 8.1.1.
583
Ibid.
584
Ibid.
585
Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and of the
Council on
on European green bonds’ COM(2021) 391 final 1.
586
Ibid.

137
disclosures and give a tool to enable investors to control green bond issuers) may be less
relevant since the central regulator ensures some degree of control.

Other green bond ad-hoc documents. Although the green bond framework/ factsheet is the
main documents for pre-issuance disclosures, there are also other documents that might be
required. In the CBS, in case of certification, issuers must fill a Climate Bonds Information
Form and submit the completed form to the Climate Bonds Initiative. This form is similar to
the factsheet in the EUGBR. In other words, this is a green bond framework with a clearer
structure and more precise requirements. In the ISO and EUGBR standards, all the information
to be disclosed is meant to be so in the green bond framework/ factsheet and there is no
additional pre-issuance requirement. In the PBOC standard, a financial institution applying for
the issuance of green financial bonds shall submit to the PBOC a few ad-hoc documents, such
as an application report for the issuance of green financial bonds; the written consent document
of the authority specified in the articles of association or the articles of association of the
company, the audited financial reports and audit reports for the past three years, as well as the
financial report for the latest period and a letter of commitment to invest the raised funds in
green industry projects. 587 In Indonesia, green bond issuers must add to the registration
documents for the green bond public offering a statement of the Issuer's commitment to use
the proceeds from the Public Offering of Green Bond on eligible green activities (called KUBL
in the Indonesian regulation).588 Similarly, the Nigerian regulation require that an issuer files
a “letter of commitment” with the Nigerian SEC, committing to invest all the proceeds of the
bonds in green projects as defined by the Nigerian rules. 589 In the Nigerian regulation, a
feasibility study report stating the benefits of the green projects shall also be submitted.

2.1.2. BOND DOCUMENTATION

Outline. Pre-issuance disclosures are not limited to ad-hoc green bond documents. Most green
bond standards also require green bond-specific disclosures into the bond’s regular
documentation, in particular in the prospectus or offering circular.590 Like ad-hoc green bond

587
People’s Bank of China, Announcement (2015) No. 39 (2015) [中国人民银行公 告(2015)第 39 号]
中国人民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知.
588
Financial Services Authority (Indonesia), Regulation of Financial Services Authority on the Issuance
and Terms of Green Bonds 60 /POJK.04/201, (2017).
589
Securities and Exchange Commission (Nigeria), Green Bonds Issuance Rules (2018).
590
European Commission, Securities Prospectus <https://ec.europa.eu/info/business-economy-
euro/banking-and-finance/financial-markets/securities-markets/securities-prospectus_en> accessed 9
March 2022 [A prospectus is a universal requirement on international capital markets. It is “a legal
document that describes
a company's main line of business, its finances and shareholding structure the securities that are being
issued and/or admitted to trading. It contains the information an investor needs before making a decision
whether to invest in the company's securities (such as shares, bonds, derivatives)”].

138
document, this type of disclosure is closely related to the green definitions provided by green
finance taxonomies.

Green descriptions in the bond’s legal documentation. Except the ISO green bond
standards, all major standards recommend or require some form of disclosures in green bond’s
legal documentation – the prospectus or offering circular. The GBP states that the “utilisation
of the proceeds of the bond for eligible Green Projects […] should be appropriately described
in the legal documentation of the security,” without further precisions. This requirement is
more detailed in the CBS, according to which the issuer shall disclose five elements in the
legal documentation of the bond:

“[1] the investment areas [defined by the CBS taxonomy] into which the nominated
projects & assets fall ; [2] an estimate of the share of the net proceeds used for
financing and re-financing if applicable ; [3] the intended types of temporary
investment instruments for the management of unallocated proceeds ; [4] the verifier
selected by the issuer for the pre-issuance and any post-issuance engagements ; [5] the
intended approach to providing update reports and/or undertaking periodic assurance
engagements during the term of the bond to reaffirm conformance with the Climate
Bonds Standard.”591

Similarly, Article 12 of the proposed EUGBR (entitled “Prospectus for European green bonds”)
states that “where a prospectus is to be published pursuant to Regulation (EU) 2017/1129, that
prospectus shall clearly state, where required to provide information on the use of proceeds,
that the European green bond is issued in accordance with this Regulation.”592 In addition, the
factsheet may be integrated by reference into the prospectus, as this factsheet is explicitly
considered by the EUGBR proposed regulation as “regulated information” in the meaning of
Article 19 of the Prospectus Regulation. Similarly, the PBOC’s guidelines mandate that the
prospectus of green financial bonds “shall include the categories of green industry projects to
be invested by the raised funds, project screening criteria, project decision-making procedures
and environmental benefit objectives, as well as plans for the use of funds raised from green
financial bonds and management systems.”593 PBOC’s green bond standard also mandates that
the prospectus of green bonds shall include the categories and screening criteria from the
Green Catalogue relevant for the projects financed by the raised funds. Only the ISO green

591
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 10, 11
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.
592
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final.
593
People’s Bank of China, Announcement (2015) No. 39 (2015) [中国人民银行公 告(2015)第 39 号]
中国人民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知.

139
bond standard does not include any requirement for pre-issuance disclosures in the
documentation of the bond, probably in order not to interfere with any state’s legislation.

Normative evolution and legal stakes. Initially, most standards recommended that the
prospectus focuses on information of a financial nature about the issuer and the securities
offered to the public, while the issuer’s ecological commitments were preferably
communicated in a separate document, such as a "green bond framework." This framework
would generally be published on the issuer's website. This approach enabled the issuers to
maintain a clear distinction between information endowed with legal value and non-legal
information. This distinction tends to vanish as the most recent evolutions led to the inclusion
of green disclosure in the prospectus, or to the inclusion by reference of the green bond
framework into the prospectus. From the issuers’ side, a second battle is open now to manage
to keep the green elements outside the contractual terms exposed in the prospectus, and to
enclose them in the non-contractual terms of the prospectus. Nonetheless, given that the
prospectus “shall contain the necessary information which is material to an investor for making
an informed assessment of: […] the reasons for the issuance and its impact on the issuer”594
[reason which may arguably include the green objectives] and that “the content of the summary
shall be accurate, fair and clear and shall not be misleading”, 595 green disclosure in the
prospectus are less and less avoidable and must be satisfactory if the issuer does not want to
be sanctioned (see chapter V).

Emerging international requirement. Other countries outside the EU generally require the
prospectus to include environmental information relating to the bond. In Nigeria for instance,
a prospectus of a green bond must include “project categories, project selection criteria,
decision-making procedures, environmental benefits, use and management of the proceeds.”596
According to Article 7 of the Indonesian Regulation on green bonds, the prospectus for the
public offering of green bond must disclose the following additional information in a separate
chapter:

“a. a description of KUBL financed by the proceeds from the issuance of Green Bond,
shall at least contain KUBL type and the environmental sustainability objectives of
the KUBL that the Issuer wishes to achieve. b. The processes and the methods applied
to identify and manage social and environmental risks that are potentially materialized,

594
Council and European Parliament Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to
be published when securities are offered to the public or admitted to trading on a regulated market, and
repealing Directive 2003/71/EC [2017] OJ L 168/12, Article 6.
595
Council and European Parliament Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to
be published when securities are offered to the public or admitted to trading on a regulated market, and
repealing Directive 2003/71/EC [2017] OJ L 168/12, Article 7.
596
Securities and Exchange Commission (Nigeria), Green Bonds Issuance Rules (2018) 2.

140
 relevant to the business activity and/or other activities. c. the summary of opinion or
the result of assessment of the Environmental Expert.”597

2.2. POST-ISSUANCE REPORTING

Outline. All standards recommend or require some forms of post-issuance reporting. This
reporting can be punctual (ex: at the maturity of bond) or repetitive (ex: every year). The
modalities regarding the publicity, the structure and the methodologies vary across standards.
The fact that the latest and most influential green bond standard project (the EUGBR) does
not mandates an impact report but a taxonomy-based allocation report seems to show a
furthering of the taxonomy-based logic of green bond transparency.

Publicity modalities. Two main publicity modalities exist among the main standards. Either
issuers release yearly allocation reports until the full allocation of the proceeds (GBP, CBS),
either they publish yearly allocation reports complemented by impact reports (EUGBR, ISO).
The explanation for such differences lies in the fact that allocation reports in the GBP and CBS
also relate to the impact of the eligible projects. On the contrary, the EUGBR and the ISO do
not require issuers to publish in their allocation reports any data on the effective impact of
projects, but only require such disclosure once, when all the proceeds have been allocated. The
lack of mandatory yearly impact reporting in the proposed EUGBR has been criticized as a
step backward by a central green bond industry player.598 But the emphasis on the allocation
report in the proposed EUGBR can also be read as a furthering of the taxonomy-based logic
in green bonds: what matters in the EUGBR is not that much the impact of the projects as their
alignment with a strategic planning document – the EU sustainable finance taxonomy. The
guidelines from the PBoC stand aside, requiring a quarterly report on the allocation disclosed
to the market and a yearly allocation report to be submitted to the PBOC.599 PBOC’s guidelines
do not mandate any impact report. CSRC Guiding Opinions also require corporate issuers to
provide annual or semi-annual reports.600 For certain types of corporate bonds, the NAFMII
guidelines contain provisions that mandate two disclosures, the first one being on the use of
proceeds and progress of green projects in the previous year; and the second one, disclosing

597
Financial Services Authority (Indonesia), Regulation of Financial Services Authority on the Issuance
and Terms of Green Bonds 60 /POJK.04/201, (2017), Article 7.
598
Environmental Finance, EU GBS 'may be a step backward' for green bond impact reporting (2022)
<https://www.environmental-finance.com/content/news/eu-gbs-may-be-a-step-backward-for-green-
bond-impact-reporting.html> accessed 17 June 2022.
599
People’s Bank of China, Announcement (2015) No. 39 (2015) [中国人民银行公 告(2015)第 39 号]
中国人民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知.
600
China Securities Regulatory Commission, Guiding Opinions for Supporting the Green Bond
Issuance (2017) [支持绿色债券发展的指导意见], No. (2017) 6.

141
the use of proceeds and progress of green projects in the first half of the current year.601 In the
case of the GBP and the ISO, the frequency of the allocation report can be higher than yearly
“in case of material developments.” The ISO indicates that material developments “can
include, but are not limited to, early repayment, change of control or acquisition, change of
name, changes to the eligibility of assets and projects as well as any material amendments,
supplements and other updates to deal documents including during the life of the debt
instrument.”602 In the case of the CBS, the allocation report’s – called by CBS an update report
– format and frequency “will depend on the specific circumstances of the issuer and the
relevant bond.”603 All standards mandate the reports to be disclosed to the market. Some of the
standards, such as the ISO and the CBS, differentiate between the market and investors. For
instance, the ISO standard indicates that “the issuer’s report shall be available to investors and,
where not restricted due to confidentiality restrictions, to the public.”604 The EUGBR states
that “issuers of European green bonds shall publish on their website […] (c) the European
green bond annual allocation reports […] every year until the full allocation of the proceeds
of the European green bond concerned, no later than three months following the end of the
year it refers to.” The EUGBR also makes clear that a single allocation or a single impact
report can cover several green bonds.

Structure of the annual allocation report. The GBP, the ISO, the EUGBR and the CBS all
demand that the annual allocation report include a list of the projects, assets or supporting
expenditures to which green/climate bond proceeds have been allocated, as well as a short
description of the projects, the amounts allocated, and their expected impact. The GBP also
recommends “the use of a summary, which reflects the main characteristics of a Green Bond
or a Green Bond programme, and illustrates its key features in alignment with the four core
components of the GBP, may help inform market participants.”605 The ISO is slightly more
precise, requiring additional information such as “the geographical distribution of eligible
projects, assets and supporting expenditures” and “the timing of allocation and any re-

601
National Association of Financial Market Institutional Investors, Guidelines on Green Debt
Financing Tools for Non-Financial Enterprises (2017) [非金 融企业绿色债务融资工具业务指引].
602
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 10.
603
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 7
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.
604
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 11.
605
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 6
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed on 28 July 2022.

142
allocation of proceeds or an amount equivalent to the net proceeds for each eligible project,
asset and supporting expenditure.”606 The proposed EUGBR regulation provides a template
for annual allocation report with a simple structure which includes three sections : general
information, adhesion to the requirements of the European Green Bonds Regulation (where
issuers provide “a statement showing that proceeds have been allocated according to the
requirements of [EUGBR] Regulation”) and allocation of bond proceeds. In this last section,
the information required is similar to the ISO, plus some additional requirements, such as the
respective NACE codes of the activities financed ; a confirmation of compliance with the
minimum safeguards provision of the Taxonomy Regulation ; if a sovereign issuer and bond
proceeds are allocated to tax relief, an estimation of the volume of revenue loss associated
with eligible tax relief ; for assets that are concerned by a taxonomy alignment plan607: the
progress in the implementation of the plan during the reporting period, and the estimated date
of completion.608 The EUGBR allocation report template also includes additional accounting
information to be provided by financial undertakings that allocate proceeds from a portfolio
of several European green bonds to a portfolio of financial assets.609 The PBOC guidelines do
not include any specific requirements regarding the quarterly and annual allocation reports to
be submitted to the market and to the PBOC.

Structure of the impact report. ISO and the EUGBR mandate that an impact report should
be filed once the proceeds are entirely allocated. This report contains the same information as
the allocation reports (on projects, activities financed, expected impacts, etc) plus the
environmental impact of eligible projects assets and supporting expenditures. The ISO
indicates that “the issuer shall consider the types of eligible projects, assets and supporting
expenditures when planning to report on quantitative or qualitative environmental indicators”
and that “impact reporting may be performed on a project-by-project basis, on the basis of
activities linked to individual bonds, or on a project portfolio basis.”610 The ISO is not very
precise on the information needed, indicating that “information reported shall include, as a

606
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 10.
607
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final [Article 6 “taxonomy-alignment of use of
proceeds: the taxonomy-alignment plan referred to in the first subparagraph shall describe the actions
and expenditures that are necessary for an economic activity to meet the taxonomy requirements within
the specified period of time”].
608
Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and of the
Council on
on European green bonds’ COM(2021) 391 final 1.
609
Ibid 5.
610
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 11.

143
minimum, quantitative data or qualitative environmental information related to environmental
performance.”611 Regarding the EUGBR, the information relating to the environmental impact
of bond proceeds must include “an estimation of positive and adverse environmental impacts
in aggregated form,” “information on the methodology and assumptions used to evaluate the
impacts of projects, “information about the projects’ positive and negative environmental
impacts and, where available, related metrics.”612

Methodologies. As showed in the previous paragraphs, the methodologies of allocation and

impact reports are very important. However, all standards remain extremely evasive on the
question, limiting themselves to recommend or require the disclosure of the methodology
used and referencing examples of methodologies. For instance, “the GBP recommend the use
of qualitative performance indicators and, where feasible, quantitative performance measures
[e.g., energy capacity, electricity generation, greenhouse gas emissions reduced/avoided,] and
disclosure of the key underlying methodology and/or assumptions used in the quantitative
determination.”613

Comply or explain. Interestingly, all four major international standards (GBP, CBS, ISO,
EUGBR) include a clause of “comply or explain” in relation to the information communicated
in these allocation and impact reports. If “confidentiality agreements, competitive
considerations or a large number of underlying assets” 614 limit the amount of detailed
information that can be made available, the issuer shall provide at least information at
aggregate level, with an explanation of why project-level information is not given.

2.3. EXTERNAL REVIEWS

Outline. External reviews consist in the review by a third-party entity – external to the issuer-
investor relation – of the main disclosure documents in order to guarantee the bond’s
compliance with green bond standards. A legal regime for external reviews is emerging on
three dimensions: pre-issuance disclosures, post-issuance disclosures and regarding external
reviewers themselves.

611
Ibid 11.
612
Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and of the
Council on
on European green bonds’ COM(2021) 391 final 1, 8.
613
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 6
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
614
This provision is common to the Climate Bonds Standard, ISO’s green bond standard and the
EUGBR.

144
Types of external reviews. The main types of external review are: assurance, green bond
ratings, Second Party Opinions (SPO) and certification. Assurance is the most basic mode of
external review. It can be provided by an auditor against an existing standard or a set of
principles. Usually, assurances are provided against the Green Bond Principles. Assurances
only inquire into the compliance of the bond with the chosen standard. They do not have any
methodology to make a detailed assessment of the bond.615 Green bond ratings are slightly
more sophisticated, insofar as they provide a shaded rating on the “greenness” of the bond.
This scoring is based on the bond’s alignment with the GBP as well as other indicators. Green
bond ratings are provided by ratings agencies or other private sector entities, such as
CICERO.616 Second Party Opinions (SPO) have an additional degree of complexity and are
the most widely used method for assessing the green credentials of a bond. An SPO can be
provided against any existing standard, principle or criteria such as the GBP or national green
bond guidelines. The SPO provider gives an opinion as to the extent that the bond meets these
principles or criteria. In that aspect, SPOs usually display more subtlety than assurances. Like
assurances, SPOs were initially commissioned by issuers to evaluate whether a bond meets the
four principles of the GBP.617 Certification, such as the Climate Bonds Certification, is the
most demanding external review process. It “involves the establishment of standards,
assessment for compliance with the standards, a certification seal or label, accreditation of the
certifier, and compliance monitoring.”618 The certification enables the use of the trademark
(such as the “Climate Bond Certified Mark”) showing to investors the certification. Only 15
percent on average of green bonds are climate bond certified619 and other certification schemes
(such as under the Hong Kong Quality Assurance Agency) 620 are extremely minoritarian.
These external reviews are important insofar as some indices, exchanges or investors do not
accept green bonds without external reviews.

External reviews of pre-issuance disclosures. The GBP have a minimalist approach to pre-
issuance external reviews. They only recommend “that issuers appoint (an) external review
provider(s) to assess through a pre-issuance external review the alignment of their Green Bond

615
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 24 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
616
Ibid.
617
Ibid.
618
Martijn W. Scheltema, ‘Assessing Effectiveness of International Private Regulation in the CSR
Arena’, 13 Richmond Journal of Global Law and Business 323 (2014).
619
United Nations - Department of Economic and Social Affairs (UN- DESA) and International
Platform on Sustainable Finance (IPSF), Improving compatibility of approaches to identify, verify and
align investments to sustainability goals (2021) 25 <https://g20sfwg.org/wp-
content/uploads/2021/09/G20-SFWG-DESA-and-IPSF-input-paper.pdf> accessed 15 March 2022.
620
Hong Kong Quality Assurance Agency, Green Finance Certification Scheme (2018).

145
or Green Bond programme and/ or Framework with the four core components of the GBP (i.e.
Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds and
Reporting).”621 Other standards are more precise and stringent. The CBS has a whole set of
requirements relating to the pre-issuance certification of climate bonds. Issuers must submit
an information form to CBI’s secretariat. They also shall obtain an assurance report from a
CBI-approved verifier, assuring that the issuer meets CBS’ pre-issuance requirements. If
CBI’s secretariat is satisfied with the information form from the issuer and the assurance report
from the verifier, the certification agreement may be signed.622 The ISO standard requires that
the conformity with pre-issuance disclosures shall be “validated 623 or verified, 624 as
appropriate.”625 The EUGBR also states that “prior to issuing a European green bond, issuers
shall: […] (b) ensure that the completed European green factsheet has been subject to a pre-
issuance review with a positive opinion by an external reviewer.”626 This pre-issuance review
shall contain an assessment of whether the completed green bond factsheet complies with the
bond-related requirements exposed in the EUGBR regulation and respect the template given
as an annex of the regulation. According to this template, such pre-issuance review should
contain statements on the compliance with the EUGBR regulation, the sources, assessment
methodologies, and key assumptions used by the reviewer and the reviewer’s assessment and
opinion.627 Finally, Chinese guidelines do not mandate pre-issuance reviews but encourage
issuers to have recourse to it.628 Article 19 of the CSRC/ PBOC guidelines states that pre-

621
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 7
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
622
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 15
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17
June 2022.
623
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 4 [“Validation: process for evaluating
the reasonableness of the assumptions, limitations and methods that support a statement about the
outcome of future activities […] The validation is controlled by a validator: competent and impartial
person with responsibility for performing and reporting on a validation”].
624
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 4 [“verification : process for evaluating
a statement of historical data and information to determine if the statement is materially correct and
conforms to criteria. […] Verifier: competent and impartial person with responsibility for performing
and reporting on a verification”].
625
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation Green debt instruments; Part 1: Process for green bonds (2021) 12.
626
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final, Article 8.
627
Commission, ‘Annexes to the Proposal for a Regulation of the European Parliament and of the
Council on
on European green bonds’ COM(2021) 391 final 1.
628
People’s Bank of China, Announcement (2015) No. 39 (2015) [中国人民银行公 告(2015)第 39 号]
中国人民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》的通知.

146
issuance evaluation and certification of green bonds include assessments of : the compliance
of green bond projects, green project screening and decision-making system, management
system for funds, green information disclosure and reporting system and the expected
environmental benefits of the green project.629

Post-issuance reviews across standards. Regarding post-issuance disclosures, the GBP

recommend “that an issuer’s management of proceeds be supplemented by the use of an
external auditor, or other third party, to verify the internal tracking and the allocation of funds
from the Green Bond proceeds to eligible Green Projects.”630 There is no recommendation
regarding the review or verification of the actual environmental impact of the bonds. The CBS
is more stringent. It mandates that issuers “engage a Verifier to undertake an Assurance
Engagement after issuance of the bond to confirm that the Issuer and the bond are in
conformance with the Post-issuance Requirements of the Climate Bonds Standard,” adding
that “this Assurance Engagement must be completed within one year of the bond’s
issuance.”631 Surprisingly, the “verifier’s Reports submitted to the Climate Bonds Standard
Board shall be considered to be confidential unless the Issuer voluntarily discloses the
Verifier’s Report, or the Standards Board is required by law or national regulators to disclose
the Verifier’s Report.”632 This goes against the practice, under other standards, or publicizing
such reports. This post-issuance report, an updated Climate Bond Information Form and a
yearly Update Report allow an issuer to maintain a post-issuance certification.633 According
to the ISO standard, “after issuance and full allocation of proceeds, conformity with allocation
reporting and impact reporting should be verified.”634 The EUGBR contains similar provisions,
requiring that issuers submit their full allocation reports to “an external reviewer within 30
days following the end of the year to which the allocation reports refer”635 for this report to be
reviewed. Interestingly, “the post-issuance review must be made public within 90 days
following the receipt of the allocation report.”636 The post-issuance review is based on the

629
China Securities Regulatory Commission, Guiding Opinions for Supporting the Green Bond
Issuance (2017) [支持绿色债券发展的指导意见], No. (2017).
630
International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 6
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 17 June 2022.
631
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 17
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17 June
2022.
632
Ibid 17. [which implies that only the Climate Bonds Initiative has access to it]
633
Ibid 18.
634
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 12.
635
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final, Article 9.
636
Ibid.

147
information provided to the external reviewer. It shall contain an assessment of whether the
issuer has allocated the proceeds of the bond in compliance with the EUGBR regulation and
whether “the issuer has complied with the intended use of proceeds set out in the green bond
factsheet based on the information provided to the external reviewer.”637 It must follow the
same structure as pre-issuance reviews, explained in the annex IV of the proposed regulation.
Notably, there is no requirement regarding an external review of the impact report, whereas
one could consider that this is the most important document of the whole EUGBR scheme.
The Chinese guidelines are not substantially different from international practice. They
indicate that green bond final assessment and certification should include elements on
compliance of green projects with green bond standards, on the achievement of the expected
environmental targets, as well as elements on the implementation of the green projects
screening, decision-making, management of proceeds, information disclosure and reporting
processes.638

The emerging regime applicable to external reviewers. Two of the main standards, the
EUGBR and the Chinese regulations, set a regime applicable to external reviewers. This set
of rules set the expectations applicable to the entities that provide the reviews exposed in the
previous paragraphs. In the proposed EUGBR, the entirety of the Title III (“External reviewers
for European Green Bonds”, which spans 21 articles) is dedicated to regulating external
reviewers, exposing the conditions for taking up activities as external reviewer for European
green bonds (Chapter I), the organizational requirements, processes and documents concerning
governance (Chapter II), some requirements directly targeted at pre-issuance and post-
issuance reviews (Chapter III) and the provision of services by third-country external
reviewers (Chapter IV). According to this title III, external reviewers shall be registered with
the European Securities and Market Agency (ESMA). The conditions for such a registration
include the reputation, skills, professional qualification and experience of the management and
analysts of the external reviewer. The senior management of such reviewers shall ensure
certain outcomes, such as the sound and prudent management, the independent assessment of
activities or the identification, management and disclosure of conflict of interests. Analyst
should have the appropriate knowledge (to be detailed in regulatory technical standards
developed by ESMA) and be forbidden from engaging in negotiation about the fees paid by
any assessed entities. External reviewers shall set a compliance function, internal policies and
procedures to protect their independence and the accuracy of the assessment, implement
measures to ensure the accuracy of their methodologies and information, notify material errors

637
Ibid.
The People’s Bank of China (PBOC) and China Securities Regulatory Commission (CSRC), China's
638

Green Bond Assessment and Verification Guidelines Announcement No. 20 (interim) [2017] 绿色债券
评估认证行为指引（暂行）Article 20.

148
to ESMA, ensure that any outsourcing has the ability and capacity to perform the assessments,
keep some adequate records of key information relating to the reviewing process and eliminate
conflicts of interests. Third-country external reviewers may provide their service in accordance
with the EUGBR regulation if they register to ESMA, abiding by certain conditions.639 The
ESMA prepares itself to approach the supervision of environmental external reviewer on the
model of its supervision of credit rating agencies (CRAs),640 a comparison that gives credence
to the worries voiced by legal scholars that the green bond market might repeat CRAs’
systemic failures identified during the Great Financial Crisis.641 The Chinese regulations of
external reviewers display similar – although simpler – requirements regarding professional
qualifications and experience of the reviewers. There are a few differences. There is the
requirement for Chinese verifiers to keep training on green finance policies. 642 Another
difference consists in the reference in the Chinese guidelines to the international practice and
standards recognized by the Green Bond Standard Committee,643 and the regulation of – in
addition to review – certification. 644 In addition, if Chinese reviewers find a “non-
conformance”, or are unable to conclude, they should report it to the Green Bond Standard
Committee, and give a delay to the issuer to correct the issues.

3. INTERACTIONS BETWEEN GREEN BOND STANDARDS AND

INTERNATIONAL FINANCIAL REGULATION

Outline. The transparency rules analysed in the previous section increasingly bear on the
alignment of the issuers’ projects or activities with public environmental objectives or policies.
This type of environmental information differs from the dominant type of information
regulated by financial law. Financial information matters only to investors, while
environmental information matters to the state, the civil society and investors. Green bonds
contribute to “publicise” (or “de-privatise”) financial law. This evolution triggers some
challenges regarding the interactions between green bond regimes and international financial

639
Commission, ‘Proposal of 6 July 2021 for a Regulation of the European Parliament and of the
Council on European Green Bonds’ COM(2021) 391 Final, articles 14 to 35.
640
Verena Ross, ‘Proposal for a Regulation of European Green Bonds (EU GB Regulation)’ (Letter) (24
January 2022) European Securities and Market Agency
<https://www.esma.europa.eu/system/files_force/library/esma80-416-220_letter_to_co-
legislators_on_regulation_for_european_green_bonds.pdf?download=1> accessed 17 June 2022.
641
Cristina M Banahan, ‘The Bond Villains of Green Investment: Why an Unregulated Securities
Market Needs Government to Lay Down the Law’ (2019) 43 Vermont Law Review 841.
642
The People’s Bank of China (PBOC) and China Securities Regulatory Commission (CSRC), China's
Green Bond Assessment and Verification Guidelines Announcement No. 20 (interim) [2017] 绿色债券
评估认证行为指引（暂行）Article 11.
643
Ibid Article 18.
644
Ibid Article 21.

149
regulation, in particular regarding the definition of materiality for pre-issuance disclosures (3.1)
and the role of third parties involved in transparency processes (3.3). In addition, green bond
regimes foster the emergence of a third kind of sustainable finance transparency for post-
issuance reporting that is neither built on impact or risk like some important sustainable
finance standards, but on alignment with public plans (3.2).

3.1. PRE-ISSUANCE DISCLOSURES IN INTERNATIONAL FINANCIAL

REGULATION

Outline. The green bond pre-issuance disclosure regime challenges international financial
regulation. After a reminder on the principle of transparency and the issuance of prospectuses
in international financial regulation, this section identifies the absence of clear inclusion of
environmental matters in the traditional definition of “materiality” as the core point of
contention between the two regimes. This section further clarifies the application of a renewed
understanding of the materiality concept – the double materiality – to green bond regimes.
Finally, this section explores other points of frictions of lesser importance: the difficulty to
link “use of proceeds” disclosures to green projects, and the interactions between EU
precontractual disclosure requirements for financial products and green bond regimes.

Principle of transparency in international financial regulation. International financial

regulation is built on the model of American securities law. As Cally Jordan writes, “in the
recent past, the story of international capital market regulation has been a US story; the inprint
of US securities regulation is everywhere.” 645 US securities law themselves are built on a
principle of transparency. As Thomas Halzen says “federal securities law's exclusive focus is
on full disclosure.”646 Halzen explains the underlying rationale as the fact that:

“Investors are adequately protected if all relevant aspects of the securities being
marketed are fully and fairly disclosed. The reasoning is that full disclosure provides
investors with sufficient opportunity to evaluate the merits of an investment and fend
for themselves. It is a basic tenet of federal securities regulation that investors' ability
to make their own evaluations of available investments obviates any need that some

645
Cally Jordan, International Capital Markets: law and institutions (Second Edition, Oxford 2021) 12.
646
Thomas Lee Hazen, The Law of Securities Regulation (Fourth Edition 2002) 740.

150
 observers may perceive for the more costly and time-consuming governmental merit
analysis of the securities being offered.”647

In contemporary international financial regulation, disclosure is still “a technique of central

importance in financial market regulation.”648 Enriques and Gilotta explain in a compelling
way the rationales which lead policymakers to keep making an “extensive use of disclosure-
based techniques”:

“First, mandatory disclosure (MD) is a cheap regulatory tool, in the sense that
extending its scope or content does not usually entail any direct government
expenditure. Second, MD is a policy recipe with a high chance of bipartisan support:
it offers an answer to the political pressure for ‘more regulation’, which is especially
strong in the aftermath of corporate governance scandals or financial crises, but, on
the face of it, stops short of positively prescribing a given behaviour. Relatedly, MD
is often the most viable solution, as it encounters less resistance from affected interest
groups: these also tend to prefer enhanced disclosure to more invasive solutions aimed
at directly constraining behaviour. Finally, MD fits in with two of the most deeply
rooted principles of Western societies: namely, the idea of free markets and the
autonomy principle.”649

The central transparency obligation: the issuance of a prospectus. In the main jurisdictions
for international capital markets (US, EU, UK), securities offered to the public must be
accompanied by a prospectus. As already explained in section 3.1.2, the prospectus gathers all
the important information investors must know in order to buy a bond. Under US law, the
obligation to accompany any offer by public securities prospectus has its source in the
Securities Act of 1933. 650 The required prospectus has to be made available on the SEC
website. A prospectus must include the following information: “a description of the company’s
properties and business; a description of the security being offered; information about
executive management; financial statements that have been certified by independent
accountants.”651 This information about the issuer and the terms of the offered securities aims
at helping investors form a reasoned opinion about the investment.652 In the EU, the prospectus
shall contain the necessary information which is material to an investor for making an

647
Ibid 28.
648
Luca Enriques and Sergio Gilotta, “Disclosure and Financial Market Regulation,” in Niamh Moloney,
Eilís Ferran, and Jennifer Payne (ed.), The Oxford Handbook of Financial Regulation (Oxford 2015)
512.
649
Ibid 512, 513.
650
Securities Act of 1933, 15 U.S.C. §§ 77a-77mm (1934).
651
Legal Information Institute – Cornell Law School, Securities Act of 1933
<https://www.law.cornell.edu/wex/securities_act_of_1933> accessed 12 March 2022.
652
Ibid.

151
informed assessment of the corporation and its economic position, as well as the security and
its characteristics.653 The harmonized practice at the global scale is made stronger by “mutual
recognition” or “passporting” of prospectus issued in different jurisdictions. In this regard, the
rules in most green bond standards which consist in mandating information disclosure in green
bond frameworks expels environmental information outside the prospectus – the main channel
for information communication between issuers and investors. Because most mainstream
investors make decisions regarding bonds on the basis of the information contained in the
prospectus, the information contained in the green bond framework has little chance to be
taken into account. In addition, prospectus regulations do not apply to documents that are not
integrated by reference in it, such as many green bond frameworks. The only exception so far
to this dichotomy prospectus/green bond framework is, in the proposed EUGBR, the
integration by reference of the green bond factsheet into the prospectus.

The absence of clear inclusion of environmental matters in the definition of “materiality.”

In the US like in the EU, the core of the disclosure regime is based on the notion of materiality
of information. An information qualified as “material” must be disclosed, non-material
information do not need such disclosure. This notion of materiality comes from the U.S.
Securities Act of 1933, where the word “material” first appeared. Since the 1940s, the SEC
has defined “material information” in relation to financial statements as “those matters as to
which an average prudent investor ought reasonably to be informed before purchasing the
security registered.”654 As Ruth Jebe writes, “the definition of materiality has historically been
controlled by the government, which focuses on a narrow concept of materiality confined to
economic information.”655 Unlike in the US, the definition of materiality in EU law is evolving
towards the inclusion of human right and environmental information that could impact the
financial situation of the company, but also information about the environmental and human
right impacts of the company over the outside world.656 In this respect, the word “material” in
EU law refers to an informational scope that goes beyond strictly speaking financial

653
European Parliament and Council Regulation (EU) 2017/1129 on the prospectus to be published
when securities are offered to the public or admitted to trading on a regulated market, and repealing
Directive 2003/71/EC [2017] OJ L 168 Article 6 [“Without prejudice to Article 14(2) and Article 18(1),
a prospectus shall contain the necessary information which is material to an investor for making an
informed assessment of: (a) the assets and liabilities, profits and losses, financial position, and prospects
of the issuer and of any guarantor; (b) the rights attaching to the securities; and (c) the reasons for the
issuance and its impact on the issuer”].
654
David A. Katz and Laura A. McIntosh, “Corporate Governance Update: “Materiality” in America
and Abroad” Harvard Law School Forum on Corporate Governance (2021)
<https://corpgov.law.harvard.edu/2021/05/01/corporate-governance-update-materiality-in-america-
and-abroad/> accessed on March 12 2022> accessed 28 July 2022.
655
Ruth Jebe, “The Convergence of Financial and ESG Materiality: Taking Sustainability Mainstream”
(2019) 56 American Business Law Journal 646.
656
European Commission, Communication from the Commission: Guidelines on non-financial
reporting: Supplement on reporting climate-related information, (2019/C 209/01) 4.

152
information. Initially, Article 2(16) of the Accounting Directive (2013/34/EU) defined
material information as “the status of information where its omission or misstatement could
reasonably be expected to influence decisions that users make on the basis of the financial
statements of the undertaking.” However, Article 1 of the Non-Financial Reporting Directive
(NFRD) introduced a new element to take into account when considering the materiality of
non-financial information, by referring to information “to the extent necessary for an
understanding of the […] impact of (the company's) activity.” The rationale behind the double
materiality is twofold: either investors can consider that environmental impacts could translate
into financial risks, e.g. through legal liabilities or negative effects on a company’s reputation,
etc. (a weak conception of double materiality), or because a “reasonable person” might
consider the information material for reasons other than direct financial repercussions (a strong
conception of double materiality). Examples for this second rationale include investors who
might want to follow a specific investment policy657 or universal owners658 who might “want
to base their investment decisions on the principle of prudence and not contribute to the
destabilization of the climate system, which would in turn destabilize the financial system.”659

Application of the double materiality concept to green bond regimes. However, this
evolution of the notion of materiality in EU law towards double materiality only applies to the
NFRD, not to the definition of materiality in the Prospectus Regulation. Consequently, the
material information bond issuers are required to disclose in their prospectuses, in the US as
in the EU, is still limited to the information that a rational investor would deem as impacting
on the financial performance of the bond. This excludes environmental information such as
the information disclosed in green bond frameworks, and as such contributes to keeping apart
mainstream bond and green bond regimes. Some authors, such as Cornut, argued on the
contrary that that the green claims of green bonds are material – in the classical sense of
financially material – to investors. 660 It is indeed increasingly true that the “greenium”
accompanying green bond makes their green qualification (and hence, the information on
which this qualification rests) increasingly financially material. But even in the reformed EU
materiality regime, a strong discrepancy with green bond regimes remains: green bonds only
focus on the impact of the company on the environment. As such, the information disclosed

657
For instance, by implementing contractual clauses on environmental impacts.
658
Investors managing very large pools of assets and consequently exposed to all sectors of the economy.
659
Mathias Tager, ‘‘Double materiality’: what is it and why does it matter?’ (2021) Grantham Institute
<https://www.lse.ac.uk/granthaminstitute/news/double-materiality-what-is-it-and-why-does-it-matter/>
accessed 13 March 2022.
660
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).

153
through green bonds fits only half of the double materiality concept. Green bond regimes
entirely ignore the other half (the environmental and social information susceptible to have a
financial impact on the company) of the double materiality concept (see figure 4).

Figure 5: the concepts of materiality and green bond regimes

1. Initial concept of materiality

Financial
Financial
information
impact

2. Double-materiality concept

Financial,
Financial
environmental and
impact
social information

Perimeter of green bond regimes.

Environmental and
Activity of the
social impacts
Company

The difficulty to link “use of proceeds” disclosures to green projects. Another discrepancy
between the rules in international financial regulation on pre-issuance bond disclosures and
the green bond regime is the level of granularity and the temporality of disclosure regarding
the use of proceeds. In the EU Prospectus Regulation, for instance, issuers are only required
to disclose the use of proceeds of the bond, without further precisions.661 This corresponds to
the fact that the spirit of the transparency in international regulation is on backward-looking
information rather than forward-looking information. In this perspective, important

661
Article 6 and Annex I. Most corporate issuers answer to this requirement by simply indicating
“general corporate purposes.”

154
information relates to the past financial performances of the issuer, not the future
environmental impact of the use of proceeds. Green bonds are necessarily concerned about
information about the future because of their focus on projects. In addition, in practice, most
bonds are issued for general corporate purposes: the company does not know precisely, at the
time of issuance, where the proceeds of the bond will be invested. This knowledge might not
even exist, as economic conditions and opportunities are often very volatile. This stands in
stark contrast to the green bond regime, which requires in general granular disclosures of green
projects. The focus on the word “project,” in green bond standards comes from project finance,
mainly financed by MDBs. But on the corporate bond market, most of the money raised is not
directed at specific projects, but for all spending incurred by the company. This mismatch
between the two sets of rules (international bond regulation and green bond regime) makes it
difficult for bond issuers to handle the two and complicates the potential extension of the green
bond regime to the whole bond market.

EU pre-contractual disclosure requirements. Two important regulations recently enriched

EU law. These regulations require sustainability pre-contractual disclosures for financial
actors (financial market participants and financial advisers): the Sustainable Finance
Disclosure Regulation (SFDR) 662
and the Taxonomy Regulation. 663 The SFDR sets
transparency rules applicable to financial products for financial market participants and
financial advisers. The SFDR mandates financial actors (financial advisors and financial
market participants – i.e. asset managers, institutional investors, insurance companies, pension
funds, etc., all entities offering financial products where they manage clients’ money) to
disclose in the pre-contractual documentation of their financial products the integration of
sustainability risks and negative impact on sustainability in the financial product they offer.
As such, the SFDR – like the NFRD – develops a double materiality approach. Financial
products in EU law’s definition do not include bonds, but products such as pension schemes.664
Regarding sustainability risks, financial actors shall include descriptions in pre‐contractual
disclosures about the way sustainability risks are integrated into their investment decisions;
and the results of the assessment of the likely impacts of sustainability risks on the returns of

662
Council and European Parliament Regulation (EU) 2019/2088 of 27 November 2019 on
sustainability‐related disclosures in the financial services sector OJ L 317/1.
663
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13.
664
Council and European Parliament Regulation (EU) 2019/2088 of 27 November 2019 on
sustainability‐related disclosures in the financial services sector OJ L 317/1 Article 2 [Article 2 provides
a complete list of financial products: “(a) a portfolio managed in accordance with point (6) of this
Article; ((6) ‘portfolio management’ means portfolio management as defined in in point (8) of Article
4(1) of Directive 2014/65/EU); (b) an alternative investment fund (AIF); (c) an IBIP; (d) a pension
product; (e) a pension scheme; (f) a UCITS; or (g) a PEPP”].

155
the financial products they make available.665 Regarding the integration of negative impact on
sustainability, financial actors shall include in the pre-contractual documentation of their
financial products a clear and reasoned explanation of whether, and, if so, how a financial
product considers principal adverse impacts on sustainability factors and a statement that
information on principal adverse impacts on sustainability factors. 666 This applies to
mainstream financial products, by opposition to products that promote or have sustainability
as their objective. For this latter category of products, the SFDR mandates the disclosure in
the pre-contractual documentation of information on sustainability risks required by Article 6,
plus information on how the sustainable characteristics are met and information about the
consistency of the chosen reference benchmark with the sustainable characteristics of the
product, including information about how the objective of low carbon emission exposure of
the product is consistent with achieving the long‐ term global warming objectives of the Paris
Agreement.667 For these sustainable financial products, the Taxonomy Regulation added to
these pre-contractual disclosures the mandatory disclosure of the environmental objective(s)
– chosen among the six environmental objectives defined by the Taxonomy Regulation –
pursued by the financial product, and a description of how and to what extent the investments
underlying the financial product are in economic activities that qualify as environmentally
sustainable under the Taxonomy Regulation.668

Alignment of EU precontractual disclosure requirements for financial products with

green bond regimes. EU’s emerging sustainability disclosure regime for financial products
has a wider sustainability scope than green bond regimes. Indeed, it aims at enabling the
communication of three types of sustainability information, while the green bond regime only
targets one and sometimes two. These three types are sustainability risks, sustainability
negative impacts and contribution to sustainability objectives. Green bond regimes completely
ignore sustainability risks,669 sometimes start to take into account the negative sustainability
impacts, and essentially focus on the contribution to sustainability objectives. Therefore, the
disclosures regarding the two first items (risks and negative impacts) are of no use for the
green bond regime, and reciprocally, the green bond regime is of no use for fulfilling these
disclosures.

665
Council and European Parliament Regulation (EU) 2019/2088 of 27 November 2019 on
sustainability‐related disclosures in the financial services sector OJ L 317/1 Article 6.
666
Ibid, Article 7.
667
Ibid, Articles 8 and 9.
668
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Articles 5 and 6.
669
At least as long as a contribution to climate change mitigation is not considered as equating reduced
climate transition risks.

156
Alignment regarding the contribution to sustainability objectives. Regarding the
contribution to sustainability objectives, EU’s disclosure regime reproduces the ambiguities
of the green bond transparency regime. EU’s regime hesitates between two strategies that are
also at play in the green bond system, namely GBP and CBI’s strategies. On the GBP’s side,
issuers are called to explain to the market what their methodology is to determine an
investment as green. This is the strategy followed by the SFDR. On CBI’s side, issuers must
demonstrate that their investments fit categories of sustainable investments (defined in a
taxonomy). This is the strategy followed by the Taxonomy Regulation, further explained in
the next chapter of this thesis. However, there is a substantial difference between CBI’s
standard and the disclosures the Taxonomy Regulation sets for financial products: while CBI’s
standard mandates the disclosure of the eligible projects that conform to the eligibility criteria
of Climate Bonds Initiative’s taxonomy,670 the Taxonomy Regulation requires the issuer to
provide “a description of how and to what extent the investments underlying the financial
product […] qualify as environmentally sustainable” 671 under the EU taxonomy. In other
words, this is the logic of the GBP that prevails again: financial actors are free to decide what
is climate oriented, green or sustainable as long as they explain to the market how they come
to this sustainable qualification.

3.2. POST-ISSUANCE DISCLOSURES IN INTERNATIONAL FINANCIAL

REGULATION

Outline. Regarding post-issuance, green bond regimes foster the emergence of a third kind of
sustainable finance transparency that is neither built on impact or risk like some major
sustainable finance standards, but on alignment with public plans. This section highlights this
novelty by comparing green bond post-issuance requirements to post-issuance ESG
disclosures applicable to equity. Indeed, unlike green bond standards, international financial
regulation only includes minimal obligations on post-issuance disclosures for bonds.
Therefore, the most relevant disclosures requirements relate to post-issuance ESG disclosures
applicable to equity. This comparison shows that green bond disclosure rules remain un-
connected to these emerging sustainability disclosure regulations. The main regulations
analysed here are the Task-force on Climate-related Financial Disclosure (TCFD)
recommendations and the EU non-financial – sustainability reporting.

670
Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019) 6
<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf> accessed 17 June
2022.
671
Regulation (EU) 2020/852 of the European Parliament and of the Council on the establishment of a
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L
198/13, Article 5.

157
Lack of post-issuance disclosure requirements for bonds. International financial regulation
has little requirements regarding disclosures once the bond is issued, since the emphasis of the
regulatory framework is on the issuance of the bond. Once the bond is issued, common
contractual obligations may oblige issuers to communicate notices to bondholders if they plan
to change the terms of the bond or in case of default on debt, but there is no widespread
obligation to communicate regularly about financial performances as there is for equity.672
This is maybe due to the fact that the secondary bond market is not very liquid nor dynamic
and that a bond does not considerably change in value, as long as the issuer can repay the debt.
In this regard, green bond standards introduced a novelty in capital market law that has little
pre-existing requirements to be coordinated with.

Coordination with TCFD requirements. The challenge for green bonds post-issuance
impact disclosures relates to the coordination with the flurry of ESG disclosure standards being
developed for corporations. The most influential international standard on disclosures relating
to climate risks is the TCFD standard. Led by the Financial Stability Board,673 the TCFD drew
from the work of existing voluntary and mandatory climate-related reporting frameworks,
including those developed by the Climate Disclosure Standards Board, the Climate Disclosure
Projects, the Global Reporting Initiative (GRI) and others. The TCFD issued voluntary
recommendations providing a general framework for climate-related financial disclosures
applicable to corporates and financial institutions in 2017. By the end of 2021 more than 2,600
organizations globally had declared their support for the TCFD. 674
Though the
recommendations are voluntary, it is expected that the recommended disclosures by TCFD
will become mandatory in due course, such as in Hong Kong.675 The recommendations are
adoptable by all organizations and designed to help decision making by bringing future issues
into the present through scenario analysis.676 In addition, the TCFD is structured around four

672
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 224.
673
Financial Stability Board, About <https://www.fsb.org/about/> accessed 28 July 2022 [“The
Financial Stability Board (FSB) was established in April 2009 by the G20 It is “an international body
that monitors and makes recommendations about the global financial system”].
674
Task Force on Climate-related Financial Disclosures (TCFD), Status Report (2021)
<https://www.fsb.org/wp-content/uploads/P141021-1.pdf> accessed March 14th 2022.
675
Securities and Futures Commission (Hong Kong) and al., Strategic Plan to Strengthen Hong Kong’s
Financial Ecosystem to Support a Greener and More Sustainable Future (2020) <https://www.sfc.hk/-
/media/EN/files/ER/Strategic-Plan-20201215-Eng.pdf> accessed March 14th 2022; Securities and
Futures Commission (Hong Kong) and al, Cross-agency steering group launches its Strategic Plan to
Strengthen Hong Kong’s Financial Ecosystem to Support a Greener and More Sustainable Future
(2020) <https://apps.sfc.hk/edistributionWeb/gateway/EN/news-and-
announcements/news/doc?refNo=20PR128> accessed March 14th 2022.
676
Task Force on Climate-related Financial Disclosures, Final Report: Recommendations of the Task
Force
on Climate-related Financial Disclosures (2017) iii
<https://assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf> accessed March
14th 2022.

158
thematic areas: governance, strategy, risk management, and metrics and targets. A key element
of these recommendations is the distinction between transition and physical climate risks – the
risks of losing assets in the process of climate transition for the former or as an effect of climate
change for the latter.677

Alignment of green bond standards with TCFD recommendations. So far, disclosures

requirements relating to green bonds are more precise and stringent than the TCFD, but they
have a different perspective. Green bond disclosures are focused on impact and alignment with
public plans whereas the TCFD are focused on risks. The two logics may be combined
regarding transition risks, since the assets the least exposed to transition risks are logically the
ones having positive climate impacts. However, this equivalence between high climate
mitigation impact and low climate transition risk is not spelled out in the TCFD nor in green
bond standards. This lack of conceptual coordination may be an important hindrance to the
effectiveness of both. More generally, coordinating green bond disclosures with TCFD
requirements would imply that the governance, strategy, risk management and metric and
targets elements filed by corporations for their TCFD disclosures are the same as the one they
submit in their pre-issuance and post-issuance green bond disclosures. Currently, the practice
on the green bond market is very far from such a harmonization.

EU sustainable finance disclosure and reporting obligations. In addition to pre-contractual

disclosures mentioned in the section 3.1 of this chapter, firms within the scope of the SFDR
must maintain up-to-date sustainability disclosures on their website and add certain
sustainability information in their periodic reporting. These website disclosures relate to
sustainability policies followed by the firms, the consideration of sustainability adverse
impacts, and the integration of sustainability into financial products. The periodic
sustainability reporting consists in information regarding the performance of their sustainable
financial products. More precisely regarding website disclosures, financial market participants
and financial advisers shall first publish information about their policies on the integration of
sustainability risks in their investment decision‐making process, investment or insurance
advice.678 Second, financial market participants shall indicate on their website information
about the consideration of adverse sustainability impact. This information shall include “where
[financial market participants] consider principal adverse impacts of investment decisions on
sustainability factors [and] a statement on due diligence policies with respect to those impacts
[…]”679 (option (a)) or “where they do not consider adverse impacts of investment decisions

677
Ibid ii.
678
Council and European Parliament Regulation (EU) 2019/2088 of 27 November 2019 on
sustainability‐related disclosures in the financial services sector OJ L 317/1, Article 3.
679
Ibid Article 4.

159
on sustainability factors, clear reasons for why they do not do so, including, where relevant,
information as to whether and when they intend to consider such adverse impacts”680 (option
(b)). Regarding the option (a), financial market participants shall communicate at least
information about their policies, actions and plans in relation with sustainability impacts as
well as information about “their adherence to responsible business conduct codes and
internationally recognised standards for due diligence and reporting and, where relevant, the
degree of their alignment with the objectives of the Paris Agreement.”681 Similarly, financial
advisers must disclose on their website whether they take into account or not adverse
sustainability impacts.

SFDR’s periodic reporting and website disclosure in relation to sustainable financial

products. The previous paragraph detailed the website disclosures at the firm’s level,
regarding sustainability policies and adverse sustainability impacts. The SFDR also mandates
periodic reporting and website disclosure of information directly related to sustainable
financial products. Thus, financial market participants, if they make available sustainable
financial products, shall include in their periodic reports “the extent to which environmental
or social characteristics are met”682 or, depending on the type of financial product, “the overall
sustainability‐related impact of the financial product by means of relevant sustainability
indicators”683 or, “if an index has been designated as a reference benchmark, a comparison
between the overall sustainability‐related impact of the financial product with the impacts of
the designated index and of a broad market index through sustainability indicators.” 684 In
addition, financial market participants shall publish on their websites all the pre-contractual
information to be disclosed for sustainable financial products according to articles 8 and 9 of
the Regulation. In addition, this information shall include “a description of the environmental
or social characteristics or the sustainable investment objective” 685 ; information “on the
methodologies used to assess, measure and monitor the environmental or social characteristics
or the impact of the sustainable investments,” 686 including the data sources, screening criteria
and relevant sustainability indicators. Finally, financial market participants shall publish on
their websites the information included in the periodic reporting required by the Article 11 just
explained above in this paragraph.

Alignment of green bond standards with EU Sustainable Finance disclosure Regulation.

EU sustainable finance disclosure regulation, as explained in the section 3.1 of this chapter,

680
Ibid Article 4.
681
Ibid Article 4.
682
Ibid Article 11.
683
Ibid Article 11.
684
Ibid Article 11.
685
Ibid Article 10.
686
Ibid Article 10.

160
has a broader scope than green bond standards, insofar as sustainability risks and negative
impacts are considered, whereas green bond standards focus on the positive contribution of
some projects to environmental policy objectives. This difference in scope is found also for
post-issuance or continuous disclosure and reporting. On a more formal aspect, it is notable
that the SFDR does not reproduce the distinction between allocation report, and impact report
found in general in green bond standards. All the information is gathered on the website of the
financial entity. Another difference lies in the additional permissiveness allowed by the SFDR
through the “comply and explain” approach: if a financial entity is not able to disclose certain
sustainability information, this financial entity has to explain why. Green standards tend to
ignore this “comply or explain” approach. As explained in the section 2.2 of this chapter, the
post-issuance reporting rules are not very strict, nor very detailed, but in most cases, they need
to be applied, without possibility to explain why they have not been implemented. EU’s rules
are also unambitious, when they mandate that financial market participants shall disclose in
their periodic report “the extent to which environmental or social characteristics are met,”687
suggesting the normalcy of sustainable finance product not meeting their sustainable
characteristics. Finally, the absence of third-party verification of the website disclosures or the
reporting about the impacts in the periodic report places the SFDR as sub-ambitious to most
green bond standards.

EU corporate disclosure regulations. The second most influential regulation globally on

ESG disclosure is the EU Non-financial Reporting Directive, and its associated guidelines.688
Since its entry into force in 2018, the EU Non-financial Reporting Directive (NFRD) 689
requires large public interest entities (companies with more than 500 employees) to disclose
“relevant, useful information that is necessary to understand their development, performance,
position and the impact of their activity, rather than an exhaustive, detailed report.”690 One of
the aims of this directive to “contribute as well to implementing the Paris Climate Agreement,
notably greater transparency is expected to lead to financial flows more consistent with a
pathway towards low greenhouse gas emissions and climate-resilient development.”691 More

687
Ibid Article 5.
688
European Commission, Communication from the Commission: Guidelines on non-financial
reporting
(2017/C 215/01) 2 <https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52017XC0705(01)&from=EN> accessed March 14th 2022.
689
European Parliament and Council Directive (EU) 2014/95 of the of 22 October 2014 amending
Directive EU 2013/34 as regards disclosure of non-financial and diversity information by certain large
undertakings and groups OJ L 330/1.
690
European Commission, Communication from the Commission: Guidelines on non-financial
reporting
(2017/C 215/01) 2 <https://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:52017XC0705(01)&from=EN> accessed March 14th 2022.
691
Ibid 2.

161
precisely, companies must disclose material information on key environmental, social and
governance policies, how risks stemming from ESG issues are managed, and what
sustainability performance indicators the entity is pursuing. The NFRD is complemented by
Non-Binding guidelines, listing existing standards and methodologies for ESG disclosures.
These guidelines intend “to help companies concerned disclose non-financial information in a
relevant, useful, consistent and more comparable manner.”692 The guidelines expose the six
key principles of non-financial disclosures, according to which these disclosures should be:
material (1); fair, balanced and understandable (2) ; comprehensive but concise (3); strategic
and forward-looking (4) ; stakeholder-orientated (5) ; consistent and coherent (6). These
guidelines detail the content of the disclosures as regards five disclosure areas: business model
(1), policies and due diligence (2), the outcome of these policies (3), principal risks and their
management (4) and key performance indicators (5). Finally, the guidelines list possible
reporting frameworks as being:

“the Eco-Management and Audit Scheme (EMAS), […] the United Nations (UN)
Global Compact, the Guiding Principles on Business and Human Rights implementing
the UN “Protect, Respect and Remedy” Framework, the Organisation for Economic
Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the
International Organisation for Standardisation's ISO 26000, the International Labour
Organization's Tripartite Declaration of principles concerning multinational
enterprises and social policy, the Global Reporting Initiative […].”693

These guidelines were complemented in 2019 by a “Supplement on reporting climate-related

information.”694 This supplement builds on the TCFD guidelines and the recommendations on
climate-related disclosures made by the Technical Expert Group on Sustainable Finance,
appointed by the Commission in June 2018.695 This supplement invite companies to disclose
elements such as their climate risks and opportunities, their climate scenario analysis or their
climate-related targets.

EU Taxonomy Regulation Article 8 disclosures. The EU Taxonomy sets out a disclosure

obligation for entities which are already within scope of the EU Non-Financial Reporting
Directive (NFRD). The delegated act relating to the disclosures set by Article 8 of the
Taxonomy Regulation requires in-scope entities to include in their non-financial statements or

692
Ibid 4.
693
Ibid 19.
694
European Commission, Communication from the Commission: Guidelines on non-financial
reporting: Supplement on reporting climate-related information (2019/C 209/01) <https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52019XC0620(01)&from=EN> accessed
March 14th 2022.
695
Ibid 3.

162
consolidated non-financial statements information on how and to what extent their activities
are associated with Taxonomy-aligned economic activities. In-scope entities will have
different key performance indicators, or KPIs, and different types of disclosure depending on
whether they are a financial or non-financial undertaking and on the type of financial
undertaking.696 These taxonomy-based disclosures are further discussed in Chapter 3.

EU expected change in corporate sustainability disclosure. In April 2021, the European

Commission published a proposal for a Corporate Sustainability Reporting Directive (CSRD)
in order to revise and strengthen the rules introduced by the Non-Financial Reporting Directive
(2014/95/EU) (NFRD). 697 Among the main proposed changes are the requirement that
sustainability information is subject to a limited level of audit assurance and that sustainability
information disclosed by companies abide by mandatory EU sustainability reporting standards
to be developed by the EFRAG. These mandatory reporting standards would themselves be
built, at least in part, on the EU sustainable finance taxonomy.698

Alignment of green bonds standards with EU corporate sustainability regulations. EU

corporate disclosure and reporting rules are evolving from a GBP and ISO model, where all
methodologies are accepted as long as the corporation justifies why it uses it, to a CBI model,
where the reporting must happen in relation to a given taxonomy. The proposed CSRD will
therefore make corporate disclosure extremely close to the proposed EUGBR, since both will
have to report information on the basis of the EU taxonomy. The centrality of the EU taxonomy
in the future disclosure regime of the EU also shows that the EU disclosure framework values
more the contribution of corporations to publicly defined environmental objectives than
corporations’ ability to limit sustainability risks or generate sustainability impacts.

3.3. THIRD PARTIES

Outline. Green bonds’ transparency also challenges the role of third parties involved in
transparency processes. Just as green bond standards often necessitate a third-party review, the

696
Platform on Sustainable Finance, Platform considerations on voluntary information as part of
Taxonomy eligibility reporting Appendix 1 (2021) 3
<https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents
/sustainable-finance-taxonomy-eligibility-reporting-voluntary-information_en.pdf> accessed March
14th 2022.
697
European Commission, Proposal for a Directive of the European Parliament and of the Council
amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU)
No 537/2014, as regards corporate sustainability reporting, COM/2021/189 final <https://eur-
lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52021PC0189&from=EN> accessed March
14th 2022.
698
Simmons and Simmons, EU proposal for a Corporate Sustainability Reporting Directive (CSRD)
(2021) <https://www.simmons-simmons.com/en/publications/ckq2dt9nx1jdk0957na53e2j3/eu-
proposal-for-a-corporate-sustainability-reporting-directive-csrd-> accessed 14 March 2022.

163
bond market also functions with third parties between green bond issuers and investors. These
third parties for the plain bond market include the underwriters (lead managers and the
syndicate of banks), auditors, fiscal agent, bond exchange and potentially a trustee. These third
parties are essential for creating the confidence between issuers and investors. However, these
third parties are absent from the prescriptions of green bond standards. This absence reflects
the difficulty to integrate the traditional private third parties of the bond market into a scheme
aimed at environmental aims.

A key third party: the underwriters. The banks which organize the issuance of the bond are
called the underwriters. For each bond transaction, underwriters can be lead or co-managers
or part of the syndicate. The banks acting as manager constitute the syndicate (which is made
of other banks), which is a distribution network for the issue, in charge of using their contacts
and knowledge of the market to find investors (what is called “book building”).699 In most
bond issues, the syndicate agrees with the issuer to subscribe to all the bonds, even if they
cannot find investors. The underwriter provides the issuer with the assurance of knowing the
amount of the funds it will receive. However, underwriters have a paradoxical place in green
bond standard. Banks underwriting bonds were central in the drafting of the main green bond
standards, the GBP. Paradoxically – or perhaps, logically – they are utterly absent from the
provisions of the standard. No provisions of the standard create any recommendation
addressed to underwriters. This is especially lacking as, in practice, the decision to characterize
a bond issuance as green is often taken by the lead managers, who contact corporations and
advise them to issue green bonds to have a better access to capital markets. 700 This initial
absence from the GBP pervasively influenced later green bond standards, none of which
mention the role of the underwriters.

Auditors’ role for ensuring the reliability of information. In capital market’s practices and
standards, the issuer’s auditors will be asked to provide two documents: a comfort letter
confirming that there has been no material change to the issuer’s financial condition since the
last published accounts, and a “consent letter” consenting to the publication of their report in
the offering document.701 In case the issue is to be listed, the audited accounts may have to be
incorporated by reference, in the prospectus. 702 These contributions from the auditors are
crucial to ensure the confidence of investors in the validity of the financial information
provided by the company. An auditor engages his legal responsibility if he does not provide

699
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 225.
700
Aaron Maltais and Björn Nykvist Understanding the role of green bonds in advancing sustainability,
(2020) Journal of Sustainable Finance & Investment <https://doi.org/10.1080/20430795.2020.1724864>
accessed 18 November 2021.
701
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 225.
702
Ibid 223.

164
an accurate representation of the financial situation of the corporation. However, the role of
environmental verifiers and certifiers for green bonds does not amount to an extension of
financial auditors’ regime to environmental issues. Environmental verifiers and certifiers
usually only provide a certain degree of assurance that nothing came to their knowledge that,
on the basis of the information provided by the issuer, the bond was not aligned with the
requirements of the green bond standard chosen by the issuer.703 They do not provide any
assurance regarding the environmental situation of the issuer. In the best cases, environmental
verifiers and certifiers provide some information on the qualification of the projects financed
with the green bond under green finance classification systems.

Fiscal agents’ importance for communicating information to the bondholders and paying
them. The fiscal agent is appointed by the issuer and acts as his representative. The fiscal
agent is primarily responsible for paying the principal and the interests to the bondholders.
The fiscal agent also has some administrative functions, such as the publication of notices to
the bondholders. Doing so, the fiscal agent communicates financial information to the
bondholders, although he has no duty to review or investigate such information.704 The fiscal
agent is entirely absent from green bond standards, which deprives these standards from an
essential actor for bond payment and bondholder information.

Bond exchanges’ inconsistent rules with green bond standards. Bond exchanges are the
places where bonds are listed in order to be publicly traded. The listing of a bond implies that
the bond abides by listing rules. The listing rules for green bonds exchanges generally
reference some green bond standards and mandate the respect of such standards.705 However,
the reverse is not true: green bonds standards do not mention at all listing rules, whereas these
rules are important rules for the bond market. This leads to blatant issues of inconsistencies.
For instance, among Hong Kong Exchange’s listing rules, the most often used provisions706
are the ones enabling bond offers directed at professional issuers.707 Hong Kong’s listing rules
for professional investors are problematic insofar as the offering documents are not made

703
For instance, Sustainalytics, Second-Party Opinion Airport Authority Sustainable Finance
Framework (2021) <https://www.hongkongairport.com/iwov-
resources/file/sustainability/environment/sustainable-
finance/Airport_Authority_Sustainable_Finance_Framework_Second-Party_Opinion_Final.pdf>
accessed 17 June 2022.
704
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 220.
705
Luxemburg Green Exchange, Displaying Bonds on LGX <https://www.bourse.lu/displaying-bonds-
on-LGX> accessed 15 March 2022.
706
Douglas W. Arner and Maurice Kwok-Sang Tse, Financial Markets in Hong Kong : Law and
Practice (Second ed. Oxford University Press, 2016) 257.
707
Securities and Futures Ordinance, (2002) Cap. 571, 1 Cap. 192, 1, § 1 (H.K.) [professional investors
include “recognized exchange company, recognized clearing house, recognized exchange controller or
recognized investor compensation company,” “any intermediary, or any other person carrying on the
business of the provision of investment services,” “any authorized financial institution,” etc].

165
available to the public. Since there is not prospectus or green bond framework publicly issued,
it means that the civil society cannot access the explanations regarding the green projects
financed by the green bonds. This lack of transparency makes impossible any kind of public
accountability regarding green bonds issued to professional investors. Hong Kong’s approach
in this respect is similar to those of the European Union and the United States that, under the
guide of protecting retail investors by ring-fencing offers directed at professional investors,
enables the existence of green bonds where the documentation is not made available to the
public.

The absence of trustees in green bond transactions. Trustees only appear in certain bond
transactions in common law jurisdictions, as trust arrangements are usually not recognized in
civil law jurisdictions. A trustee is appointed by the issuer but represents the interests of the
bondholders. As Adam explains, “the property held on trust is the issuer’s covenant to pays
the bondholders, […] the trustee’s power and duties are recorded on a trust deed, but he will
also owe the bondholders a duty of care.”708 A trust offers advantages, such as the possibility
for the issuer of “dealing with one sophisticated party representing the bondholders, rather
than dealing with a group of individuals”709 and, from the bondholders’ perspective, of relying
“on a professional entity (the trustee) to pursue the situation on their behalf.”710 Given the
complexities of green bond transactions, setting trusts in jurisdictions where this is possible,
could be an efficient way to overcome difficulties and improve the environmental
characteristics of the bond. Regrettably, trusts are entirely absent from green bonds standards’
recommendations.

4. CONCLUSION

This chapter showed that the green bond transparency regime is organized on three pillars:
pre-issuance disclosures, post-issuance disclosures and external reviews. Only a handful of
requirements does not fit into these three categories. As the definition of environmental
contribution is progressing thanks to green finance taxonomies, it redefines what transparency
is. Consequently, the transparency pilar is evolving towards becoming transparency about the
alignment with the taxonomies. As such, green bond regimes foster the emergence of a third
kind of sustainable finance transparency that is neither built on impact or risk, but on alignment
with public plans. However, this transformation of transparency generates inconsistencies
when the interactions between green bond transparency standards and international financial

708
David Adams, Banking and Capital Markets 2021 (College of Law Publishing: 2021) 236.
709
Ibid 217.
710
Ibid 222.

166
regulation is studied. How “information” is conceptualized in the mainstream financial
regulation is an obstacle to further integration of green bond requirements into the mainstream
bond regulations. Indeed, information is still mainly understood as financial information,
which excludes environmental information in the margins. Rethinking international financial
regulation to fully integrate green bond’s transparency regime implies in particular reforms
regarding the definition of materiality and the role of third parties involved in transparency
processes.

167
168
 CHAPTER V: IMPLEMENTATION AND CONTROL

ABSTRACT

Given the prominent public aspect of green bond normative architecture, private actors can
hardly be the adequate entities to implement and control such rules. This chapter documents
the deficiencies of the implementation, non-judicial and judicial control of green bonds issued
in Hong Kong, with global comparative perspectives. Green bonds issued in Hong Kong were
chosen for their abilities to gather features of legal systems of the main green bonds markets:
Western countries (the EU and the US) and China. The situation in Hong Kong is compared
with what the secondary literature says of other important financial markets. This chapter
shows structural deficiencies common to Hong Kong and the global green bond market, due
to the small involvement of public actors (such as NGOs or public authorities) to protect the
public interests at stake. Private actors in presence (external reviewers and investors) have
essentially no interest in seeing a public interest being defended, and therefore are only
marginally able to correct mis-implementation of green bond rules. The considerations
exposed in this chapter contradict Park – who does not see any issue in green bond control – ,
Forsbacka – who does see an issue, but only advocates light control over transparency – and
Badenhoop – who advocates control through a civil liability mechanism – by showing that the
main control mechanisms must be centred around public interests and entrusted to public
authorities.

1. INTRODUCTION

Background. Sustainable finance has been rife with scandals about green bonds with doubtful
credentials. As we have seen in the previous chapters, this is partly explainable by the
characteristics of the emerging green bond legal regime, which is used to be focused on
ensuring transparency, and only partially focused on defining what is green. But having said
that, are existing standards correctly implemented? What is the practice of market? Are green
bonds controlled? In other words, can greenwashing be explained by insufficiencies of the
regulatory regimes (chapters III and IV) or by failings in the implementation and control of
the emerging legal regime? The implementation and control of green bond standards are, like
for international financial law, a very peculiar subject due to the highly internationalized nature
of the financial markets. Therefore, studying the implementation and control of a single green

169
bond standard in a single country would not make much sense. On the contrary, this chapter
approaches a network of transnational actors and several jurisdictions, starting from green
bonds issued in Hong Kong.

Literature on the implementation and control of green bond regulatory regimes. Given
the relatively recent apparition of green bonds, most of the legal literature does not deal in
depth with implementation and control questions. For instance, Park’s landmark article 711
focuses on the construction of the regulatory regime for green bonds and completely overlooks
the implementation and control issues. This approach is shared by Wang,712 Bishop,713 Lin and
Hong714 and many others. The few authors interested in the implementation of the green bond
regime agree to find deficiencies in green bond standards’ implementation and control. For
instance, Forsbacka and Vulturius715 show that the terms and conditions of green bonds on this
market are particularly unambitious, and therefore not consistent with the environmental
ambitions presented in green bond standards.716 Cornut shows that Canadian issuers are careful
not to give any hint of legal commitment relating to the green characteristics in the legal
documentation of their bond, 717 in contradiction with the spirit of the green commitments
created by green bond standards. Banahan develops an interesting critique of third-party
verification, likening to the deficient credit rating system that led to the 2007 Great Financial
Crisis. 718 Badenhoop proposes to supplement green bond’s administrative control by a
decentralized enforcement system based on civil liability. 719 A few other non-legal studies

711
Stephen Kim Park, ‘Investors as Regulators: Green Bonds and the Governance Challenges of the
Sustainable Finance Revolution’ (2018) 54:1 Stanford Journal of International Law 1.
712
Echo Kaixi Wang, ‘Financing Green: Reforming Green Bond Regulation in the United States’ (2018)
12 Brooklyn Journal of Corporate, Financial & Commercial Law 467
713
Nathan Bishop, ‘Green Bond Governance and the Paris Agreement’ (2019) 27 New York University
Environmental Law Journal 377.
714
Lin Lin and Hong Yanrong, ‘Developing a Green Bonds Market: Lessons from China’ (2022) 23
European Business Organization Law Review 143.
715
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
716
Ibid.
717
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
718
Cristina M Banahan, ‘The Bond Villains of Green Investment: Why an Unregulated Securities
Market Needs Government to Lay Down the Law’ (2019) 43 Vermont Law Review 841.
719
Nikolai Badenhoop, ‘Green Bonds An assessment of the proposed EU Green Bond Standard and its
potential to prevent greenwashing’ (2022) Study Requested by the ECON committee of the European
Parliament 76
<https://www.europarl.europa.eu/RegData/etudes/STUD/2022/703359/IPOL_STU(2022)703359_EN.
pdf> accessed 15 May 2022.

170
reflect on economic or environmental performances of green bonds,720 which sometimes point
at implementation issues.

Objective. This chapter aims at complementing and furthering the literature on green bonds
standards and regulations’ implementation and control. It complements the literature as it
focuses on the implementation of green bond standards on Hong Kong green bond market and
compares this market with others important green bond markets (chiefly, the EU, the US and
Mainland China markets). This chapter also furthers the literature by adding an argument that
is not present in earlier green bond academic productions. It is argued here that structural
obstacles prevent the implementation of green bond’s rules. First, one should recognize that
investors have no interest into trying to enforce rules related to the environmental contribution
of green bonds, as these rules protect public interests, such as the mitigation of climate change
or the protection of the biodiversity. A system of incentives attached to green bonds has yet to
translate these public interests into substantial private ones. Second, investors could have an
interest into ensuring the enforcement of transparency rules since it relates to the
characteristics of the financial instrument they buy, but this private interest relating to the
accuracy of green bonds’ environmental information is, in most cases, too small to justify any
legal action.

Methodology. This chapter studies the implementation and control on Hong Kong’s green
bond market and compares it with what secondary sources report about the main green bond
markets (US, EU and mainland China). Those green bonds are essentially those listed on the
Hong Kong Sustainable and Green Exchange (STAGE),721 plus a few controversial green bond
issuances, such as the one of the Hong Kong Airport Authority. 722
Studying the
implementation of the green bond regulatory regime consists in studying the distance between
the documentation published by the issuer (prospectus, green bond framework, reporting) and
the requirements set by green bond standards analyzed in chapters III and IV. Studying how
green bonds are controlled implies studying non-judicial means of control and judicial ones.
“Non judicial means of control” encompass initiatives from external reviewers, the civil
society and financial regulators deployed in order to discourage some issuers from claiming

720
For instance, Morgane Nicole, Igor Shishlov, Ian Cochran, Green Bonds: Improving their
contribution to the low-carbon and climate resilient transition (I4CE 2018) <https://www.i4ce.org/wp-
core/wp-content/uploads/2018/03/I4CE-GreenBondsProgram-Contribution-Energy-Transition-web-
5.pdf> accessed 1 October 2021.
721
Hong Kong Exchanges and Clearing (HKEx), Discovering our sustainable finance products
<https://www.hkex.com.hk/Join-Our-Market/Sustainable-Finance/HKEX-STAGE/Product-
Repository?sc_lang=en> accessed 17 June 2022.
722
Hong Kong Airport Authority, Sustainable Finance Framework (2021) 12
<https://www.hongkongairport.com/iwov-resources/file/sustainability/environment/sustainable-
finance/AA_Sustainable_Finance_Framework_Final.pdf> accessed 16 May 2022.

171
as green activities that are widely not considered so. Judicial control describes what courts
could say if they had to intervene on a dispute involving green bonds.

Structure of the chapter. This chapter starts by inquiring into the implementation practices
on the Hong Kong green bond markets, with comparative elements from other jurisdictions. It
shows that the level of implementation is low: HK’s green bonds are often opaque, and their
environmental contribution is fuzzy (2). This chapter then turns to non-judicial ways of
monitoring, revealing their central importance for the Hong Kong green bond market but also
their deficiencies in the current state, especially regarding external reviewers and civil society
organizations. An efficient administrative control is sorely missing (3). After that, this chapter
analyzes the judicial control applicable to Hong Kong’s green bonds. This section underlines
that virtually no cases are known today, but there are some possibilities, although limited by
strong contractual protections and lack of interest for private actors in bringing a judicial action
in front of a court (4). It finally concludes on the general insufficiency in implementation and
control for the general public to feel confident in the effectiveness of green bonds.

2. IMPLEMENTATION

Outline. This section studies how Hong Kong’s green bond issuers implement the main
requirements of green bond standards, in terms of transparency (2.1) and of environmental
contribution pursued by the bond (2.2). This section finds that Hong Kong’s green bonds
remain quite opaque despite the transparency rules included in green bonds standards, and
their environmental contribution is only very sketchily drawn.

2.1. IMPLEMENTATION OF TRANSPARENCY REQUIREMENTS

Outline. As explained in chapter III, the main requirements on transparency can be analyzed
as pre-issuance (2.1.1) and post-issuance (2.1.2) disclosures.723 Pre-issuance disclosures of
Hong Kong’s green bonds are often quite sophisticated but nonetheless contradictory, while
post-issuance disclosures are primarily characterized by their frequent absence.

2.1.1. IMPLEMENTATION OF PRE-ISSUANCE DISCLOSURES REQUIREMENTS

Outline. After a reminder about the pre-issuance disclosure requirements, this sub-section
turns to the Hong Kong’s green bond exchanges regarding legal documentation practices for
offering circulars and green bond frameworks. These practices are compared with green bond

723
In addition to pre-issuance and post-issuance disclosures, Chapter IV also includes developments on
external reviewers. Eternal reviewers are not dealt with in this section on the implementation of
transparency requirement, but in section 3.1 as they are an element of non-judicial control over green
bonds.

172
offering circular practices in other markets. This sub-section shows a contrasted level of
implementation of green bond standards.

Reminder of pre-issuance disclosure requirements. In order to assess the implementation

of transparency requirements, these requirements must first be quickly recalled.724 Green bond
standards impose requirements applicable to the legal documentation of the bond (the
prospectus – offering circular) and the ad hoc green bond documentation (the green bond
framework – statement – factsheet). For the legal as much as the ad-hoc documentation, some
description of the green bond is in general required. These requirements follow the five main
points of the GBP: must be disclosed [1] the green investment area/categories, [2] decision
making procedures (criteria used, processes to identify environmental risks), [3] elements
regarding the management of the proceeds (types of temporary instruments, share of
refinancing), [4] elements regarding post-issuance reporting (e.g. approach chosen for update
reports) and [5] the chosen mode of external review (e.g. verifier/ provider of second-party
opinion selected). The difference between the transparency requirements for the legal
documentation and ad-hoc documentation is that green bond standards mandate greater details
in the green bond framework, as it is meant to fully characterize the greenness of the bond.
This subsection on the implementation of pre-issuance disclosures of STAGE green bonds
starts by assessing the legal documentation implementation, followed by the green bond
frameworks. For each assessment, a comparative perspective is given, by using secondary
literature which assessed the implementation and practices on other green bond markets.

STAGE legal documentation practices (Offering circulars). Green bonds listed on STAGE
generally mention in their offering circular the greenness of the bond and provide some
explanations about this characteristic. The utter absence of mention of the green nature of the
debt security in the legal documentation still exists 725 but comes as an exception. In the
offering circular, one can find the name of the bank(s) which served as “green structuring
advisor” (a new expression which is synonym with arranger for green bond issuance), a
reference to the Green Bond Framework (GBF), a description of the green use of proceeds,
some warnings in the “risk factors” section regarding the green characteristics of the bond,
and many lengthy disclaimers aiming at protecting the issuer, the arrangers, the second party
provider and all other actors who intervened in the green bond from liability in case the bond
is not as green as promised.726 Roughly half of STAGE green bonds have recourse to green

724
They are exposed in greater detail section 3.1 of Chapter IV.
725
For instance in Castle Peak Power Finance Co. 3.25% Notes 2027 Castle Peak Power,
<https://www.hkex.com.hk/Join-Our-Market/Sustainable-Finance/HKEX-STAGE/Product-
Repository?sc_lang=en> accessed 17 June 2022.
726
For instance as in ENN Energy Holdings LTD. 2.625% Green Senior Notes 2030
<https://www.hkex.com.hk/Join-Our-Market/Sustainable-Finance/HKEX-STAGE/Product-
Repository?sc_lang=en> accessed 17 June 2022.

173
structuring advisors; almost all of them incorporate by reference the GBF into the offering
circular. The use of proceeds sections, risks factors descriptions, as well as disclaimers
strategies are very homogeneous. The quasi totality of the green bonds displayed on STAGE
does not have green provisions in the terms and conditions section of the offering circular.727

Green Bond offering circular practices in other markets. The structure is generally similar
to green bonds issued by Nordic issuers, or the ones listed in Canada or on the Luxemburg
green exchange. The proportion of green bond prospectuses or offering circular that did not
include any reference to the green nature of the bond seemed seems to be more substantial in
Forsbacka and Cornut’s studies.728 In addition, Forsbacka indicates that green bond issuers do
not commit to any legal obligations in the legal documentation of green bonds, whereas several
STAGE green bond routinely recognize that “the Issuer and the Company have agreed to
certain obligations relating to use of proceeds and reporting as described under the sections
headed “Use of Proceeds” and “Green Finance Framework” of this Offering Circular
(emphasis added)”729 or that they “intend to adopt certain obligations with respect to the issue
of Green Bonds as described in the section headed “Notes Being Issued as Green Bonds
(emphasis added).”730 In this regard, this survey of STAGE green bonds reveals an increase in
the normative value of commitments linked to green bonds.

STAGE ad-hoc green bond documentation practice (green bond framework – GBF).
STAGE Green bonds frameworks are documents that detail the green characteristics of the
bond. They are sometimes called Sustainable/ green finance statements/frameworks. Although
not mentioned in the listing rules of the HKEx,731 there is an implicit rule that green bond
issuers must display a GBF, as all issuers on STAGE display one and STAGE references the
GBP in the “guidance materials” section. 732 GBFs usually start with general elements

727
Except for instance NWD (MTN) LTD. 3.75% Guaranteed Sustainability-Linked Notes 2031
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/NWD-
(MTN)-Ltd/40534_Pricing-Supplement_20210107.pdf> accessed 17 June 2022.
728
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397 ; Pascale Cornut St-Pierre, ‘L'innovation financière au secours de
l'environnement ? Perspectives juridiques sur les obligations vertes’ (Financial Innovation to the Rescue
of the Environment? Legal Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas,
Bénédicte François, and Anne-Catherine Muller (ed.), Finance durable et droit : perspectives
comparées (Sustainable Finance and Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).
729
Sino-Ocean Land Treasure IV LTD. 3.25% Guar. Green Notes 2026
<https://www.hkex.com.hk/Join-Our-Market/Sustainable-Finance/HKEX-STAGE/Product-
Repository?sc_lang=en> accessed 17 June 2022.
730
CIFI Holdings (Group) Co. LTD. 5.95% Senior Notes 2025 <https://www.hkex.com.hk/Join-Our-
Market/Sustainable-Finance/HKEX-STAGE/Product-Repository?sc_lang=en> accessed 17 June 2022.
731
HKEx, Rules and guidance / Debt security (chapters 22 to 37) <https://en-
rules.hkex.com.hk/rulebook/debt-securities-1> accessed 17 June 2022.
732
STAGE, Resources library <https://www.hkex.com.hk/Join-Our-Market/Sustainable-
Finance/HKEX-STAGE/Resources-Library?sc_lang=en> accessed 17 June 2022 [the GBP mandate the
issuer to publish a GBF].

174
regarding the environmental – sustainability strategy of the issuing entity. Then, they present
what are the measures taken by the issuer to ensure the five points of the GBP: the allocation
of proceeds, the selection criteria, the management of proceeds, the reporting and the external
review. The quality and degree of details of these frameworks are variable, but all issuers on
STAGE have some sort of framework. Their length ranges from 7 to 25 pages. the quality of
the GBF is very variable depending on the issuer. Some issuers provide many details
(including quantified indications) when defining “eligible projects,” while other issuers
include generic definitions, and refer to the general categories listed by the GBPs. Most of the
time, one framework by one issuer is applicable to several green bond programs. These
frameworks also reference the standards or regulations they intend to apply. Most of the
STAGE frameworks reference the GBP, generally in their 2017, 2018 and 2020 versions. Even
the Hong Kong Special Administrative Region’s green bond issuance refers to the GBP as the
directing standard and not to the Chinese green bond regulations.733 It is also common to see
references to the Green Loan Principles (also by the ICMA, the organization that publishes
and updates the GBP), especially for financial institutions, as these frameworks can be
construed by issuers as the overarching frame for “sustainable finance transactions” 734 (bonds
and loans). HKQAA’s certification scheme is also mentioned.735 However, no state green bond
regulation is mentioned (neither Mainland China regulation, nor EU’s or South-East Asia’s).

Green bond framework practices in other markets. STAGE practices on GBF do not depart
from the international practice in any substantial point. Like on the STAGE, green bond
frameworks on the global green bond market are generally re-used several times: according to
the European Commission, 56 percent of bond volume for 2019 was made up of issuers who
issued several times during 2019 alone, with a significant number of issuers (79) issuing twice
a year, and 53 issuers issuing more frequently than that.736 On the largest green bond exchange
– the Luxemburg bond exchange – all issuers publish a green bond framework, in which they
describe with various degrees of precision the main environmental characteristics of their
green bond. Although almost all issuers have their GBF externally reviewed, studies show
deficiencies in these GBF, such as the fact that some corporate issuers forget to restate their

733
The Government of the HKSAR of the PRC 1.75% Notes 2031 <https://www.hkex.com.hk/Join-Our-
Market/Sustainable-Finance/HKEX-STAGE/Product-Repository?sc_lang=en> accessed 17 June 2022.
734
Zhaoqing Guolian Investment Holding Co LTD 2.68% Bonds 2024 <https://www.hkex.com.hk/Join-
Our-Market/Sustainable-Finance/HKEX-STAGE/Product-Repository?sc_lang=en> accessed 17 June
2022.
735
MTR Corporation LTD 2.98% Fixed Rate Notes 2047 <https://www.hkex.com.hk/Join-Our-
Market/Sustainable-Finance/HKEX-STAGE/Product-Repository?sc_lang=en> accessed 17 June 2022.
736
Commission Staff Working Document, Impact Assessment Report Accompanying the document
Proposal for a Regulation of the European Parliament and of the Council on European green bonds,
SWD(2021) 181 final, 91 <https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2021:0181:FIN:EN:PDF> accessed 17 June 2022.

175
climate change target in their GBF.737 Another similarity between STAGE and the global green
bond market is the divide between corporate and sovereign issuers. Sovereign issuers’ GBF is
generally of better quality than private ones: project descriptions are more precise (although
State often have some constraints preventing them from being too detailed) 738 and procedural
safeguards are more developed.

Discussion of green bond standards implementation on STAGE. Regarding the disclosure

principles identified by the ISO (transparency, accuracy, completeness and relevance), one can
regret that they are not fully implemented. STAGE green bond issuers could be much more
transparent, for instance as many of the pre-issuance disclosures could include more “open,
comprehensive and understandable presentation of information.”739 The precise list of green
projects financed is generally not disclosed. 740 In terms of accuracy, completeness and
relevance, the data on the most pressing environmental issue (climate change) are sorely
missing: while post-issuance disclosures sometimes inform about the amount of CO2 avoided
thanks to the project (generally calculated with basic methodologies), pre-issuance disclosures
almost never seriously address the question of the alignment of their green projects with
climate change mitigation efforts and sometimes do not mention it at all.741

2.1.2. IMPLEMENTATION OF POST-ISSUANCE DISCLOSURES REQUIREMENTS

Outline. After a reminder of post-issuance disclosure requirements, this sub-section turns to

STAGE allocation and impact report practices, compared with other green bond markets. Post-

737
Heidi Tuhkanen and Gregor Vulturius, ‘Are green bonds funding the transition? Investigating the
link between companies’ climate targets and green debt financing’ (2020) Journal of Sustainable
Finance & Investment 8.
738
Commission Staff Working Document, Impact Assessment Report Accompanying the document
Proposal for a Regulation of the European Parliament and of the Council on European green bonds,
SWD(2021) 181 final, 39 and 135 <https://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=SWD:2021:0181:FIN:EN:PDF> accessed 17 June 2022
[sometimes, the “Green Bond Framework of a sovereign issuer cannot commit a Parliament or pre-empt
the final decision on the allocation of state funds.” “For example, Poland’s green bond framework
includes expenditures in the form of “budget allocation” (for example for excise tax exemption for
renewable energy) and subsidies for all eligible sectors”].
739
International Organization for Standardization (ISO), ISO 14030: Environmental performance
evaluation —
Green debt instruments; Part 1: Process for green bonds (2021) 4.
740
As for instance in Bank of China Limited Sustainability Series Bonds 1 Management Statement (2020)
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Bank-of-
China/40182_Social-Bond_20200306/BOC-Sustainability-Series-Bonds-Management-Statement-
2020.pdf> accessed 17 June 2022.
741
For an example with no reference at all to climate change mitigation: CIFI Holdings, Green Finance
Framework (2020) <https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/CIFI-Holdings-Group-Co-Ltd/40316_Green_Bond_20200721/40316_Green-Finance-
Framework-Final.pdf?la=en> accessed 17 June 2022.

176
issuance reporting on STAGE fails to implement some of the best practices on the market but
reflects overall the mediocre quality of post-issuance reporting on global green bond markets.

Reminder of post-issuance disclosure requirements. Post-issuance disclosure requirements

in green bond standards generally mandate the publication of an allocation report and an
impact report. The allocation report must contain a list of projects, a description of these
projects, the amount invested in them and the expected environmental impacts. The impact
report must include quantitative (expressed in commonly accepted “environmental metrics”)
and qualitative information about the performance of the green projects. The methodologies
and assumption underlying such information must also be disclosed. It happens in some
standards that comply or explain provisions mandate to disclose information at project level
or to explain why the information is disclosed at the aggregated level.742

STAGE allocation report practices. Most green bonds displayed on STAGE are
accompanied by a yearly allocation report if they are more than one year old. However, a
substantial share of the bonds is not provided with impact reports on STAGE. In addition,
allocation reports seldom include a full list of the projects. Most of the time, only the share of
the proceeds invested in each category is provided. Since there is no list of the projects, there
cannot be description of the projects either, nor amount, nor expected environmental impacts.
These elements are sometimes provided, but generally at aggregated levels (the level of a
category of projects, such as solar energy, or transportation). This lack of proper allocation
reporting hinders any critical review of the bond by civil society organizations.

Allocation report practices in other markets. Hong Kong’s green bonds are consistent with
the global trend which sees more reporting on allocation than impacts. According to CBI, 77
percent of issuers provide allocation reporting, while 59 percent of issuers reported on impacts
in 2021 and 57 percent of issuers reported on both allocation and impacts. 743 However, while
CBI notes that “most issuers report at project level, and the proportion seems to be rising,”744
the same cannot be said about STAGE, where project level reporting is lacking. Allocation
report practices are very different according to the geographical origin of issuers, as CBI’s
ranking of countries according to the quality of reporting of green bonds issued in their
jurisdiction.745 CBI also notices that less mature markets, such as Africa or South America,
report less.

742
See section 2.2 of Chapter IV.
743
Climate Bonds Initiative, Post-Issuance Reporting in the Green Bond Market (2021) 4
<https://www.climatebonds.net/files/reports/cbi_post_issuance_2021_02g.pdf> accessed 17 June 2022.
744
Ibid 5.
745
Ibid 54.

177
STAGE impact reporting. Most STAGE green bonds include an impact report section in the
post-issuance report. This impact report sometimes showcases two or three examples of green
projects. The metrics used are often relative metrics, showing reduction or avoided pollution
(expressed in tons of equivalent CO2 for instance),746 pollution in relation to the production
(such as CO2 emission intensity per quantity of electricity produced, expressed in
gCO2/kWh),747 or energy and material consumption in relation to the surface built or owned
(energy consumption per square meters, or water consumption per square meters). 748 This
approach is problematic insofar as it generally hides increases of absolute quantities of CO2,
pollution, energy or materials mobilised in relation to the economic activities. Sometimes only,
the metric represents an absolute quantity, such as the surface of land restored or preserved.749
On STAGE, these indicators are usually not put into relation with benchmarks.

Impact reporting on other markets. CBI notes that “impact reporting is increasingly
common, but more complex than [allocation] reporting and highly unstandardized” and
calculated that globally, 59 percent of issuers in 2021 issued post-issuance impact reports.750
CBI also identified that a bit less than half of the issuers report at program levels (and not at
project level), and that impact metrics chosen are in general relative, too diverse to be
compared or aggregated and not linked to the achievement of any corporate, national or
international environmental objective. 751 In this regard, the global market for green bonds
share Hong Kong’s issues. Examples of bonds on the Luxemburg Green Exchange show that,
if the impact reporting is more systematic than on STAGE, the quality is similar to Hong
Kong’s green bonds.752

746
CLP Holdings LTD, 2021 Climate Action Finance Report 12 <https://www.hkex.com.hk/-
/media/HKEX_Common/Market/Stage/Product-Page/Bonds/CLP/5245_Transition-
Bond_20170726/5245_PostIssuance-Report_Climate-Action-Finance-Report-2021.pdf?la=en>
accessed 17 June 2022.
747
Ibid 13.
748
New World Development Company Limited, Sustainability Report (2019) 6
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/New-World-
China-Land-Limited/5468_Green-Bond_20181206/5468_Post_Issuance-Report.pdf?la=en> accessed
17 June 2022.
749
Agricultural Development Bank of China, Annual Green Bond Report (2020) 4
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/Agricultural-Development-Bank-of-China/85910_Green-Bond_20191107/85910_Post-
Issuance-Report-2020.pdf> accessed 17 June 2022.
750
Climate Bonds Initiative, Post-issuance reporting in the Green Bond Market (2021) 6
<https://www.climatebonds.net/files/reports/cbi_post_issuance_2021_02f.pdf> accessed 17 June 2022.
751
Ibid 6.
752
For instance, CECEP Wind Power Corporation, Report on the Use of Proceeds from the Public
Offering of Its 2017 Green Corporate Bond (2018) <
https://www.bourse.lu/security/CND10000JSD6/266769> accessed 17 June 2022.

178
2.2. IMPLEMENTATION OF ENVIRONMENTAL CONTRIBUTIONS REQUIREMENTS

Outline. The construction, by issuers, of their own taxonomies (2.2.1) and their application of
the obligations building on these taxonomies (2.2.2) enables the study of the implementation
of environmental contribution requirements on STAGE green bonds. This sub-section starts
with a reminder about the requirements relating to environmental contribution. The overall
observation of deficient implementation of the environmental contribution side of green bond
standards shows that Forsbacka is wrong to limit her call for further control to transparency
aspects only.753

Reminder of requirements relating to environmental contribution. The basis for assessing

the environmental contribution of green bonds is the drafting of green finance taxonomies.
Building on these taxonomies (or on proto-taxonomies, based on open-ended lists of green
economic activities), green bond standards establish obligations of allocations and obligations
of information. Obligations of allocation consist in the definition of the modalities of allocation
of the proceeds of the green bond to the eligible activities (which percentage, under which
time frame, etc.). Obligations of information consist in informing (mainly the investors) about
the taxonomy chosen (when issuers have leeway to define their own taxonomy, such as in the
GBP) and the degree of alignment of the proceeds with the taxonomy (often expressed as a
percentage of activities falling under the taxonomy).754

2.2.1. IMPLEMENTATION OF GREEN TAXONOMIES REQUIREMENTS

Outline. The taxonomies of STAGE issuers show a low degree of compliance with green bond
standards, equaling the least environmentally ambitious green bonds issued a few years ago
on the international green bond market.

STAGE taxonomies. STAGE issuers resort most often to “bricolage” techniques: they place
their green bonds under the aegis of the GBP, which are minimally constraining. The GBP
require that they publish a framework where they explain in which category of green activities
listed by the GBP their projects fall. STAGE issuers publish this list, often adding references
to other classification systems, such as the Chinese green catalogue, the HKQAA green
finance scheme,755 or the Sustainable Development Goals. Hong Kong’s green bonds are very
much focused on green building categories and some renewable energies projects financed by
utilities. Regarding the criteria, green frameworks are mostly extremely unprecise, vaguely

753
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 397.
754
See Chapter III.
755
The Government of the Hong Kong Special Administrative Region, Green Bond Framework (2019)
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/The-
Government-of-the-HKSAR-of-the-PRC/4241_Green_Bond_20210203/4241_Green-Bond-
Framework_20190328_EN.pdf> accessed 17 June 2022.

179
referencing applicable legislation and international standards. 756 The only widely used
quantified criteria corresponds to an improvement by 10 percent of the energy efficiency of
the building (compared to the situation of the building before the improvements financed with
the proceeds of the green bond), which is not very ambitious.757 Green Finance taxonomies
published on STAGE also sometimes add exclusion lists (this practice goes beyond the
requirements of the GBP, which do not include any exclusion list).758 These exclusion lists
sometimes verges on the absurd, such as the Agriculture Bank of China for which “Assets
specifically excluded […] are the assets that are involved in the sectors and activities including
[…] luxury sector such as precious metals, artwork, antiques and golf clubs (emphasis
added)” 759 or verges on the cynical, such as the Hong Kong Airport Authority, 760 which
“commits to exclude […] fossil fuel-based power generation, storage or transportation
infrastructure” 761 from its green bond meant to finance… the extension of Hong Kong’s
airport.762

Taxonomies among issuers of the global green bond market. The green bond market
respects in general the non-limitative categories set by the GBP and as a consequence, each
issuer produces some sort of green finance taxonomy in their GBF. Only a fraction of the
issuers abides by a green finance taxonomy that is external to them. This is the case of green
bonds in China, where issuers apply the 2015 and 2021 green finance taxonomies issued by

756
Industrial and Commercial Bank of China, Supplemental Offering Circular 20190909 (2019) 40
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/ICBC/6012_Green-Bond_20190917/6012_Supplemental-Offering-
Circular_20190909.pdf> accessed 17 June 2022 [“Assets in all eligible categories shall reach the
minimum threshold required by relevant official standards in relation to environmental impacts
recognised in the relevant jurisdiction. Where no official standards are locally recognised,
corresponding international standards shall apply ICBC”].
757
For instance in Zhongliang Holdings Group, Sustainable Finance Framework (2021) 13
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Zhongliang-
Holdings-Group-Co-Ltd/40680_Green-Bond_20210521/40680_Sustainable-Finance-Framework.pdf>
accessed 16 May 2022.
758
For instance, Industrial and Commercial Bank of China, Green Bond Framework (2017) 4
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/ICBC/6012_Green-Bond_20190917/6012_Green-Bond-Framework.pdf> accessed 16
May 2022 [“For the avoidance of doubt, in any case, the Eligible Green Assets shall exclude below：
fossil fuel related assets Large scale hydropower plants Nuclear and nuclear–related assets”].
759
Agriculture Bank of China, Green Bond Framework (2019) 5 <https://www.hkex.com.hk/-
/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Agricultural-Development-Bank-of-
China/85910_Green-Bond_20191107/85910_Green-Bond-Framework_Sep-2019.pdf> accessed 16
May 2022
760
However, the Hong Kong Airport Authority’s green bonds is not on STAGE, despite the Authority
being a major issuer of green bonds in Hong Kong.
761
Hong Kong Airport Authority, Sustainable Finance Framework (2021) 12
<https://www.hongkongairport.com/iwov-resources/file/sustainability/environment/sustainable-
finance/AA_Sustainable_Finance_Framework_Final.pdf> accessed 16 May 2022. [emphasis added]
762
In the detail, the green bond finances items such as the new buildings of the airport extension, which
are qualified in the “green building” category and not in the “transportation infrastructure” category; or
electric ground vehicles qualified in the “clean transportation category.” The question raised is the status
of investments that are directly enabling a growth of fossil fuel-based transportation infrastructure.

180
the regulators. This is also the case of green bonds issued under a CBI certification. In the
future, more green bonds should implement an external green finance taxonomy, as the
EUGBR is bound to impose the Taxonomy Regulation on all green bond issuances in the EU.
This imposition of external taxonomy should help to prevent issuers such as Repsol763 or the
Hong Kong Airport Authority 764 to challenge consensual green categories. Instances of
controversial green bond issuances in the absence of commonly shared taxonomies also
include the 2014 green bond issuance of a Massachusetts State agency, which sold green bonds
and planned to use some of the proceeds to build a 725-space parking garage that would be
certified as green building because of some features such as low consumption electric
appliances or good thermic insulation.765 The imposition of an external taxonomy can also
help to tackle the absence of a “do no significant harm” principle in most sui-generis
taxonomies. For instance, a green bond sold by the French power company GDF Suez in 2014
to build a hydropower plant in Brazil was controversial as the dam was deemed to have
significant environmental and social costs, such as contributing to floods displacing tens of
thousands of people and triggering significant greenhouse gas emissions when being built and
put into service.766

2.2.2. IMPLEMENTATION OF REQUIREMENTS BUILDING ON GREEN

TAXONOMIES

Outline. The implementation of taxonomy-related obligations on STAGE also shows some

weaknesses, but in this realm STAGE practices do not depart from the practices of the global
green bond market.

Implementation of taxonomy-related requirements on STAGE. Taxonomy-related

requirements consist in allocation and information requirements based on taxonomies. It seems
that most green bonds on STAGE are promoted by their issuers as fully invested in the projects
falling under the green categories chosen. This shows a good implementation of GBP’s
requirements according to which the proceeds must serve “exclusively” to eligible green bond
projects. For instance, the prospectus of The Link’s green bonds provides that “the net
proceeds of the Notes shall be used to refinance or fund, in whole or in part, existing and future
eligible green projects as described in the section headed “Use of Proceeds” of The Link

763
See Chapter II, section 3.2.1
764
Hong Kong Airport Authority, Sustainable Finance Framework (2021) 12
<https://www.hongkongairport.com/iwov-resources/file/sustainability/environment/sustainable-
finance/AA_Sustainable_Finance_Framework_Final.pdf> accessed 16 May 2022.
765
Mike Cherney, ‘Massachusetts Selling 'Green' Bonds to Fund Environmental Projects’ (2013) Wall
Street Journal <https://www.wsj.com/articles/BL-MBB-2278> accessed 18 November 2021.
766
Bank Track, Issue Brief: Green Bonds (2014)
1<https://www.banktrack.org/download/green_bonds_fact_sheet_pdf/green_bonds_fact_sheet.pdf>
accessed 18 November 2021.

181
REIT’s Green Bond Framework.”767 Some practice that could be read as contrary to the spirit
of the full allocation of the proceeds to the green projects is the practice of investing the
proceeds in non-green assets before allocating the proceeds to the green projects. Thus,

“pending full allocation, unallocated proceeds will be held in temporary investment

instruments that are assets with high liquidity and safety such as cash or cash
equivalent instruments or held in temporary placements that do not include projects,
assets or activities that are inconsistent with the nature of a green debt instrument
(emphasis added).”768

“Inconsistent assets” is an expression too vague to be considered as satisfactory. Regarding

information obligations, STAGE green bonds disclose in pre-issuance documents in which
categories the green projects fall, but seldom release post-issuance taxonomy-alignment
information. However, this lack of post-issuance disclosure taxonomy-alignment information
is explainable by the absence of such requirement in the GBP as well as in the CBS.

Implementation of taxonomy-related requirements on the global green bond market.

Green bonds listed on the main green bond exchanges (such as the Luxemburg Green
Exchange) do not fully depart from the STAGE practice. The Chinese green bond market
provides an exception, as the Chinese rules allow for partial allocation of proceeds, but do not
mandate post-issuance disclosure on the alignment with the official Chinese taxonomies.769 In
conformity with global practices is the widespread presence of green bonds refinancing
existing green assets,770 instead of using the proceeds of green bonds to finance new green
assets as some green bond advocates propose.771 However, this refinancing function of green

767
The Link REIT, Green Bond Framework Overview and Second Opinion by Sustainalytics (2016)
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Link-
REIT/5685_Green-Bonds_20160722/5685_Green-Bond-Framework-and-second-opinion.pdf>
accessed 17 June 2022.
768
Beijing Environment, Green Financing Framework (2021) 12 <https://www.hkex.com.hk/-
/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Beijing-Environment-(BVI)-
International/40860_Green-Bond-Framework.pdf> accessed 17 June 2022.
769
For instance, China Huadian Corporation, Use of Proceeds Report (2017)
<https://www.bourse.lu/security/CND10000JT88/266778> accessed 17 June 2022.
770
For instance, Sino-Ocean Land Treasure IV Ltd , Green Bond Framework for Sino-Ocean Land
Treasure IV Ltd. 3.25% Guaranteed Green Notes 2026 <https://www.hkex.com.hk/-
/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Sino-Ocean-Group-Holding-
Ltd/40670_Green-Bond_20210506/40670_Green-Finance-Framework.pdf> accessed 17 June 2022.
771
Morgane Nicole, Igor Shishlov, Ian Cochran, Green Bonds: Improving their contribution to the low-
carbon and climate resilient transition (I4CE 2018) <https://www.i4ce.org/wp-core/wp-
content/uploads/2018/03/I4CE-GreenBondsProgram-Contribution-Energy-Transition-web-5.pdf>
accessed 1 October 2021.

182
bonds is justified by some industry actors, who see in it an opportunity to the financing of
long-term green projects.772

3. NON-JUDICIAL MONITORING AND CONTROL

Outline. This section studies non-judicial ways of monitoring and control, revealing their
central importance for the green bond market but also their considerable deficiencies in the
current state. The core of this non-judicial way of monitoring is the practice and regulations
of external reviews (3.1). However, civil society actors – often based on the work of these
external reviews – also play an important role (3.2). Recently, administrative authorities have
been taking a more important role, although their effective actions are still limited (3.3).

3.1. GREEN BOND EXTERNAL REVIEWERS

Outline. After reminding the external reviewer requirements in green bond standards, this sub-
section assesses external reviews on STAGE, compared with external reviews on the global
green bond market. It shows that the unequal level of external reviews on STAGE reflects the
practice on the global green bond market because the same actors operate according to the
same principles on both markets. Some good external reviews stand out against a majority of
complacent endorsement by external reviewers of the issuers’ affirmations. Standard setters’
and regulators’ supervision of external reviews is currently insufficient to improve the level of
environmental ambition of external reviews.

Reminder of the external reviewer requirements in green bond standards. Green bond
standards set three main requirements or obligations, regarding (1) a pre-issuance review and
post-issuance one – the latter being split into an allocation report (2) and an impact report (3).
All the major standards (GBP, CBS, ISO, EUGBR, Chinese guidelines) recommend or
mandate some form of pre-issuance external review, either in the form of an assurance report,
a certification or a review of the green bond factsheet/ framework. The GBP, the ISO and the
EUGBR require a verified allocation report. Only the ISO and the Chinese guidelines require
in addition a verified impact report. The EUGBR and the Chinese guidelines set
comprehensive regulatory regimes applicable to the external reviewers, in order to guarantee
their competence and integrity.773

772
Environmental Finance, DBS: Green bonds need long-term green asset 'refinement' (2019)
<https://www.environmental-finance.com/content/news/dbs-green-bonds-need-long-term-green-asset-
refinement.html> accessed 17 June 2022.
773
See sections 2.3 and 3.3 of Chapter IV.

183
External reviews on STAGE. All issuers on STAGE comply with the GBP recommendations
to have a pre-issuance external review. Some go further, by hiring post-issuance external
reviewers. However, external reviews on STAGE are mainly of a disappointing level. They
mostly endorse all the choices made by the issuer without critical thinking. There is a very
little number of verified impact reports. The quality of the external review seems to primarily
depend on the identity of the external reviewer. CICERO is the most ambitious of them from
an environmental perspective. First, it assumes to express some critical views regarding the
activities of the issuer. For instance, a CIRERO review states:

“Given the broad framework, [CICERO] has some concerns that impacts will not be reported
for all projects, and that not all projects will be listed in the report. […] Despite ADBC´s [the
green bond issuer] due diligence process for social risks, some concerns remain with respect
to how special needs and certain rights of minorities and vulnerable populations groups are
addressed throughout the lifecycle of eligible projects. […] But energy efficiency performance
of technologies and construction materials used in renovated houses will likely not be best in
class and there is a risk of locking in inefficient infrastructure.” 774

CICERO also developed a three-tiered green qualification system (dark green, medium green,
light green) applied to green bonds according to their environmental ambition. For instance,
an issuer (Modern Land) promising to achieve 15 percent energy efficiency improvement for
new building and 30 percent on old building is classified as medium green, which gives a tool
to understand that the 10 percent energy efficiency objective found in most building-related
green bonds on STAGE should be considered as light green, or not green at all. The second-
best provider of external review on STAGE is Vigeo Eiris, which does not directly criticize
the issuer but at least conducts some inquiry into the potentially non-green activities of the
issuer. For instance, Vigeo Eiris identified in a green bond external review the activities of
ENN Energy in fossil fuels industry as a potential issue.775 Among the worst external reviewers
is certainly Sustainalytics, which reviewed the green bond issued by the Hong Kong Airport
Authority by ending most of the paragraphs dedicated to present the green bond by the formula
"Sustainalytics considers these [investments – risk management system – reporting] to be
aligned with market [practice – expectations – standards]."776 The centrality of the market as

774
CICERO, ‘Second Opinion’ on ADBC’s Green and Sustainability Bond Framework (2018) 4
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/Agricultural-Development-Bank-of-China/5455_Green-Bond_20181127/5455_Second-
Opinion-by-CICERO-and-IISD.pdf> accessed 17 June 2022.
775
Vigéo Eiris, Second Party Opinion on the Sustainability of ENN Energy’s Green Finance
Framework
(2020) 1 <https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/ENN-Energy-Holdings-Limited/40383_External-Review_VigeoEiris_May-2020.pdf>
accessed 17 June 2022.
776
Sustainalytics, Second-Party Opinion Airport Authority Sustainable Finance Framework (2021) 3-
6 <https://www.hongkongairport.com/iwov-resources/file/sustainability/environment/sustainable-

184
the main reference for assessing the integrity of the green bond reveals the disregard for the
environmental objectives pursued by the bond. In addition, this approach poses
methodological problems. If “market standards” is clear (it refers to the GBP for Sustainalytics,
although one could argue that this is not the only one), “market practices” and “market
expectations” are not defined in Sustainalytics’ review. It raises the following questions about
which green bond market is referred to (worldwide or Hong Kong local market?) and over
which timeframe (the last year or the last ten years?).

External reviews on the global green bond market. Among the companies doing external
reviews on the global green bond market, there are independent research institutes, such as
CICERO, specialized companies in ESG investment (such as Sustainalytics or Vigéo-Eiris)
but also large corporations involved in tradition financial accounting, such as credit rating
agencies (Moody’s or Standard & Poor’s) or audit firms (KPMG or Deloitte). Nonetheless,
CICERO occupies a central position on the green bond market. CICERO stands for the Center
for International Climate and Energy Research-Oslo. CICERO is a forced acronym to connect
to the Roman orator Cicero, as for the research centre, Cicero invokes the orator’s legacy of
spreading truth to the wider public and to give voice for scientific reason in financial markets
and green building.777 By August 2020, CICERO provide sustainability second party opinions
and verifications to 42 percent of the green bond market by cumulative volume. This translates
to 82 percent of all green bonds with Second Party Opinions.778 In terms of different standards,
the GBP enables external reviews that are in general extremely unambitious and superficial,
where the language for protecting the reviewer’s legal responsibility often takes more space
in the review document than the actual environmental assessment of the projects financed by
the green bond. Rose provides or instance a case study with France’s sovereign green bond.
The opinion was made by Vigéo-Eiris. It shows that second party opinions providers working
under the GBP set their own criteria, which in this case relate to some classical ESG
classification. On some sovereign green bond issuances, the assessment can be very detailed,
encompassing for instance analyses of “state’s level of commitment to the SDGs and other
types of international agreements, including UN treaties, OECD principles, regional treaties
and instruments and the Universal Declaration of Human Rights.”779 External reviews under
the CBI monitor more closely green bond issuers than the ones under the GBP because in

finance/Airport_Authority_Sustainable_Finance_Framework_Second-Party_Opinion_Final.pdf>
accessed 17 June 2022.
777
Aneil Tripathy, Assembling Green Bonds: Data, Narrative, Time, Work, and People in Climate
Finance (2020 PhD Dissertation, Brandeis University, unpublished) 76.
778
CICERO, Best practices 2020 (2020) 6
<https://static1.squarespace.com/static/5bc5b31a7788975c96763ea7/t/5f562a0858ec0849a0ea8a29/15
99482405278/CICERO_Green_Best_Practices_2020.pdf> accessed 17 June 2022.
779
Paul Rose, ‘Certifying 'Climate' in Climate Bonds’ (2019) 59 Capital Market Law Review 67.

185
CBI’s context, external reviewers must assess the compliance of the issuer’s green bond with
CBI’s climate finance taxonomy. Unlike the extended work performed by reviewers such as
Vigeo Eiris on sovereign issuers, some reviewers such as Ernst and Young perform extremely
limited reviews where they only review a limited number of documents that are already
publicly available and add in the review a “‘limitations’ section that is nearly the same length
as [the review itself].”780 Beyond these differences, external reviews suffer from a systemic
issue linked to the issuer-pays model, similar to the credit rating system which triggered the
2007 great financial crisis. 781 A proof of this systemic failure is the acknowledgement by
external reviewers that they never issue negative recommendations for a green bond.782

Standard setters’ and regulators’ supervision of external reviews. External reviewers are
regulated by green bond standards.783 These regulations impose, more and more, a supervision
of the reviewers by the standard setter, be it the CBI or a state. Although the GBP have an
annex specifically dedicated to external reviews, they do not have any active role for
supervising external reviewers. This contrasts with the CBI, which monitors, to some extent,
the reviewers acting on its standard. Reviewers need to be registered at the CBI for becoming
CBI’s authorized third-party reviewers. They need to respect certain standards and the CBI
assesses their practices. However, CBI’s monitoring team is small 784 and excluding an
important actor such as Ernst and Young or Moody’s would be difficult and has not been done
in practice. It can therefore be said that CBI’s supervision of reviewers is an ex-ante
supervision – it happens before the reviewer gets the approval from CBI to assess climate
bonds. Once the reviewer is approved, CBI’s oversight over approved verifiers is light.785
Based on CBI’s model, the EUGBR plans to regulate external reviews. The proposed EU
regulation holds the following reflections: “the market for external reviewers of green bonds
is a cross-border market. In order to preserve a level playing field for the actors providing
these services, a centralised registration and supervisory regime for external reviewers of
European green bonds is needed at European level, coordinated by the European Securities
and Markets Authority (ESMA).” Therefore, the ESMA will be competent for supervising
green bond reviewers. However, the resources that plan to be affected to this function are
extremely limited. “Based on an estimation of 0.2 full-time equivalents per entity and a total

780
Ibid 69.
781
Cristina M. Banahan, 'The Bond Villains of Green Investment: Why an Unregulated Securities
Market Needs Government to Lay Down the Law' (2019) 43 Vermont Law Review 841.
782
Ibid 867.
783
See sections 2.3 and 3.3. of Chapter IV.
784
One or two persons, out of a total of around 20 people working full time for CBI in 2021 (personal
observations when working with CBI).
785
Climate Bonds Initiative, Assurance Framework (2019)
<https://www.climatebonds.net/files/files/cbs-assurance-framework-v2.pdf> accessed 29 July2022
[The oversight section of CBI’s assurance framework is a few line-long].

186
of three external reviewers seeking registration in the first four year-period, the requirement
would only be for 0.6 full-time equivalents to carry out registration and ongoing
supervision.”786 Programming less than one full-time employee to ensure the registration and
supervision of green bond reviewers as the scale of the EU would mean that EU’s control of
external reviewers would be even lighter than CBI’s. Nonetheless, this supervision has been
welcomed by the ECB: “the ECB welcomes that the proposed regulation establishes a
registration system and a supervisory framework for external reviewers. It also welcomes that
ESMA will be tasked with the supervision of external reviewers.”787

3.2. CIVIL SOCIETY

Outline. Since the external reviewers are very much captured by the industry, the civil society
– NGOs, academics, or market entities such as funds or stock exchanges – set the actual
boundaries to the qualification as green of a bond. The situation on STAGE shares some
common points with the global green bond market, although STAGE’s associated civil society
is still embryonic.

Civil society’s control on STAGE’s green bonds regarding transparency. The first
controller of transparency for STAGE’s green bonds is the HKEX itself. It imposes that listed
green bonds publish a framework and a reporting. Although the reporting is not always present,
it already represents a considerable progress to the pre-STAGE situation, where the
documentation relating to most green bonds issued in Hong Kong was simply absent. Several
NGOs, such as Oxfam, 788 Friends of the Earth,789 the Hong Kong Academy of Finance790 and
the Hong Kong Green Finance Association 791 also contribute to debating about what

786
European Commission, Proposal for a Regulation of the European Parliament and of the Council
on the establishment of a framework to facilitate sustainable investment, 2018/0178 (COD) 11
<https://www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/com/201
8/0353/COM_COM(2018)0353_EN.pdf> accessed 17 June 2022.
787
European Central Bank, Opinion of the European Central Bank of 5 November 2021 on a proposal
for a regulation on European green bonds (CON/2021/30) 12.
788
Oxfam Hong Kong, Making Green Bond Work: Social and Environmental Benefits at Community
Level
(2020)
<https://www.oxfam.org.hk/tc/f/news_and_publication/52643/Oxfam_CCA_Making%20Green%20B
onds%20Work.pdf> accessed 16/05/2022.
789
Friends of the Earth Hong Kong, Green Finance Blog
<https://www.foe.org.hk/greenfinanceblog/2022/05/> accessed 17 June 2022.
790
Hong Kong Academy of Finance, The Green Bond Market in Hong Kong: Developing a Robust
Ecosystem for Sustainable Growth (2020) <https://www.aof.org.hk/docs/default-source/hkimr/applied-
research-report/gbrep.pdf> accessed 17 June 2022.
791
Hong Kong Green Finance Association, Green Bonds and Product Innovation (Working Group)
<https://www.hkgreenfinance.org/working-group/green-bonds-and-product-innovation/> accessed 17
June 2022.

187
characteristics green bonds issued in Hong Kong should display. For instance, Oxfam has
surveyed 249 green bonds issued in Asia since 2018. Oxfam found out that:

“Whilst 83% of the issuers disclosed the sustainability context of their bonds, only 26%
offered details on how environmental impact was identified in their project evaluation
process. Some 8% offered details on how to manage environmental risks. […] among
those who published impact reports, only 39% managed to use quantitative indicators
to communicate environmental impacts; barely 26% disclosed their KPI methodology
and assumptions.” 792

In addition to Oxfam’s considerations, under a political regime that increasingly represses

NGOs advocating for transparency, NGOs have increasing difficulties to voice their
concerns. 793 However, civil society’s engagement could grow as the government recently
successfully launched a retail green bond opened to individual subscribers.794 The success of
this issuance should contribute counteracting the ignorance by 82 percent of Hong Kong’s
population of the term “green finance,” 795 and hence increase the pressure for more
transparency.

Civil society’s control on STAGE’s green bonds regarding environmental contributions.

The most famous example of an NGO frontally challenging the environmental ambition of a
Hong Kong green bond issuer is given by Reclaim Finance when it attacked the Hong Kong
Airport Authority for issuing a green bond. In January 2022, Reclaim Finance alerted investors
and the public opinion on the fact that the $4 billion bond from the Hong Kong Airport
Authority was aimed at financing a third airport runway. According to Reclaim Finance, “the
project raises serious climate and biodiversity-related risks, especially for the threatened
Chinese White Dolphin.” 796 As a consequence, Reclaim Finance denounced “the banks’
participation and call[ed] on investors not to participate in the deal to avoid greenwashing and

792
Oxfam Hong Kong, Making Green Bond Work: Social and Environmental Benefits at Community
Level
(2020) 6
<https://www.oxfam.org.hk/tc/f/news_and_publication/52643/Oxfam_CCA_Making%20Green%20B
onds%20Work.pdf> accessed 17 June 2022.
793
Amnesty International, 2021 Annual Report – China (2022)
<https://www.amnesty.org/en/location/asia-and-the-pacific/east-asia/china/report-china/> accessed 29
July 2022 [As a result of the National Security Law (NSL) introduced in 2020, “at least 61 civil society
organizations disbanded in response to the threat generated by the law, including Hong Kong’s largest
professional union and organizers of major peaceful protests”].
794
Enoch You and Eric Ng, “Hong Kong’s Retail Green Bond receives enthusiastic response from small
investors on first day of sale” (26 April 2022) South China Morning Post
<https://www.scmp.com/business/article/3175520/hong-kongs-retail-green-bond-kicks-offering-
small-investors-bite-size> accessed 17 June 2022.
795
Ibid.
796
Reclaim Finance, High-flying greenwashing around a new green bond for Hong Kong Airport (2022)
<https://reclaimfinance.org/site/en/2022/01/04/high-flying-greenwashing-around-a-new-green-bond/>
accessed 17 June 2022.

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reputational risks.”797 Regarding the environmental contributions of Hong Kong green bonds,
Oxfam also identified that “despite the claimed contributions to climate goals in many projects,
only 3 percent of issuers mentioned climate resilience measures in the green bond frameworks
and a mere 1 percent indicated that they adopted best available technology in project
design.”798

Civil society’s control on global green bonds regarding transparency. Like on STAGE,
green bond exchanges play an important role in setting and controlling transparency
requirements on green bond issuers. The Luxemburg green exchange for instance enforces a
very satisfactory level of transparency on green bonds, systematically ensuring the presence
of post-issuance reporting (unlike on STAGE).799 NGOs also fight to improve green bond’s
transparency. In an important but indirect way, Client Earth certainly will improve the
transparency on green bond markets in Europe as it initiated a litigation against the Nationale
Bank van België/Banque Nationale de Belgique (NBB/BNB) in relation to climate change. In
this case, Client Earths challenges – among other demands – the National Bank of Belgium to
buy more green bonds in order to take a more pro-active stance on climate change.800 This
incentive for central banks to buy green bonds should lead them to closely scrutinize the
environmental characteristics of these bonds, and therefore ask for more information in order
to be able to answer to complaints by environmental NGOs.

Civil society’s control on global green bonds regarding environmental contributions.

Like in Hong Kong, many civil society institutions fought to improve the environmental
contributions of green bonds. The first among them is certainly the CBI, which, thanks to its
taxonomy and many reports on the green bond market, did a lot to improve the practices. The

797
Ibid.
798
Oxfam Hong Kong, Making Green Bond Work: Social and Environmental Benefits at Community
Level
(2020) 6
<https://www.oxfam.org.hk/tc/f/news_and_publication/52643/Oxfam_CCA_Making%20Green%20B
onds%20Work.pdf> accessed 17 June 2022.
799
Luxemburg Green Exchange, Eligibility Criteria (2022) <https://www.bourse.lu/displaying-bonds-
on-lgx> accessed 17 June 2022.
800
Joana Setzer, Catherine Higham, Andrew Jackson, Javier Solana, ‘Climate change litigation and
central banks’ (2021) Legal Working Paper Series
<https://www.ecb.europa.eu/pub/pdf/scplps/ecb.lwp21~f7a250787a.en.pdf> accessed 17 June 2022.

189
French WWF, 801 the I4CE 802 or a group of German NGOs 803 challenged the ambition of
existing green bonds. For instance, the latter analyzed 2,827 projects published by issuers, and
identified among them 57 controversial projects, including a very large number of eucalyptus
plantations in Brazil.804 A systematic analysis interpreting green bonds as the extension of
capitalist logic was also compiled by geographers and anthropologists. 805 Civil society’s
efforts are limited by the fact that an important number of corporate bonds generally conduct
transactions outside of listing venues.806 Ultimately, disgruntled investors (among which some
funds with green mandates) will express their disagreement with the environmental quality of
the bond by selling their investment. Potentially, they may even “group together to negotiate
with the issuer to provide greater reporting on impact performance, although this is rare due
to practical difficulties.”807 Examples of such investor mobilization include the avoidance of
the ANZ bank’s green bond by investors “because the pool of green assets backing it was
dwarfed by the bank’s ongoing fossil fuel lending.”808

3.3. ADMINISTRATIVE CONTROL BY REGULATORS

Outline. Administrative control by regulators is emerging at various degrees in Hong Kong,

Mainland China, Europe and the US, although their effective action is still missing.

Administrative control in Hong Kong. As per the Securities and Finance Ordinance,809 the
Securities and Futures Commission oversees the securities issued in Hong Kong. The SFC did

801
WWF France, Can Debt Capital Markets Save the Planet? (2021)
<https://www.wwf.fr/sites/default/files/doc-2021-
09/wwf_report_can_dcm_save_the_planet__final_2021_09_27_-min.pdf> accessed 17 June 2022;
WWF France, Green bonds must keep the green promise! (2016)
<https://wwfint.awsassets.panda.org/downloads/20160609_green_bonds_hd_report.pdf> accessed 2
August 2022.
802
Morgane Nicole, Igor Shishlov, Ian Cochran, Green Bonds: Improving their contribution to the low-
carbon and climate resilient transition (I4CE 2018) <https://www.i4ce.org/wp-core/wp-
content/uploads/2018/03/I4CE-GreenBondsProgram-Contribution-Energy-Transition-web-5.pdf>
accessed 1 October 2021.
803
Antje Schneeweiß, Great Expectations : Credibility and Additionality of Green Bonds (2029)
Südwind-Institut für Ökonomie und Ökumene.
804
Ibid [Eucalyptuses are problematic as monoculture and because they acidify soils].
805
Tomaso Ferrando, Gabriela de Oliveira Junqueira, Marcela Vecchione-Gonçalves, Iagê Miola,
Flávio Marques, Hector Herrera, ‘Capitalizing on Green Debt: A World-Ecology Analysis of Green
Bonds in the Brazilian Forestry Sector’ (2021) 27:2 Journal of World-Systems Research 411.
806
Aaron Franklin, Paul Davies, Ed Kempson and Michael Green, ‘Key Risks For Green Bond Issuers
When Plans Change’ (2020) Law 360 <https://www.law360.com/articles/1259109/key-risks-for-green-
bond-issuers-when-plans-change> accessed 16 May 2022.
807
Ryan Chan, ‘Ensuring the Impactful Performance in Green Bonds and Sustainability-linked loans’
(2021) 42(1) Adelaide Law Review 250.
808
Tim Kelly, ‘Green bonds: greenwash or the real deal?’ (2019) Firstlinks
<https://www.firstlinks.com.au/green-bonds-greenwash-real-deal> accessed 16 May 2022.
809
Securities and Futures Ordinance (Cap. 571) of Hong Kong, Part 2.

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not act directly against insufficient green bonds but issued several circulars that indirectly
relate to green bonds. The SFC first issued a circular applicable to ESG funds.810 Since ESG
funds are important investors in green bonds, the requirements weighting on the funds
indirectly translate into requirements on green bonds. In this circular, the SFC indicates that
ESG funds must disclose certain information in their documentation, such as the ESG
investment strategy and the ESG benchmark chosen.811 The circular also mandates periodic
reporting from these funds.812 Finally, the circular establishes an equivalence between “article
8 and 9” funds under the EU Sustainable Finance Disclosure Regulation (SFDR) and ESG
funds under SFC’s definition.813 This circular sets a system of authorization for being qualified
as ESG fund under the SFC. In an indirect way, it pushes ESG fund to require more
information on the ESG investment strategy and ESG benchmark chosen by issuers of green
bonds, since they must communicate to the SFC this information at the aggregated level of the
fund. Similarly, a second circular applicable to fund managers and relating to climate risks
incentivizes these funds managers in raising the expectations for green bonds in order to meet
SFC’s requirements.814 However, such a way to control green bonds remains indirect.

Administrative control in Mainland China. The China Green Bonds Standard Committee
serves as a supervisor of the green bond market. Guidelines for Assessment and Verification
of Green Bonds815 created this Committee. This Committee is in charge of ensuring that green
bond verifiers display the adequate professional credentials and adequately assess issuers’
environmental claims. The Committee is granted the power to conduct checks of verifier
reports, to sanction with a penalty any breach of conduct, and to revoke issuers’ green bond
label if they fail to correct non-compliance identified in verification reports.816 In addition to
the Committee, the PBOC also assesses the quality of banks’ green investments. Indirectly, it
also consists in assessing green bonds. The PBOC focuses on how banks “implement national

810
Securities and Futures Commission, Circular to management companies of SFC-authorized unit
trusts and mutual funds – ESG funds (2021) <
https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/products/product-
authorization/doc?refNo=21EC27> accessed 16 May 2022.
811
Ibid.
812
Ibid.
813
Ibid.
814
Securities and Futures Commission, Circular to licensed corporations Management and disclosure
of climate-related risks by fund managers (2021) <
https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/intermediaries/supervision/doc?refNo=21E
C31> accessed 16 May 2022.
815
The People’s Bank of China (PBOC) and China Securities Regulatory Commission (CSRC), China's
Green Bond Assessment and Verification Guidelines Announcement No. 20 (interim) [2017] 绿色债券
评估认证行为指引（暂行）Article 5.
816
Ibid articles 34 to 44.

191
and local green financing policies, and support green development.”817 PBOC’s evaluation
mainly intends to prevent verifying institutions from submitting false or incomplete
information and certification reports.818 It seems that these administrative control yielded some
results, although independent assessments of Chinese green bonds showed important
shortcomings on the Chinese green bond markets, such as missing environmental reporting for
half of green bonds surveyed and lack of standard environmental impact metrics for Chinese
green bond issuers effectively reporting.819

Administrative control in Europe. In Europe, two financial market supervisory authorities

(the French and Dutch ones) have recognized that their control of the green bond market is
insufficient because of the lack of legal basis. In their “common position paper”, the Autorité
des Marchés Financiers and the Autoriteit Financiële Markten state:

“When issuing green bonds, issuers can be reluctant to include additional information
on the use of proceeds. In such a case, NCAs [national competent authority] do not
have a clear-cut legal basis under the Prospectus Regulation to force issuers to
communicate additional information before approving the prospectus. In some
instances, issuers may self-label their bonds as green but indicate, in the risk factor
section, that they may not invest in environmentally friendly projects. Our experience
shows that information on the ‘green’ use of proceeds by green bond issuers is
typically laid out outside the prospectus, which makes it more difficult for NCAs to
properly monitor and supervise that information.”820

The lack of supervision will change if the proposed EUGBR becomes an actual regulation.
Under this hypothesis, the National Competent Authorities (NCAs) will be responsible for
enforcing the disclosure obligations of issuers (factsheet, pre-issuance review, annual
allocation reports, post-issuance review and impact reports) and the European Securities and
Market Authority (ESMA) will be entitled to control green bonds external reviewers. NCAs
will be able to make public statement on an issuer’s failure to comply, to order infringers to

817
Hilal Atici, ‘PBOC to grade financial institutions on green bonds’ (2021) Green Central Banking
<https://greencentralbanking.com/2021/06/15/pboc-grade-financial-institutions-green-bonds/>
accessed 16 May 2022.
818
Ibid [Beyond the control objective, PBOC’s evaluation also aims at providing incentives for banks
to hold higher ratios of green bonds].
819
Donovan Escalante, June Choi, Neil Chin, Ying Cui and Mathias Lund Larsen,‘Green Bonds in
China: the State and Effectiveness of the Market / 中国绿色债券市场：趋势与分析’ (2020) Climate
Policy Initiative 17 <https://www.climatepolicyinitiative.org/wp-
content/uploads/2020/06/The_State_and_Effectinevess_of_the_Green_Bond_Market_in_China.pdf>
accessed 16 May 2022.
820
Autorité des Marchés Financiers (AMF) and Autoriteit Financiële Markten (AFM), Position Paper
on Green / Social / Sustainable Bonds (2019) <https://www.amf-france.org/sites/default/files/2019-
12/green-bond-prospectus-position-paper-amf-and-afm-april-2019.pdf> accessed 16 May 2022.

192
stop their conduct, and to decide pecuniary sanctions, up to a maximum amount of 50,000
euros for natural persons and 500,000 euros for legal persons.821 ESMA’s supervisory power
will consist in controlling that external reviewers respect the conditions applicable to them for
taking up activities as external reviewer for European green bonds, including the
organizational requirements, processes and documents concerning their governance and the
respect of some requirements directly targeted at pre-issuance and post-issuance reviews.
ESMA will be able to withdraw reviewers’ registration or recognition, respectively for EU or
third country reviewers. ESMA will have the power to impose fines ranging from a maximum
of 20,000 euros for natural persons to 200,000 for legal persons.822 However, as observed by
Badenhoop, this control of disclosure obligations and procedural obligations applicable to
external reviewers by NCAs and ESMA forgets a very important aspect of the compliance: the
alignment with the taxonomy. Badenhoop explains that:

“[…] substantive compliance with the taxonomy requirements is left entirely to

private reviewers and not subject to additional public enforcement […]. If an issuer
obtains a positive pre-issuance or post-issuance review for an EUGBR that does not
comply with the taxonomy requirements, the EUGBR does not empower the NCAs or
ESMA to either impose sanctions on the issuer or to require a new review by a
different external reviewer. The EUGBR proposal operates under the assumption that
only external reviewers can properly assess taxonomy compliance and that their
assessments will always be correct.”823

Administrative control in the US. In the absence of national standard for green bonds in the
US, the action of the SEC is rather limited on green bonds: the institution did not announce
any specific policy on the topic. As American capital market lawyers write, “under existing
SEC guidance, information on environmental factors could be required under several
mandatory disclosure line items, but only to the extent it meets the traditional reasonable
investor standard.” 824 The standard appreciating the reasonable investor is still essentially

821
European Commission, Proposal for a Regulation of the European Parliament and of the Council
on the establishment of a framework to facilitate sustainable investment, 2018/0178 (COD) Article 41(2)
<https://www.europarl.europa.eu/RegData/docs_autres_institutions/commission_europeenne/com/201
8/0353/COM_COM(2018)0353_EN.pdf> accessed 15 May 2022.
822
Ibid Article 52(2)(a),(3).
823
Nikolai Badenhoop, ‘Green Bonds An assessment of the proposed EU Green Bond Standard and its
potential to prevent greenwashing’ (2022) Study Requested by the ECON committee of the European
Parliament
<https://www.europarl.europa.eu/RegData/etudes/STUD/2022/703359/IPOL_STU(2022)703359_EN.
pdf> accessed 15 May 2022.
824
Aaron E. Franklin, Christopher Harris, Sara K. Orr, and Nicholas Hazen, ‘Green Bond Impact
Reporting Under Securities Law’ (2020) Bloomberg Law
<https://www.lw.com/thoughtLeadership/green-bond-impact-reporting-under-securities-law>
accessed 15 May 2022.

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financial, therefore environmental information communicated through green bonds have little
chance to be considered of any relevance.825 Until recently, the only significant engagement
of administrative authorities in the US regarding green bonds went back to an early type of
environment-themed bonds created by the Clinton administration, consisting of tax
exemptions in exchange of the allocation of bond proceeds to the financing of green projects,
such as green buildings.826 In 2010-2011, the Internal Revenue Service (IRS) audited green
bonds regarding their compliance with federal tax law. In 2007, the developer of a commercial
mall had issued $228 million in tax-exempt green bonds, but had not installed the green
technologies (here, solar panels) promised. The promoter argued that the economic recession
made solar panels impracticable and that “the program only required that the bond offering
describe the alternative energy features, not that it actually implements them.” 827 The IRS
ultimately validated this reasoning and decided that the bonds could remain tax-exempt.828 In
2021 and 2022 however, the SEC has launched inquiries related to greenwashing and ESG
funds, targeting the New York Mellon Corp, Goldman Sachs and DWS group.829 In May 2022,
the Securities and Exchange Commission charged BNY Mellon Investment Adviser, Inc. “for
misstatements and omissions about Environmental, Social, and Governance (ESG)
considerations in making investment decisions for certain mutual funds that it managed,”830 as
the BNY Mellon Corp. agreed to pay a $1.5 million penalty to settle the charges. The SEC’s
order found that, from July 2018 to September 2021, the BNY Mellon Corp. “represented or
implied in various statements that all investments in the funds had undergone an ESG quality
review, even though that was not always the case.”831 The BNY Mellon Corp. Investment
recognized that “it violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940
and Rules 206(4)-7 and 206(4)-8, and Section 34(b) of the Investment Company Act.” 832

825
Ruth Jebe, ‘The Convergence of Financial and ESG Materiality: Taking Sustainability Mainstream’
(2019) 56:3 American Business Law Journal 645.
826
H.R.4520 - American Jobs Creation Act of 2004, Title VII: Miscellaneous Provisions
<https://www.congress.gov/bill/108th-congress/house-bill/4520> accessed 15 May 2022.
827
Motoko Aizawa, ‘Reflections on Legal Issues Associated with Green Bonds’ (2015) Climate Bonds
Initiative <https://www.climatebonds.net/2015/05/reflections-legal-issues-associated-green-bonds-
reflection-climate-bonds-senior-fellow> accessed 15 May 2022.
828
Krystian Czerniecki and Sam Saunders, ‘Green Bonds: An Introduction and Legal Considerations’
(2016) 48 Securities Regulation & Law Report 275 ; Rick Moriarty, ‘Destiny USA's tax-exempt 'green
bonds' violated the law, ex-IRS official says’ (2016) Syracuse.com
<https://www.syracuse.com/business-news/2016/10/destiny_usas_tax-
exempt_green_bonds_violated_the_law_ex-irs_official_says_1.html> accessed 17 August 2022.
829
Tim Quinsom, ‘The SEC’s war against greenwashing and ESG misuse has begun’
<https://www.bloomberg.com/news/articles/2022-06-15/the-sec-s-war-against-greenwashing-and-esg-
misuse-has-begun> accessed 17 August 2022.
830
SEC, SEC Charges BNY Mellon Investment Adviser for Misstatements and Omissions Concerning
ESG Considerations (2022) <https://www.sec.gov/news/press-release/2022-86> accessed 17 August
2022.
831
Ibid.
832
Ibid.

194
Investigations regarding Goldman Sachs and DWS group and still ongoing and may result in
trials.

Administrative control in Indonesia, based on green bond regulation. One of the earliest
and clearest sanction systems is set at the Article 19 of Indonesia’s green bond regulation. This
article provides that:

“Without prejudice to the criminal provisions of the capital market, the Financial Services
Authority is authorized to impose administrative sanctions against any party violating the
provisions of this Financial Services Authority Regulation, including those who cause the
violation to occur, in the form of: a. written warning; b. fine, i.e. the obligation to pay a
certain amount of money; c. restrictions on the business activity; d. suspension of the
business activity; e. revocation of the business license; f. cancellation of approval; and/or
g. cancellation of registration.”833

4. JUDICIAL CONTROL

Outline. In this section, the focus on Hong Kong’s green bonds is less obvious, because almost
all the green bonds issued in Hong Kong are governed by English or New York law, reflecting
in that aspect the global nature of the bond market. In addition, green bonds are often sold to
investors located in many different jurisdictions, triggering the application of certain local
regulations. Therefore, the legal questions arising are extremely complex and difficult to deal
with in the absence of any concrete case. The following subsections are prospective in nature
and limits themselves to some remarks about transnational litigation possibilities related to
green bonds. This section intends to highlight potential judicial challenges related to green
bonds. As such, it explores three main directions: green bond-related litigation can be based
on financial law (4.1), on contract law (4.2) or on other grounds (4.3). This section underlines
the importance of financial regulators and prosecutors: without their contribution to judicialize
the control of green bonds, the venues to do so are very narrow.

4.1. LITIGATION BASED ON FINANCIAL LAW

Outline. Financial law opens some possibilities of litigation, because green bonds use
financial law instruments (such as prospectuses, or third-party review) that habitually generate

833
Indonesia’s Financial Services Authority, Regulation Number 60 /POJK.04/2017 on the Issuance
and the Terms of Grenn Bond <https://www.sbfnetwork.org/wp-content/assets/policy-
library/990_Indonesia_OJK_Regulation_about_Issuing_Green_Bond_Guidelines_2017_IFSA.pdf>
and < https://www.ojk.go.id/keuanganberkelanjutan/BE/uploads/peraturanojk/files/file_1b354c37-
e160-46a5-9d31-2abe28b4562a-13012022190519.pdf> accessed 17 August 2022.

195
litigation between private parties. As such, litigations based on financial law can represent a
form of a horizontal way of enforcement which can be a useful complement to administrative
control.

Hong Kong prospectus liability. In Hong Kong, the prospectus liability is dealt with the
liabilities arising under the Securities and Finance Ordinance. Sections 107 and 108 of the
SFO create liability for a person who makes a fraudulent, reckless, or (in the case of section
108 only) negligent misrepresentation for the purpose of inducing another person to acquire
or subscribe for securities, which is a purpose shared by any prospectus – including their green
bond framework in the case of green bonds. Under the civil provision, such person may be
liable to pay compensation where a person has invested in reliance on such misrepresentation
and suffers a pecuniary loss as a result. In the case of green bond investing, this pecuniary loss
can be difficult to prove given that a difference in pricing between green and non-green bond
is not entirely established. 834 Under the criminal provision, such person is liable to
imprisonment up to seven years and fine up to HK$1 million. In addition, section 227 and 298
of the SFO establish forms of market misconduct that respectively create liability before the
Market Misconduct Tribunal 835 or the criminal courts. Civil liability to persons who have
suffered pecuniary loss as a result of contravention of these sections is created under section
281 (in respect of market misconduct under section 277) or section 305 (in respect of market
misconduct under section 298). This form of misconduct arises in respect of the disclosure of
false or misleading information likely to induce transactions where the person knows that, is
reckless, or (in the case of section 277 only) negligent as to whether the information is false.
A prospectus, or a green bond framework attached to a prospectus are clearly a set of
disclosures intended to induce transactions. However, the application of the market
misconduct provision of the SFO to prospectus misstatements has not been tested in court836
and this lack of cases shows the low probability that for green bonds to be judicialized under
Hong Kong’s prospectus liability.

Judicial perspectives opened by the proposal for an EU Green Bond Regulation. As

explained earlier in section 3.3 of this chapter, the proposed EU Green Bond Regulation mostly

834
Olivier David Zerbib, ‘The effect of pro-environmental preferences on bond prices: Evidence from
green bonds’ (2019) 98 Journal of Banking and Finance 39–40.
835
Market Misconduct Tribunal, Homepage <https://www.mmt.gov.hk/eng/home/home.htm> accessed
15 May 2022 [“The Tribunal is an independent body which is established under the Securities and
Futures Ordinance, and is chaired by a judge or former judge of the High Court who sits with two
members. Market misconduct includes insider dealing, false trading, price rigging, stock market
manipulation, disclosure of information about prohibited transactions and disclosure of false or
misleading information inducing transactions in securities and futures contracts”].
836
Douglas W. Arner and Maurice Kwok-Sang Tse, Financial Markets in Hong Kong: Law and
Practice (Second ed. Oxford University Press, 2016); Syren Johnstone, Antonio M. Da Roza, Nigel
Davis, ‘Deconstructing Sponsor Prospectus Liability’ (2016) 46(1) Hong Kong Law Journal 13.

196
focuses on a supervision of green bonds by professional third-party external reviewers,
themselves supervised by national and EU financial regulators, who have the power to impose
administrative sanctions. However, the proposal regulation, as it stands in the draft published
by the European Parliament also suggests judicial venues opened to green bond investors.
Recital 12b states that “Civil liability provisions should apply to issuers of European green
bonds in relation to damages incurred by investors due to an infringement of the taxonomy-
aligned allocation of proceeds.”837 Articles 41.3 provides that “Member States may provide
for additional sanctions or measures and for higher levels of administrative pecuniary
sanctions than those provided for in this Regulation.” 838 According to Article 38, these
additional measures can include criminal sanctions. Therefore, the judicial venues opened to
investors will depend on each Member States’ legal framework.

Sanctions and prospectus liability in the EU. In the EU, the Prospectus Regulation mandates
that bonds offered to public must be accompanied by a prospectus that “shall contain the
necessary information which is material to an investor for making an informed assessment”839
of the assets, liabilities and rights attaching to the security, as well as the reason for the issuance
and its impact for the issuer.840 establishes that any incorrect or insincere information in the
prospectus must be sanctioned. The Prospectus Regulation does not harmonize administrative
or criminal sanctions at the scale of the EU. It only provides – in its articles 38 to 43 – minimum
thresholds of administrative sanctions that Member States must set. The Regulation leaves
Member States are free to add more criminal sanctions. In terms of civil liability, the
Regulation only provides that “Member States shall ensure that their laws, regulations and
administrative provisions on civil liability apply to those persons responsible for the
information given in a prospectus.” As such, the content of a prospectus is susceptible to
engage the responsibility of the issuer and the professional which contributed to its redaction.
As a capital market lawyer writes, “any misstatement within the offering document may trigger
prospectus liability vis-à-vis investors.” 841 This prospectus liability may incentivize the
exactness of green bond prospectuses, but frequently, the green characteristics are presented
by issuers outside the prospectus, in green bond frameworks or factsheets. Therefore,

837
European Parliament, REPORT on the proposal for a regulation of the European Parliament and of
the Council on European green bonds (COM(2021)0391 – C9-0311/2021 – 2021/0191(COD))
<https://www.europarl.europa.eu/doceo/document/A-9-2022-0156_EN.pdf> accessed 17 August 2022.
838
European Parliament, REPORT on the proposal for a regulation of the European Parliament and of
the Council on European green bonds (COM(2021)0391 – C9-0311/2021 – 2021/0191(COD))
<https://www.europarl.europa.eu/doceo/document/A-9-2022-0156_EN.pdf> accessed 17 August 2022.
839
Council and European Parliament Regulation (EU) 2017/1129 of 14 June 2017 on the prospectus to
be published when securities are offered to the public or admitted to trading on a regulated market, and
repealing Directive 2003/71/EC [2017] OJ L 168/12, Article 6.
840
Ibid.
841
Kristina Forsbacka, Gregor Vulturius, ‘A Legal Analysis of Terms and Conditions for Green Bonds’
(2019) Europarättslig Tidskrift 415.

197
Badenhoop promotes the extension of the regime set by the Prospectus Regulation to green
bond frameworks and factsheets. 842 This proposal would be an important progress.

US Securities law and litigation possibilities for green bonds. In the US, the main litigation
venue for bond issuers and underwriters is the possibility that investors claim securities fraud
under the Securities Exchange Act of 1934, mobilizing the “Rule 10b-5.”843 An investor is
entitled to claim damages under Rule 10b-5 if a bond underwriter or issuer omitted or
misrepresented a material fact relating to the purchase of the bond. In addition, this omission
or misrepresentation must be made with the intent to deceive or with recklessness, and the
investors must have undergone a damage by relying on this imperfect information. This rule
could apply to green bonds if an investor purchases a green bond on the basis of an
intentionally misleading sustainability or green disclosure, and then bears a monetary loss as
a result of this misleading information. There have been no cases yet.844 In addition – and as
in the EU or in Hong Kong – it seems that investors have little chance to succeed because of
the difficulty to demonstrate a prejudice, given the small size of “greeniums.”845

The O’Donnell case in Australia. The most interesting litigation example bringing together
financial law and climate change is the O’Donnell case, in Australia. It does not concern green
bonds directly but could set some precedent with implications for the green bond market. The
case is summarized as follow:

“Kathleen O'Donnell, representing herself, retail investors and holders of Australian

Government Bonds ('AGBs'), alleges that physical and transitional climate-related
risks capable of influencing an investor's investment decision should have been
disclosed in the bonds' term sheets and information memoranda issued by the
government. In failing to disclose these risks, it is alleged that the Commonwealth [of
Australia], as promoter of the information statements, engaged in misleading or
deceptive conduct and breached its duty of utmost candour and honesty to
investors.”846

842
Nikolai Badenhoop, ‘Green Bonds An assessment of the proposed EU Green Bond Standard and its
potential to prevent greenwashing’ (2022) Study Requested by the ECON committee of the European
Parliament 80
<https://www.europarl.europa.eu/RegData/etudes/STUD/2022/703359/IPOL_STU(2022)703359_EN.
pdf> accessed 15 May 2022.
843
Aaron Franklin, ‘Why Green Bond Issuers and Underwriters Should Not be Deterred by US
Securities Law’ (2018) Latham and Watkins <https://www.globalelr.com/2018/03/why-green-bond-
issuers-and-underwriters-should-not-be-deterred-by-us-securities-law/> accessed 15 May 2022.
844
Ibid.
845
Scott Breen and Catherine Campbell, ‘Legal Considerations for a Skyrocketing Green Bond Market’
(2017) 31 Natural Resources & Environment 16.
846
Ryan Chan, ‘Ensuring Impactful Performance in Green Bonds and Sustainability-Linked Loans’
(2021) 42 Adelaide Law Review 241.

198
There are challenges to this claim, but if successful, it could be of significance for green and
plain debt issuances,847 as it could result in the discovery of a duty to disclose climate change
risks in bond disclosures.

4.2. CONTRACT LAW LITIGATION

Contractual liability. Another possible venue for litigation rests on contractual litigation. As
legal scholar Javier Solana puts is “the development of markets for green financial products
such as ‘green bonds’ or ‘green loans’ will inevitably lead to litigation related to the
performance of contractual obligations.”848 Despite the general lack of legal commitments in
green bonds, many issuers on Hong Kong’s green bond market maintain a form of ambiguity
and seem to create some contractual commitments relating to the green characteristics of the
bond. For instance, the Agriculture Bank of China, in its green bond framework “commits to
publicly publish an annual report related to its Green and Sustainability Bond issuances” and
also indicates that “projects in all eligible categories shall attain at least the minimum
environmental impact threshold required by relevant official standards” and “the Bank shall
fully allocate the Proceeds to Eligible Green or Social Assets within 24 months after each
Issuance.”849 Similarly, Sinic recognizes certain procedural obligations, while dispelling more
substantial ones:

“Whilst we have agreed to certain obligation relating to reporting and use of proceeds
as described under this offering memorandum titled “Notes Being Issued As Green
Notes” it will not constitute a covenant or undertaking under the terms of the Notes if
we were to fail to comply with such obligations or were to fail to use the proceeds of
the issue of the Notes, in the manner specified in this offering memorandum.”850

These recognized contractual obligations, even if limited, can of course be the object of a
litigation between the contracting parties – most obviously, the investors and the issuer. Even
if they are not public, contracts between the issuers and the underwriters can also be the matter

847
Jacqueline Peel and Rebekkah Markey-Towler, ‘Climate Change Risk and Sovereign Bond
Investments: The Case of O’Donnell v Commonwealth of Australia’ (2020) 3 Carbon and Climate Law
Review 177.
848
Javier Solana, ‘Climate Litigation in Financial Markets: A Typology’ (2020) 9 Transnational
Environmental Law 124.
849
Agriculture Bank of China, Green Bond Framework (2019) 7 <https://www.hkex.com.hk/-
/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Agricultural-Development-Bank-of-
China/85910_Green-Bond_20191107/85910_Green-Bond-Framework_Sep-2019.pdf> accessed 16
May 2022.
850
Sinic Holdings (Group) Company Limited, Offering Memorandum 8.50% Senior Notes Due 2022
(2021) 42
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/Sinic-
Holdings-(Group)-Co-Ltd/40557_Offering-Circular_20210118.pdf> accessed 16 May 2022.

199
for litigation, especially as some authors mention that such contracts often contain provisions
relating to the use of the proceeds of green bonds.851 Even if such provisions are outside the
contractual terms, a judge can, in certain circumstances, requalify certain elements as being
part of the contract. The blurry line intentionally drawn by green bond issuers between legal
and non-legal obligations relating to the green credentials of their bonds could also backfire:
in French contract law, a plaintiff could argue that his consent has been vitiated by the mistake
on the nature of the bond.852

Lack of green legal commitments and disclaimers. Most green bonds are structured in such
a way as to minimize the legal commitment relating to the green characteristics of the bond.
These protections against green legal commitment are well illustrated among STAGE’s green
bonds. For instance, the prospectus of a green bond issued by the Hong Kong Authority states
that “the Airport Authority has significant flexibility in allocating the net proceeds of the Green
Notes and there can be no assurance that such net proceeds will be totally or partially disbursed
for any Eligible.”853 Issuers are not the only ones to protect themselves against litigation:
external reviewers also do so, such as Sustainalytics, in an opinion to the MTR green bond:

“the Opinion was drawn up with the aim to explain why the analyzed bond is
considered sustainable and responsible. Consequently, this Opinion is for information
purposes only and Sustainalytics will not accept any form of liability for the substance
of the opinion and/or any liability for damage arising from the use of this Opinion
and/or the information provided in it.”854

The underwriters as well protect themselves with extensive disclaimers, which protect
themselves and issuers from litigation. For instance, ICMC’s green bond prospectuses states:

“none of the Issuer, the Joint Global Coordinators or the Joint Lead Managers make
any representation as to the suitability for any purpose of the HKQAA Pre-issuance
Stage Certificate or whether the ICBC Hong Kong Green Bonds fulfill the relevant

851
Karsten Woeckener, ‘Green bonds – building optionality for issuers into programme documentation’
(9 January 2018) White & Case <https://www.whitecase.com/publications/alert/green-bonds-building-
optionality-issuers-programme-
documentation#:~:text=Mindy%20Hauman-,Green%20bonds%20%E2%80%93%20building%20opti
onality%20for%20issuers%20into%20programme%20documentation,to%20offer%20their%20invest
or%20base> accessed 16 May 2022.
852
Code civil, Article 1137.
853
Hong Kong Airport Authority, Offering U.S.$1,000,000,000 1.750 per cent. Green Notes due 2027
(2022) 27 <https://www1.hkexnews.hk/listedco/listconews/sehk/2022/0113/2022011300205.pdf>
accessed 16 May 2022.
854
Sustainalytics, MTR Corporation Limited Green Bond : Framework Overview and Second Opinion
(2016)
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-Page/Bonds/MTR-
Corporation-Limited/5252_Green-Bonds_20170728/5252_External-Review_Sustainalytics_2016.pdf>
accessed 15 May 2022.

200
 environmental criteria. […] To the fullest extent permitted by law, none of the Joint
Global Coordinators, the Joint Lead Managers or any Agent or any director, officer,
employee, agent or affiliate of any such person makes any representation, warranty or
undertaking, express or implied, or accepts any responsibility or liability, with respect
to the accuracy or completeness of any of the information in this Supplemental
Offering Circular.” ”855

At the global scale, this fact is confirmed by Cornut for the Canadian market and Forsbacka
for the Nordic market. 856 As explained by Cornut, terms used in green bond prospectuses
usually avoid expressing a legal commitment from the issuer. The GBP themselves set the
anti-legal tone of the green bond market, by indicating that the GBP do not create any right or
liability to any person. 857 The GBP even attempt to shield underwriters, by stating that
“underwriters of Green Bonds are not responsible if issuers do not comply with their
commitments to Green Bonds and the use of the resulting net proceeds.”858

Governing and applicable laws. A second obstacle to any litigation based on contract law is
the complexity of international private law questions raised in the context of the international
bond market. Seemingly, the matter looks simple as an important share of international bond
issues are governed by English or New-York laws. 859 However, some issuers elect non-
English and non-New-York competent jurisdictions – which generates questions regarding the
interpretation of English of New York laws by, let’s say French or Swedish courts. In addition,
a significative fraction of international issuers chose to have their obligations governed by the
laws of other jurisdictions.860 But, most importantly, the structure of the international bond
markets implies the participation of many actors (issuers, arrangers, verifiers, trusts, fiscal

855
Industrial and Commercial Bank of China, Supplemental Offering Circular 20190909 (2019) iv
<https://www.hkex.com.hk/-/media/HKEX_Common/Market/Stage/Product-
Page/Bonds/ICBC/6012_Green-Bond_20190917/6012_Supplemental-Offering-
Circular_20190909.pdf> accessed 15 May 2022.
856
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020) ; Kristina Forsbacka, Gregor Vulturius,
‘A Legal Analysis of Terms and Conditions for Green Bonds’ (2019) Europarättslig Tidskrift 397.
857
The International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021) 7
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-
Principles-June-2021-140621.pdf> accessed 15 May 2022.
858
Ibid.
859
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015) ; Philip R. Wood CBE, ‘Choice of governing law for bonds’ (2020) 15:1 Capital Markets Law
Journal, 3.
860
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015) 174.

201
agents, depositaries, investors, listing entities, etc) located in many different jurisdictions. As
a result, international capital market law specialist Bamford considers that:

“the effect of individual rules of private international law, and the inter-relationship
of the many such rules that are involved, is so important to any analysis of an
international bond structure that it is impossible to predict what the effect of any
structure will be, unless one knows the exact factual position at the time when the
analysis will apply.” 861

Right of action issues. A last issue to litigation based on contract law is that the structure of
green bond themselves can prevent the adequate parties to enjoy a right of action. The main
interest in the green bond that could generate a dispute is the realisation of the environmental
benefits promised. But these environmental benefits are collective in nature, and do not relate
at all to the private interests of most private persons. Hence, most investors have no actual
interest to see a reduction of CO2 being conducted because they do not have a specific mandate
to aim at CO2 emission reduction. So, rationally, investors would not finance any legal action
in that sense. Most of all, in many jurisdictions, he would not have the right to initiate such an
action, precisely because of this lack of private interest. It could be argued that the investors’
public image was harmed because of the failed green bond, but this is difficult to quantify in
monetary terms. The financial loss for an investor linked to the loss of the green qualification
would certainly be small: it would be the value of the “greenium”, or the value of the incentives
set by the government, plus a quantification of the harm done to the public image of the
investor, if any. In the current situation, the greenium is very limited and could hardly be worth
financing an action, except on a very big green bond issuance. Similarly, governments’
incentives attached to green bonds are still currently evasive in most jurisdictions and could
hardly give a sufficient justification. Non-state entities interested in the environmental benefit
delivered by the green bonds would be environmental NGOs. In some states like France, they
are given a right of action for environmental harms, but they are not given a right of action for
enforcing promised environmental benefits. According to Cornut, this difficulty for investors
to demonstrate their prejudice relates to the concept of “investors” in financial law: an investor
is seen as an actor which enjoys a limited right to mingle into the management of the company,
as his recognized interests are limited to monetary expectations.862 In this regard, Badenhoop’s

861
Ibid 176.
862
Pascale Cornut St-Pierre, ‘L'innovation financière au secours de l'environnement ? Perspectives
juridiques sur les obligations vertes’ (Financial Innovation to the Rescue of the Environment? Legal
Perspectives on Green Bonds) (2020) in Hughes Bouthinon-Dumas, Bénédicte François, and Anne-
Catherine Muller (ed.), Finance durable et droit : perspectives comparées (Sustainable Finance and
Law: Comparative Perspectives) (Paris: IRJS Éditions, 2020).

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proposal to set a civil liability mechanism applicable to green bonds863 implies fundamental
changes of existing laws for an uncertain result, as in all likeliness, private actors – even if
given the chance – would not fund legal action against a business partner for non-performance
of an environmental promise benefitting the community, given their lack of monetary interest
in harming the entity that owes them money in order to obtain the realization of a public good.
Only if owing an authentic green bond is linked with significant monetary incentives set by
public authorities would such judicial actions become imaginable. But in this hypothesis, the
political opportunity to allocate public funding to subsidize the delegation of environmental
action to financial operators can be questioned.

4.3. OTHER LITIGATION POSSIBILITIES

Outline. Several other litigation possibilities exist beyond financial and contract law, such as
civil liability or advertisement regulation.

Civil liability. Under Article 1240 of the French civil code, any act which causes damage to
another, obliges the one by whose fault it happened to compensate the victim. Applied to the
green bond market, this provision could lead a green bond issuer who would not have allocated
the proceeds to the announced green activities to repair the damage suffered by the investors
(for instance, a reputational loss, or financial loss if the loss of the green characteristics
diminished the value of the bond). However, the demonstration of a fault, a damage and a
relationship of causality, however, would not be easy. The most obvious hurdle would
certainly concern the damage, as reputational harms are difficult to quantify and the financial
value difference between green and non-green bonds is minimal.864

Advertisement litigation. Beyond financial law, another body of law that can provide a basis
for litigation is advertisement law. In the EU for instance, there are texts and caselaw that
protect consumers against false of deceptive advertising claims. In the EU, the Unfair
Commercial Practices Directive states that marketing practices violate the Directive if it
“deceives even if the statements are factually correct”.865 This provision could be particularly
powerful if used on the green bond market, as public perceptions are very far from the reality

863
Nikolai Badenhoop, ‘Green Bonds An assessment of the proposed EU Green Bond Standard and its
potential to prevent greenwashing’ (2022) Study Requested by the ECON committee of the European
Parliament 76
<https://www.europarl.europa.eu/RegData/etudes/STUD/2022/703359/IPOL_STU(2022)703359_EN.
pdf> accessed 15 May 2022.
864
See Chapter II, section 3.1.2.
865
Directive of the Council 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer
commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives
97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC)
No 2006/2004 of the European Parliament and of the Council (Unfair Commercial Practices Directive)
OJ L 149 Article 6.

203
of the market, and as such suggest that mainstream consumers have been deceived by green
bond issuers. A survey made in Germany showed that 90 percent of consumers believe that
green bond funds finance companies which are either green or are transitioning to being green.
866
The reality of the market is opposite: green bonds finance in principle green projects, but
do not say anything about the greenness of the company that issue them. Customers are
therefore massively misled on the green bond market and this misleading could be determined
as an infringement of the Unfair Commercial Practices Directive.

5. CONCLUSION

This chapter has shown structural deficiencies relating to the implementation and control of
green bonds. These deficiencies are common to Hong Kong and the global green bond market.
They origin in the small involvement of public actors (such as NGOs or public authorities) to
protect the public interests at stake. The occasional role played by NGOs and academics and
some landmark issuances cannot be deemed sufficient to control the constantly increasing
number of green bonds issued. Private actors in presence (external reviewers and investors)
have essentially no interest in seeing a public interest being defended, and therefore are only
marginally able to correct the mis-implementation of green bond rules. The market actors
themselves probably tend to slightly self-censor due to the pressure of environmental NGOs
on the most emblematic cases, but the number of regular abuses show that the requirements of
green bonds standards, added to external reviews and the pressure of civil society is
insufficient. In this regard, the recent stepping in of regulators is far from yielding result yet
but could be promising through a greater indirect (through the reviewers) and direct control of
the market. Given the importance of the public interests at stake, administrative authorities
should be much more active. For now, the lack of judicial cases shows how much green bonds
still escape hard law. Some insurmountable issues prevent cases to end up in front of court, in
particular the lack of interest from private actors for initiating an action to obtain redress for a
harm done to the public interest. The considerations exposed in this chapter contradict Park –
who does not see any issue in green bond control – , Forsbacka – who does see an issue, but
only advocate light control over transparency – and Badenhoop – who advocates control
through a civil liability mechanism – by showing that the main control mechanisms must be
centred around public interests and entrusted to public authorities.

866
Jakob Thomae, ‘How not to get investigated by the BAFIN for alleged greenwashing’ (2021) 2
Degrees Investing Initiative <https://2degrees-investing.org/blogs/how-not-to-get-investigated-by-
bafin-for-greenwashing/> accessed 15 May 2022.

204
205
 CHAPTER VI: CONCLUSION AND PERSPECTIVES

ABSTRACT

The sixth chapter concludes the thesis by providing an answer to the question asked in the
introduction. What is the legal framework necessary for the “green” promise to be kept? In
order to answer this question, this thesis followed an analytical framework based on the
traditional public-private distinction. The second chapter showed how the public and private
interests shaped green bonds into a normative concept with a dual structure: green finance
taxonomies and transparency. The third chapter analysed taxonomies as the crucial public
institution providing the precondition for a green bond market to exist in law. The fourth
chapters showed that these taxonomies transformed the meaning of transparency, contributing
to integrating a public element in this area of financial regulation usually dominated by private
relations. The fifth chapter noted the inadequacy of public control means in relation to the
importance of the public interests at stake. This thesis therefore concludes on the emergence
of a promising legal framework that cannot yet enforce the “green” promises because it did
not fully integrate the public elements at stake. This marginalization of the public categories
results, among other reasons, from the fact that the notions of the green bond market are forged
by private actors to serve their own interests. Before making some proposals for improving
the green bond legal regime, this concluding chapter therefore sets out to critique the main
notions involved in green bonds.

Outline. This concluding chapter summarizes the results of the previous chapters and the
contribution of this thesis to the literature (1). It then offers some critical perspectives on green
bonds regulations (2) and makes some proposals to improve these regulations (3).

1. RESULTS OF THE THESIS

Outline. This section summarizes the results of the previous chapters and states the conclusive
answer to the question asked in the introduction.

Results of previous chapters. Based on the traditional public-private distinction, the second
chapter shows how the public and private interests shaped green bonds into a normative
concept composed of two sides (taxonomies and transparency rules), one dominated by public
concerns, the other by private ones. Of course, this analysis represents a simplification aimed

206
at making green bonds normative developments intelligible. This second chapter also shows
the complexity and multidimensionality of green bonds normative developments, especially
during the early stages (“emergence” and “successive issuances”). The third chapter analyses
taxonomies as the crucial public institution providing the precondition for a green bond market
to exist in law. Against mainstream discourse claiming that the green bond market is an
invention of the financial industry (and should consequently be left unregulated by public
authorities), this chapter proves that tools to define “green” in finance have their origin in
international public law and international institutions. Against authors supporting that the
public definition of the environmental contribution of green bonds is facultative and could be
left to individual issuers, this third chapter shows that a common reference to know the
meaning of “green” is a precondition to the existence of the market. It also exposes the
complexity, sophistication, and potentially considerable ramification of these taxonomies,
which appear to be a type of environmental strategic planning applied to finance in order to
realise the environmental transition. As an illustration of the transformative power of green
finance taxonomies, the fourth chapters reveals that these taxonomies transformed the meaning
of transparency, contributing to integrating a public element in this area of financial regulation
usually dominated by private relations. Transparency is not anymore about the communication
of the issuers’ autoreferential sustainability choices, it becomes the communication of the
issuer’s alignment with a public pathway towards achieving public environmental objectives.
Finally, the fifth chapter notes the inadequacy of public control means in relation to the
importance of the public interests at stake. Private external reviewers are currently the main
guarantors of green bonds’ integrity: the fifth chapter shows their deficiencies.

Conclusive answer to the question asked in the introduction. What is the legal framework
necessary for the “green” promise to be kept? This thesis shows the emergence of a promising
legal framework that cannot yet enforce the “green” commitments because it did not fully
integrate the public elements at stake. The emerging legal regime is promising, as it developed
two complimentary bodies of rules: green finance taxonomies to handle the vertical relations
between individual entities and the environment, and transparency rules to handle horizontal
relations between contracting parties. However, the stability and quality of the public
institutions in charge of defining the “green” is not yet ensured. Consequently, private
contractual commitments bearing on “green” characteristics cannot yet take shape.

2. CRITICAL PERSPECTIVES: ALTERNATIVES TO THE GREEN BOND REGIME

Outline. After analyzing the emerging normative regime in the previous chapters – analysis
concluded by the section above – this section offers some critical perspectives on green bonds
regulations, in search for alternatives to the existing regime. All the key terms in the current
green bond regime (benefits, projects, taxonomies, capital and interest, maturity, green and

207
bond) have alternatives worth being explored. These explorations reveal many possibilities to
enrich the green bond regulatory regime. 867

2.1. BENEFITS

A public relations success. This thesis chose to use the words “environmental contribution”
to describe what the financial industry calls the “environmental benefits” of the green bonds.
The use of the word “benefit” comes from the GBP, which defines green bonds as bonds that
finance projects with environmental benefits. By some aspect, it represents a successful public
relations operation, which managed to let believe that bonds, and potentially more generally
the bond market and even finance in general, produce “benefits” for the environment.

Challenges to the “benefit” narrative – 1. This narrative can be challenged insofar as many
ecological thinkers attribute to unfettered financial markets the origin of many ecological
issues.868 By privileging the word “benefit” over the words “impact” or “consequence,” the
bond industry conveniently concealed that most of the bonds are not green and finance
activities that have negative impacts or consequences on the environment. The actual
environmental issue regarding the bond market is about the bonds that finance coal mines or
coal plants, oil exploration, new carbon intensive infrastructures, etc. By successfully
attracting the attention on some of the positive impact of the bond market on the environment,
the financial industry successfully set the agenda of many regulators on the regulation of a
niche financial product – green bonds. Instead, the regulatory agenda over the last ten years
could have been on preventing or discouraging the financing of environmentally harmful
activities through the bond market. While legislators may have the impression, everywhere in
the world, that by regulating green bonds, they are taking actions on the question of the link
between financial regulation and the ecological crisis, they are disregarding a central point,
which is the financing of ecologically harmful projects through the bond market. Green bonds
could even make it harder to lobby for the beginning of an environmental regulation of the
bond market by having improved (or at least blurred) the image of the bond market in the mind
of the public and policy makers.

867
This section introduces some new terms, ideas and authors that have not been discussed in the body
of the thesis. This is because this section is not about concluding in the strict sense, but about opening
new perspectives. It corresponds to an “ouverture” in French classic way of writing a dissertation. Some
subsections (such as the discussion of capital in section 2.4 or conceptions of time in section 2.5) might
strike my most incisive reader as “going in too many directions” and as “not adding anything useful to
the argument.” Blessed be this reader for having precisely identified the point of the section: it does not
intend to add anything useful to the argument, except opening up as many directions for thoughts as
possible.
868
See for instance, Jason W. Moore, ‘The Capitalocene, Part I: on the nature and origins of our
ecological crisis’ (2017) 44:3 The Journal of Peasant Studies 594.

208
Challenges to the “benefit” narrative – 2. A second argument against the “benefit” narrative
relates to the failings of the bond market to adequately define what “environmental benefits”
are. Ill-defined benefits of green bonds may in fact hinder green finance. Public institutions
such as the European Central Bank 869 with a target of achieving a percentage of green
investment take the risk of financing business as usual economic activities labelled as green
instead of investing directly in solar panels, or other concrete programmes that advance the
ecological transition. For lack of verification or transparency of the expected “benefits”, green
bonds might divert financial resources from financing genuine environmental actions.870

An original approach. However, this approach based on the positive contribution to the
environment of the bond market has something original and valuable. Echoing the approach
of the French documentary Demain (Tomorrow)871 – that chose to inquire about the positive
solutions the ecological transition can bring and the positive impact human activities can have
instead of focusing on the environmental catastrophes – the approach centered on the
environmental “benefits” of the bond market can help to foster energies rather than discourage
them. The need to define these benefits led, thanks to environmental NGOs such as the CBI,
to the construction of green finance taxonomies. Some of these taxonomies corrected this
blindness to negative impacts by adding a “do no significant harm” principle. Most of all, and
as explained below, these taxonomies led public powers to expose to financial markets their
long-term vision in relation to sustainability, and as such to introduce a form of strategic
planning. In this way, the “benefits” relate to a collective achievement, hence the choice of the
word “contribution” in this thesis.

2.2. PROJECTS

Green bonds’ market roots in project finance. The word project is overwhelmingly used in
the green bond universe, without any relation to the actual importance of the word in the plain
bond market. Most bonds are raised to finance “general corporate purposes,” and not
“projects”. Then why did the word project become so important? It may be because of the
“project finance” origin of the green bond market. Project finance came to be the earliest field
where the financing of something became conditioned to social and environmental standards.
Indeed, project finance frequently takes place in developing countries where social and

869
European Central Bank, ECB takes further steps to incorporate climate change into its monetary
policy operations (2022)
<https://www.ecb.europa.eu/press/pr/date/2022/html/ecb.pr220704~4f48a72462.en.html> accessed 29
July2022 [“The Eurosystem aims to gradually decarbonise its corporate bond holdings, on a path aligned
with the goals of the Paris Agreement”].
870
I thank my thesis supervisor Prof. Benoît Mayer for this argument.
871
Cyril Dion et Mélanie Laurent, Demain (Documentary : 2015) <https://www.colibris-
lemouvement.org/projets/films/demain-film> accessed 29 July 2022.

209
environmental standards were often lax. In addition, these projects are often financed by
international institutions such as the World Bank, ruled by international law. These
international financial institutions applied the projects they financed social and environmental
standards derived from these international laws. 872 Later, these standards were adapted to
private banks through the Equator Principles. 873 As showed in Chapter II, 874 the Equator
Principles were the direct source of inspiration of the main standard for green bonds. Certainly,
it was more practical for the drafters of the GBP to use the concept of project. Another reason
might have been the limited capacity, at that time, of the drafters of the GBP, to impose any
kind of demanding solution to bond issuers, and their desire to write the most useable standard
possible.

Alternatives. An easy alternative to approaching environmental aspects of bonds could be the

entities’ (corporations or state) environmental credentials. Some corporations for instance,
because of their field of activities (solar panel making or wind turbine installation) could be
considered eligible to issuing green bonds that would fund their “general corporate purposes.”
These types of green bond issuances are described as “pureplay issuance.”875 For companies
in greyer areas, the environmental orientation of their capital expenditure, their
decarbonization strategy or the environmental impact of their turnover could be assessed and
compared to their competitors. The contribution of corporations to helping countries to meet
their NDC or any kind of environmental planning could also be a way to qualify green bond
as green. Some developing countries even mention in their NDCs the projects that need
funding by green bonds.876 In other words, green bonds could be more about green strategies
than green projects. Focusing on strategies (from corporations and states, and the articulation
of both) would allow for a holistic assessment of an issuer’s commitment to adapt its activities
to the environmental constraints.

872
Johanna Aleria P. Lorenzo, ‘International Law-Making in the Field of Sustainable Development and
an Emerging Droit Commun among International Financial Institutions’ (2018) 7 Cambridge
International Law Journal 327.
873
David Ong, ‘Public Accountability for Private International Financing of Natural Resource
Development
Projects: The UN Rule of Law Initiative and the Equator Principles’ (2016) 85 Nordic Journal of
International Law of International Law 201.
874
Section 4.2.2.
875
Suzanne Buchta and Tangy Claquin, ‘The big debate: Pureplay green bonds’ (6 October 2015)
Environmental Finance <https://www.environmental-finance.com/content/analysis/the-big-debate-
pureplay-green-bonds.html> accessed 16 May 2022.
876
Suriname, Nationally Determined Contribution of the Republic of Suriname (December 2019).

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2.3. TAXONOMIES

Critique of taxonomies. As explained in chapter IV, taxonomies have developed in the wake
of CBI’s climate bond taxonomy. In the choice of this word, CBI, in consistence with its own
rhetoric of following climate change science, tried to impose its choices as scientific. This
approach was certainly a good one to gain authority. As a small environmental NGO trying to
raise climate awareness on the financial markets, CBI’s success in conveying a message to the
financial markets is considerable. However, this is certainly misleading to refer to taxonomies
as scientific instruments insofar as climate change science only identifies a problem but does
not prescribe any solution. CBI’s strategy to present its taxonomy as the simple scientific
derivation of the work of the GIEC and the global objective to limit the rise of temperatures
to 1,5 – 2°C at the end of the century certainly conceals many political choices. Another
element constitutive of taxonomies as CBI imposed them in green finance is their claim to rest
on the work of experts and the latest advancements of technologies. Doing so, CBI plays with
the confusion between science and technology. It suggests that since the taxonomy is based on
objectives set in relation to science, it makes sense to ask experts of diverse technological
fields (energy, transportation, building, etc) to decide for the criteria. In fact, technologies and
climate sciences are separate domains and being an expert in solar panels does not give any
additional legitimacy to decide the criteria for how solar panels qualify as green in order to
pursue global temperature objectives. By erasing the level of political decision, taxonomies
become blind to contextual realities, local values, traditions, preferences or dynamics. This
off-ground characteristic is accentuated by the language chosen in taxonomies. Because of this
anchoring in science and technological expertise, taxonomies chose a quantitative language
over a qualitative one. These overwhelming references to numbers over qualitative
descriptions is also maybe a way to generate trust, 877
especially in a professional
environmental such as finance. However, the quantitative targets set by these taxonomies are
in practice certainly easy to bypass or to manipulate, as analysts of quantification in law
showed, based on historical experiences such as soviet strategic planning.878 This distance with
the human, environmental and social realities as they can be expressed in words, makes green
finance taxonomies a potentially very harmful instrument. The reality of human creativity and
contextual intelligence is impossible to capture in categories that consider themselves as
scientific. Taxonomies might hinder the ability to finance genuine creative innovation. To
grasp this changing nature of human activity, taxonomies usually indicate that they will be
regularly updated according to technological changes. These regular updates create a legal

877
Theodore M. Porter, Trust in Numbers: The Pursuit of Objectivity in Science and Public Life (2020:
Princeton University Press).
878
Alain Supiot, La gouvernance par les nombres : Cours au collège de France 2012-2014 (2015 :
Fayard).

211
uncertainty and add to the complexity (thousands of pages for the first version of the EU
taxonomy) of the instrument, and the impossibility for small actors to appropriate this
instrument. Finally, some XXth century historical experiences in Germany and USSR suggest
that attempts to merge law and science (be it biology or historical materialism) did not end
well.879

Alternatives. In the bond market, taxonomies come as an alternative to the definition by the
market of what is green. This solution, supported by the GBP, would consist in letting each
market actor the freedom to communicate what he considers as green, and let investors decide
about the relevance of such definition by buying the bond or not. Of course, this alternative is
not satisfactory. In the history of green bonds, the American authorities once defined green
bond without taxonomy, simply attributing green qualification on the basis of principles and
decisions made by the EPA. This solution may be quite sensible, since it authorizes a certain
degree of human agency, of political deliberation and of attention to the context. Of course, it
is open to corruption and favoritism, but this is perhaps inevitable and a lesser evil. A last
alternative to taxonomies appears in certain green bond standards, which define vague and
broad categories. But it seems that without a system of authorization operated by a public
authority, a green qualification simply based on categories is too broad to be effective.

Strengths of taxonomies. Still, taxonomies have some strong points. They may allow for
long-term planning. This planning function is also a function that contracts have. As a
mainstream contract law textbook states:

“Contract has an important function of securing the expectations created by a promise

of future performance are fulfilled […]. [Contracts] facilitate forward planning of the
transaction and to make provision for future contingencies. The more complex the
transaction, the greater will be the need for such planning and the more detailed the
provisions are likely to be made.”880

By enabling private and public actors to integrate into their contracts a tool for anchoring their
own contractual planning into a collective long-term environmental planning, taxonomies can
improve legal security and help combine public and private planning. Second, taxonomies also
enable the contractualisation of public objectives, and as such, may improve the chances to
reach them. This contractualisation is not limited to green finance taxonomies but is also
common to many environmental law instruments which appeared in the last years.881

879
Ibid.
880
Nicholas J. McBride, Key Ideas in Contract Law (Hart: 2017) 3.
881
Anne Stevignon, Le temps qu’il fait et le droit des obligations : de l’influence du changement
climatique sur l’appréhension des phénomènes météorologiques (PhD thesis, Paris II - 2019) 345

212
2.4. CAPITAL AND INTERESTS

Critique of capital and interests. Like vanilla bonds, green bonds consist in lending a capital,
in exchange of the ulterior reimbursement of this capital plus interests. This mechanism itself,
at the root of capitalism, has been criticized by certain theorists of ecology for its participation
to environmental destruction. One of these critiques consists in noting that the curve of capital
expansion is exponential while we live in a finite world, where resources are limited.882 Certain
thinkers of the monetary system noted that the logic of credit leads to a need for perpetual (and
ever quicker) growth.883 These requirements of the capital are deemed by some to result in
ever stronger pressures to exploit natural resources. Another angle of critique is the detention
by only a few of the property of capital, and the way this power is maximized by a class of
capital market and corporate lawyers at the expense of the society and the environment. 884
Under this light, green bonds could be understood as the ultimate maneuver from the
possessors of capital to protect their property from reform. Even more, green bonds could be
understood as the strategy of the possessors of the capital to impose their own environmental
program to borrowers (corporations and states).

Alternatives. Historically, important religious traditions grew wary of debt and interests. As
recalled in Chapter II, the catholic church and most Muslim streams refused or still refuse the
possibility of earning an interest. Research around the concept of the “commons” also tried to
develop alternative systems, such as local currencies where savings are not remunerated.
Attempts to put the emphasis on the common value of monetary creation through credit is also
one of the intellectual undertakings happening in field of research about the “commons.”885 It
is also notable that the main alternative to capitalism in the XXth century – soviet communism
– is not considered as environmentally more efficient than capitalist countries.886

<https://docassas.u-paris2.fr/nuxeo/site/esupversions/3c851137-24fe-42b6-84c5-5e76816bbab5?inline>
accessed 17 June 2022.
882
Christophe Bonneuil and Jean-Baptiste Fressoz, The Shock of the Anthropocene : The Earth, History
and Us (Verso : 2017).
883
Tim Jackson and Peter A. Victor, ‘Does credit create a ‘growth imperative’? A quasi-stationary
economy with interest-bearing debt’ (2015) 120 Ecological Economics 32; Christian Arnsperger,
‘Repenser la création monétaire pour demeurer dans les limites de la biosphère’ in Agnès Sinaï et al.
(eds.), Gouverner la Décroissance 77 (2017); Christian Arnsperger, Bernard Lietaer, Sally Goerner and
Stefan Brunnhuber, Money and Sustainability (Triarchy Press: 2012).
884
Katharina Pistor, The Code of Capital (Princeton University Press : 2019) ; Katharina Pistor, ‘The
Myth of Green Capitalism’ (September 2021) Project Syndicate <https://www.project-
syndicate.org/commentary/green-capitalism-myth-no-market-solution-to-climate-change-by-
katharina-pistor-2021-09> accessed 18 November 2021.
885
Christian Arnsperger, ‘Repenser la création monétaire pour demeurer dans les limites de la biosphère’
in Agnès Sinaï et al. (eds), Gouverner la Décroissance 77 (2017).
886
Paul Josephson, Nicolai Dronin, Ruben Mnatsakanian, Aleh Cherp, Dmitry Efremenko and
Vladislav Larin, An Environmental History of Russia (Cambridge University Press : 2013).

213
Strength of the capitalist element in green bonds. Contrary to many initiatives at the
crossroads of environment and finance, green bonds did not try to extend the language of
finance to the realm of nature (for instance, the concepts of natural capital or ecosystemic
services). On the contrary, it imported some environmental conceptual elements (such as the
environmental impact assessment – at least, the assessment of positive impacts) into finance.
In that sense, green bonds can be seen as a timid attempt from environmental interests to
domesticate capitalism. This attempt could be translated into the emergence of a new way to
price externalities. Indeed, since green bonds’ interest rate is slightly lower than normal bonds
– reciprocally, one could consider that normal non-green – “polluting” bonds are financially
penalized – one could argue that some of the positive environmental externalities enabled by
these bonds are starting to be priced. This pricing gap could become higher if measures such
as a green supporting factor are implemented by financial regulators. This price is generated
not by an ad-hoc market such as the carbon market, but on the main capital market, the bond
market. This integration of externalities at the heart of mainstream financial transactions could
be a decisive step in the way law grasps environmental issues. Indeed, in an article, 887
international law scholar Jorge Viñuales identifies the dichotomy between “transaction” and
“externality” as one of the legal patterns responsible for current environmental issues.
According to Viñuales, the laws that supported the industrial revolution were first concerned
with organising transactions – ie the definition of powers over the objects exchanged, such as
natural resources, intellectual property rights or capital – while other laws, such as those
dedicated to the reduction of environmental degradation, were designed to mitigate negative
externalities without interfering with transactions. In this perspective, environmental law
could be construed as, according to Viñuales, “not only a latecomer but an epiphenomenon,”888
while the legal processes organising transactions are “at the root of the geological impact of
humans.”889 In this perspective, green bonds and green taxonomies could be understood as the
premises of an environmental way to organise financial transactions. Another law professor,
Bertram Lomfeld, go as far as to imagine the extension of multilateral development banks’
social and environmental safeguards (which gave rise to green finance taxonomies) to all
transactions, through what he conceptualizes as global sustainability terms (GST).890

887
Jorge Viñuales, ‘Two layers of self-regulation’ (2020) 11(1-2) Transnational Legal Theory 16.
888
Ibid
889
Ibid
890
Bertram Lomfeld, ‘Sustainable contracting: How standard terms could govern markets’ In Bertram
Lomfeld, Alessandro Somma, & Peer Zumbansen (Eds.), Reshaping Markets: Economic Governance,
the Global Financial Crisis and Liberal Utopia (Cambridge University Press: 2016).

214
2.5. MATURITY

Critique of time in green bonds. Through the concept of maturity, this sub-section brings a
critical look on the way time is conceived in green bonds. This section is inspired by the
intuitions that Indian writer and literary critique Amitav Gosh develops in The great
derangement.891 Amitav Gosh describes in his book the presupposed conceptions about linear
time that accompanied the modern novel in the 19th century and led to the insensitivity to
climate change issues in the 20th and 21st centuries. According to Gosh, the major novelist of
the 19th and early 20th century had a conception of time as being continuous, predictable, and
homogeneous. Hence Balzac, Flaubert or Proust focused their narratives at the scale of
individuals – individual feelings and adventures becoming the only possible adventure and
interesting narrative in a larger world that was thought as boringly predictable. This focus of
the modern novel on the interiority of individuals made it difficult if not impossible to tell
stories about the cosmos, and the exceptional natural events – because these stories are
perceived as secondary to interiority stories and not credible given the widespread modern
assumption that all natural phenomena are ruled by stable physical laws.

Today’s time and its difference with 19th century conceptions. The situation is very
different today as we know that the future to come is a future of rupture, of non-linear
processes and of retroaction loops. 892 In this situation, the future cannot be considered as
another present. This change in the perception of time questions also instruments such as bonds.
Bond’s regular coupon payments, until the full payment at the maturity date, suggests a linear
and bourgeois conception of time. A great century of expansion of bonds was this 19th century,
when many of the writers mentioned by Amitav Gosh for his demonstration – such as Flaubert
or Proust – were living off the regular payments made by bonds. It seems difficult to
perpetuate such a notion of time, given that we know the future will not answer the 19th
century’s definition of time. Debt is about of the future: it is an obligation about the future. If
the future is to non-linear, brutal and full of ruptures, then the legal regime of debts should
perhaps adapt to it.

Environmental principles for the future: the precautionary principle. A manner to deal
with this rebellious future might well be to deal with it with precaution.893 Two precautions
could be taken: not lending too much and lending wisely. A first precaution could be, in order

891
Amitav Gosh, The Great Derangement: Climate Change and the Unthinkable (University of
Chicago Press: 2016); Aaron Matz, ‘Flaubert’s Planet: Do novelists, and their readers, bear some
responsibility for the climate crisis?’ (2022) LXIX 12 The New York Review of Books 23-25.
892
David Wallace-Wells, The uninhabitable earth: a story of the future (Penguin Books: 2019); Roy
Scranton, Learning how to die in the Anthropocene (City Lights Books: 2015).
893
United Nations Rio Declaration on Environment and Development (13 June 1992), 31 I.L.M. 874
(1992). [“threats of serious or irreversible damage, lack of full scientific certainty shall not be used as a
reason for postponing cost-effective measures to prevent environmental degradation”].

215
to maintain some leeway to future generations, to limit lending, not to over-determine the
future. The more money is lent in a society, the more this society sees her future constrained
by the projects that must be realized in order to reimburse the debt. The future should be, to
some extent, let as a blank page to enable adaptation to unexpected events. Contemporary
rising levels of indebtedness seem to be a symptom of over exploitation of the future.
Mirroring natural reserves that attempt to protect certain spaces from spatial overexploitation,
or cultural conservation that tries to protect certain elements of the past, a part of the future
should also be sanctuaried. In order to protect the democratic choice of future generations,
lending should be limited in order not to overburden the future with choices made in the
present. A second precaution could be to lend wisely. Since some elements of the future are
predictable – such as the need to decarbonize – lending to carbonized projects, should be
discouraged if not prohibited, as an attempt to avoid locking the society in high carbon choices
for years. If the reimbursement of long-term debts will weight on future generations, at least
it would seem sensible that these debts financed projects serving the interests of these future
generations – such as climate change mitigation or adaptation – since one can rationally think
that these future generations would certainly have chosen to finance these efforts, had they
already been able to make a decision now.894

Argument in favour of the precautionary principle to bonds : avoiding the a posteriori

application to the contract of the environmental public order. A well-received law thesis
published in France in 2022 advocates for the development of an “environmental public order”
that would be a condition of validity of contracts and would instrumentalise the effects of the
contracts. Environmental public order is understood as the imperative norms of environmental
protection to which private persons are submitted (mainly three elements: administrative
police of environmental protection; administrative authorisation or interdiction applicable to
certain goods or activities; environmental liability rules).895 Insofar as green bonds contracts
would encompass environmental obligations relating to the allocation of proceeds to green
activities and relating to the environmental information of investors, these contracts can be
considered as subjected to the environmental public order theorised by Lequet. Lequet’s thesis
shows that, from a legal security point of view, it is preferable that contracts are
environmentally instrumentalized than to see them cancelled because they disrespect norms
that form part of the environmental public order. Hence, integrating a notion of environmental
precaution in long term contract debt could be a way to improve legal security.

894
For an even more radical point: Sharath Voleti, ‘Green Bonds: A Catalyst for Municipal Action
against Climate Change’ (2021) 42 Windsor Rev Legal & Soc Issues 116 [“Actions taken today will
benefit future generations. Consequently, it stands to reason that the costs of combatting climate change
should also be spread out over a longer time horizon through the issuance of green bonds”].
895
Pierre Lequet, L’ordre public environnemental et le contrat de droit privé (LGDJ : 2019) 25.

216
2.6. GREEN

Critique of green. Green is a color that was the color of hope and the color of knights in the
Middle Ages.896 In the last fifty years, it became associated with environmental movements.
The need for sustainability made green an ubiquitous color to express a commitment to health
and nature. Green is an adjective. It is used as something that is added to a noun that is not
changed, bond, a bit like a solar panel on the roof of airport hall to get a green certification.
“Green” in “green bond” functions as qualification: either the bond is green or it is not (the
shades of green invented by CICERO did not translate into regulation). This binary approach
is of course a reduction of the complexity of the reality. It is also extremely indeterminate,
because it rests on a metaphor. Instead of saying that certain bonds have an impact on
decarbonization – they could be called decarbonization bond, the word green enables all kind
of activities having some pretention to be considered as environmentally virtuous to be
labelled as green. No doubt that the financial industry particularly enjoyed the ambiguities of
the word and labelled for years all kinds of dubious projects under this vocable.

Alternatives to qualification: performance and transition. Other types of sustainability

products are actually about performance: they commit to reach certain key performance
indicators, and make the yield depend on these indicators. Some authors even propose to
introduce performance-based mechanisms in green bonds897 and these mechanisms marginally
exist in sustainability-linked bonds. Green bonds’ approach is often critiqued for its lack of
quantitative follow-up on the performance and is often deemed as less ambitious than these
performance-linked sustainable products. But is it really so? Performance products have many
ethical issues, such as the fact that the investor benefits from the issuer missing its target.
Another issue is the fact that investors often themselves define the performance objectives and
metric, while one can wonder why investors should be endowed with the right to determine
such environmental and social desirable objectives. Another proposal made by the industry
consists in creating transition bonds.898 The transition bonds would be used solely to finance
certain projects, such as carbon capture and storage, co-generation plants or transport
infrastructure. Such bonds could help to overcome the challenge of providing capital only to
companies that are already green, but to those which have ambitions to become green. This
asset class would be used by companies solely to finance transition projects, with a high level
of transparency to give investors’ confidence about how their capital is used. However, it is

896
Michel Pastoureau, Vert: histoire d’une couleur (Seuil : 2017).
897
Ryan Chan, ‘Ensuring the Impactful Performance in Green Bonds and Sustainability-linked loans’
(2021) 42(1) Adelaide Law Review 250.
898
AXA Investment Managers, Financing brown to green: Guidelines for Transition Bonds (2019)
<https://realassets.axa-im.com/content/-/asset_publisher/x7LvZDsY05WX/content/financing-brown-
to-green-guidelines-for-transition-bonds/23818> accessed 18 November 2021.

217
difficult to see why such transition bonds would be different from the transitional activities
already defined in the EU taxonomy regulation. This transition bond lobbying from large
insurers and banks seems primarily motivated by a desired to created a new category of
sustainable finance they would master for the next years (given that private actors are losing
the control of the definition of “green,” which is the object of an important regulatory effort
in many jurisdictions). Transition bonds are already issued by companies that do not meet
green market standards now but promise to become greener. By June 2021, however, only
sixteen of such transition bonds had been issued globally.899

2.7. BOND

Critique of bonds. “Bond” and its translation in French “obligation” have similar roots in the
idea that they link or connect entities. The legal and social construction according to which it
is possible to create purely financial bonds between two entities is of course contestable and
fragile. In a time when we discover the multiple and un-noticed relations between seemingly
unrelated entities – say, the emission of CO2 in a coal factory in Belgium and a drought in
Madagascar ; or a microscopic mutation of virus and global pandemic restrictions – the fiction
according to which financial bonds can be purified from of other aspects of bonds between
entities – the social and environmental bonds being among them – is fragile and needs to be
surrounded by rules to be made livable and sustainable. In this respect, green bonds have a
value if they question the legal fiction according to which purely financial bonds exist. Green
bonds should enable to see that the decision to create a new financial bond should include a
careful deliberation about the impacts on social and environmental bonds. Lending to projects
that actively destroy the environment, or that are against the collective decarbonization
objectives can destroy the social and environmental bonds on which human life is built, hence
leading in last resort to the destruction of the financial bond as well.

3. PROPOSALS

To finish this thesis, the following subsections expose some proposals. These proposals try to
bring solutions to what appear to be the main issues to the regulatory framework of green
bonds: the lack of democratic legitimacy and the lack of environmental positive effects.

3.1. DEMOCRATIZING THE NORMATIVE PRODUCTION ON GREEN BONDS

As explained in the chapter II, the normative production on green bond shifted from private
standards to public regulation. However, public regulators mostly copied private standards

899
Virginia Furness, ‘Why transition bonds have failed to make their mark’ (2021) Capital Monitor
<https://capitalmonitor.ai/sector/energy-and-utilities/why-transition-bonds-have-failed-to-make-their-
mark-so-far/> accessed 18 November 2021.

218
contents and methods. The case of the EU sustainable finance platform – in charge of advising
the Commission on the sustainable finance – is telling: it is composed in majority by the
members of the bodies setting the private green bond standards. The next objective for green
bond’s norm-making process should be to transition from technocratic to democratic public
rules.

Local assemblies. The definition of green is political. As such, we should desire that these
political decisions are made by the greater number. It does not necessarily need to be the
exclusive privilege of the political scene to define this common good, but it seems obvious
that this definition of the environmental common good cannot be done without a major
political participation. It should involve deliberations of citizens, groups of interests, etc. Such
political deliberations should happen at the lowest level possible, according to the principle of
subsidiarity. In this regard, it appears that the choice of the EU to have one single taxonomy
at the scale of the EU in order to improve the functioning of the common capital markets is
disputable. Why should the objective to unify the European capital markets override the
objectives to find environmental solutions adapted to the local contexts and chosen and
accepted by the local populations? This choice can only be based on the premise that the
efficiency of the capital market – hence the quantitative increase of the economic production
– is more important than the environmental state of milieus in Europe, and more important
than the democratic involvement of citizens, at reasonable scales of populations. The idea of
having a single green finance taxonomy for more than 447 million citizens, and 4 million
square kilometers of land split into uncountable diversity of grounds and climates does not
seem very adapted to a genuine idea of sustainability. It would seem therefore suitable to have
some common principles at the EU level, local taxonomies at state or region level, and a
mechanism to ensure common recognition of taxonomies. Local taxonomies could be drafted
by citizen assemblies, with the help of experts, on the model of the citizen assemblies set up
in Belgium, Canada, France and in Ireland on specific issues such as climate change and
abortion right.900 This would also have the huge advantage to foster debates at the local scale
about what is sustainable. It would increase the level of knowledge and the level of
commitment of citizens regarding sustainability.

Simplicity. Making green taxonomies at a local level would enable to name certain projects
or certain places that could be considered as green. This would diminish the abstraction of the
EU taxonomy and make it potentially easier to handle for small businesses. These local

900
Organisation for Economic Cooperation and Development, Innovative Citizen Participation and
New Democratic Institutions: Catching the Deliberative Wave (2020)
<https://www.oecd.org/gov/innovativecitizen-participation-and-new-democratic-institutions-
339306da-en.htm> accessed 18 November 2021.

219
taxonomies could also create presumptions about some sectors of activities, based on the
taxonomy designers’ knowledge of local circumstances and local needs. These presumptions
would enable dropping some of the technical criteria, and here again, make taxonomies easier
to handle for small business entities. The degree of complexity would be higher for
international actors, since they would have to handle different local taxonomies, but since
these actors are in general quite large, this would not create issues. Therefore, no actors would
face unsurmountable complexities, unlike the current situation where only large banks,
insurers and corporations can handle the thousands of pages of the EU taxonomy. The
complexity of some green finance instruments (such as the « contrat de performance
énergétique » in France) has already been in the past the reason for failure from regular
economic actors to use it.901

3.2. FOSTER A TYPE OF ENVIRONMENTAL TRANSPARENCY CONNECTED TO THE

POLITICAL COMMUNITY

As explained in the chapter IV of this thesis on the environmental transparency regime

applicable to green bonds, the information asked to green bond issuers is transitioning from
information centered on the issuer (what categories it considers “green” and the list of green
projects, the internal process of evaluation and selection of projects and how the proceeds are
managed) to information centered on the relation between the issuer and the political
authorities it is submitted to (how the activities financed align with taxonomies designed by
public authorities). This evolution towards a relational type of environmental transparency is
very positive. Indeed, communicating information about the company alone (such as the tons
of CO2 avoided per project) does not help investors to choose which company will succeed in
the environmental transition, nor does it help regulators to know if companies are doing the
appropriate efforts to contribute to the environmental transition. In matter of environmental
transition of the economy, the only useful information can only be relational: how the company
behaves compared with competitors of the same sector, with business-as-usual scenarios, with
what compliance with mandatory standards requires or with public plans. In this regard,
current obsessions with measuring impacts are leading to a dead-end. The point is not so much
to measure the impacts of companies in ever greater detail than to be able to relate a few
meaningful indicators to other similar companies and to public orientations. An impact (such
as a quantity of CO2 emitted) does not say anything by itself: certain activities that emit some

901
Anne Stevignon, Le temps qu’il fait et le droit des obligations : de l’influence du changement
climatique sur l’appréhension des phénomènes météorologiques (PhD thesis, Paris II - 2019) 406
<https://docassas.u-paris2.fr/nuxeo/site/esupversions/3c851137-24fe-42b6-84c5-5e76816bbab5?inline>
accessed 17 June 2022.

220
CO2 (such as building a medical scanner for detecting cancers) are nonetheless extremely
useful. Only a political choice can determine whether an impact is acceptable or not.

Furthering relational environmental transparency. Relational environmental transparency

could be furthered by mandating systematic comparison with the economic sector for any
figure produced in green bond documentation. The information on the alignment with public
regulators’ green finance taxonomies should of course be generalized and made more precise.
Beyond the alignment with taxonomies, issuers could be mandated to communicate more
qualitative information on the alignment of their activities with environmental long term public
plans or with countries’ Nationally Determined Contributions filed under international
agreements such as the Paris Agreement.

3.3. STRATEGICALLY PLANNING FOR THE DEMISE OF HARMFUL ACTIVITIES:

SET UP RED TAXONOMIES

As explained in chapter III, the effort to reach a normative definition of green or climate-
friendly activities led to the creation of tools of environmental strategic planning applied to
the financial sector – the green finance taxonomies. However, these tools also result from a
successful public relations operation led by the financial industry, where it managed to deflect
the attention from the environmental issues created by finance to the potential solutions
finance could bring. This has some pedagogical virtues but should not lead to forget about the
financing of environmentally damaging activities. Taxonomies of environmentally harmful
activities are urgently needed, as a way to inform investors about the risks in investing today
in coal or other fossil fuel energies. Many actors call for such taxonomy. This taxonomy could
build upon the “do no significant harm” principle already embedded in the EU taxonomy. It
should be attached to some disincentives, such as higher capital requirements, higher taxes or
ban from public procurement.

3.4. STRENGTHEN THE IMPLEMENTATION OF GREEN FINANCIAL PRODUCTS

As explained in chapter V, the implementation of green bond rules is deficient because of the
lack of public and private control. Public regulators are often not entitled by the law to control
the disclosure and green qualifications, and when they are, they lack means and do not have
dissuasive sanctions. Private control by external reviewers or investors through judicial action
is also lacking, in part due to the weakness of the financial sums at stake when dealing with
green qualification.

Strengthening public control. Public authorities can do a lot to improve the quality of the
control over green bonds. First, they can design rules granting themselves the right to control

221
the quality of the green qualifications. On all green bond markets, private external reviewers
have the monopoly over the green qualification, and regulators never control any of their
qualification decisions. Second, public regulators should have more means to control. For
instance, ESMA’s anticipation of having less than one employee to control external reviewers
is insufficient. Finally, public regulators can multiply the incentives and disincentives attached
to green qualifications, in order to raise the financial stakes attached to green bonds. Increased
financial stakes should enable private actors to contribute to controlling green bonds as well.

Strengthening private control. Private control can mainly increase through stronger
contractual clauses. Green bonds could appropriate contractual clauses used in sustainability-
linked bonds. Such clauses consist for instance in an increase in the interest rate paid by the
issuer if the proceeds is not allocated to the green projects as promised, or if the green projects
do not deliver the promised impact.902 Other types of clauses include the right for bondholders
to accelerate or redeem their bonds if the green commitments are not fulfilled. Another solution
that would reinforce the quality of the green bond market would be the creation of trusts
gathering green bond holders. A trust endowed with the rights attached to the green bonds
would be in a much better position in face of the issuer than the multiplicity of green bond
investors. Trust managers could specialize in the handling of green rights and as such increase
the level of demands on the green bond issuer.903 A limit to all these proposals would be the
market practice, which is quite conservative and requires only very few protections since a
long time, especially compared to loan documentation.

902
Scott Freedman, ‘Label fatigue and the role of bondholders in funding the future’ (2022)
Environmental Finance <https://www.environmental-finance.com/content/analysis/label-fatigue-and-
the-role-of-bondholders-in-funding-the-future.html> accessed 15 May 2022.
903
Colin Bamford, Principles of International Financial Law (2nd Edition, Oxford University Press,
2015) ; Philip R. Wood CBE, ‘Choice of governing law for bonds’ (2020) 15:1 Capital Markets Law
Journal, 116 and 174

222
223
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INTERNATIONAL TREATIES
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Argentina:
COMISION NACIONAL DE VALORES AND ORGANISMO REGULADOR DEL
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ASEAN:
THE ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN), ASEAN Green Bond
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BRAZILIAN FEDERATION OF BANKS (FEBRABAN) AND BRAZILIAN BUSINESS
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SANTIAGO EXCHANGE, Guia del segmento de bonos verdes y bonos sociales (version 2 :
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NATIONAL ASSOCIATION OF FINANCIAL MARKET INSTITUTIONAL
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PEOPLE’S BANK OF CHINA, Announcement (2015) No. 39 (2015) [中国人民银行公 告

(2015)第 39 号] 中国人民银行 发展改革委 证监会关于印发《绿色债券支持项目目录
（2021 年版）》的通知.

PEOPLE’S BANK OF CHINA, NATIONAL DEVELOPMENT AND REFORM

COMMISSION AND CHINA SECURITIES REGULATORY COMMISSION, Catalogue of
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THE PEOPLE’S BANK OF CHINA (PBOC) AND CHINA SECURITIES REGULATORY

COMMISSION (CSRC), China's Green Bond Assessment and Verification Guidelines
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Dominican Republic:
BOLSA Y MERCADOS DE VALORES DE LA REPUBLICA DOMINICANA, Green
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EU:
European Parliament and Council Regulation (EU) 2017/1129 on the prospectus to be
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Regulation (EU) 2020/852 of the European Parliament and of the Council on the
establishment of a framework to facilitate sustainable investment, and amending Regulation
(EU) 2019/2088 [2020] OJ L 198/13.
Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing
Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the
technical screening criteria for determining the conditions under which an economic activity
qualifies as contributing substantially to climate change mitigation or climate change
adaptation and for determining whether that economic activity causes no significant harm to
any of the other environmental objectives OJ L 442/1.
Commission delegated regulation (EU) 2021/2178 of 6 July 2021 supplementing Regulation
(EU) 2020/852 of the European Parliament and of the Council by specifying the content and
presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of
Directive 2013/34/EU concerning environmentally sustainable economic activities, and
specifying the methodology to comply with that disclosure obligation L 443/9.
Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending Delegated
Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and
Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those
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EUROPEAN COMMISSION, ‘Proposal of 6 July 2021 for a Regulation of the European
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Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those
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Article 1240 of the Code Civil.
Loi n° 45-15 du 2 décembre 1945 relative à la nationalisation de la Banque de France et des
grandes banques et à l'organisation du crédit, articles 12-14.

Hong Kong:
Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong;
Securities and Futures Ordinance (Cap. 571) of Hong Kong.
HONG KONG QUALITY ASSURANCE AGENCy, Green Finance Certification Scheme
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SECURITIES AND FUTURES COMMISSION, Circular to licensed corporations
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India:
SECURITIES AND EXCHANGE BOARD OF INDIA, Disclosure Requirements for
Issuance and Listing of Green Debt Securities CIR/IMD/DF/51/2017 (2017).

Indonesia:
FINANCIAL SERVICES AUTHORITY (INDONESIA), Regulation of Financial Services
Authority on the Issuance and Terms of Green Bonds 60 /POJK.04/201 (2017).

Japan:
MINISTRY OF ENVIRONMENT (JAPAN), Green Bond Guidelines (2020).

Luxemburg:
LUXEMBURG GREEN EXCHANGE, Eligibility Criteria (2022)
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LUXEMBURG GREEN EXCHANGE, Green Bond Listing Requirements
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Morocco:
AUTORITE MAROCAINE DES MARCHES DE CAPITAUX, Green, Social &
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Nigeria:
SECURITIES AND EXCHANGE COMMISSION (NIGERIA), Green Bonds Issuance
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245
Philippines:
SECURITIES AND EXCHANGE COMMISSION, (PHILIPPINES) Guidelines on the
Issuance of Green Bonds under the ASEAN Green Bonds Standards (2020).

Thailand:
SECURITIES AND EXCHANGES COMMISSION, Thailand, Guidelines on Issuance and
Offer for Sale of Green Bond, Social Bond and Sustainability Bond (2018).

United Kingdom:
FINANCIAL REPORTING COUNCIL, UK Corporate Governance Code (July 2018)
<https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-
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Executive Order on Climate Related Financial Risks, 20 May 2021
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CASES
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case/odonnell-v
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EUROPEAN COMMISSION, Action Plan: Financing Sustainable Growth COM (2018) 97
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EUROPEAN COMMISSION, Commission Staff Working Document Impact Assessment
Accompanying the document Proposal for a Regulation of the European Parliament and of
the Council on the establishment of a framework to facilitate sustainable investment and
Proposal for a Regulation of the European Parliament and of the Council on disclosures
relating to sustainable investments and sustainability risks and amending Directive (EU)
2016/2341 and Proposal for a Regulation of the European Parliament and of the Council
amending Regulation (EU) 2016/1011 on low carbon benchmarks and positive carbon
impact benchmarks (2018) SWD/2018/264 final, 16.
EUROPEAN COMMISSION, Commission Staff Working Document: Executive Summary
of the Impact Assessment Accompanying the document Proposal for a Regulation of the
European Parliament and of the Council on European green bonds, SWD (2021) 182 final
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251
ANNEX 1: ANNOTATED LIST OF GREEN BOND STANDARDS

This annotated list aims at giving a short presentation of the main green bond standards. The
information included encompasses, when appropriate:

- A short description of the institutions who created the standard

- The importance of the standard in the the normalisation of the green bond market
- Its relation with other green bond standards and green finance taxonomies
- Its dominant orientation (market efficiency or environmental ambition)
- A rough assessment of its normative force

1 – The foundational standards

Climate Bonds Initiative, Climate Bonds Standard Version 3.0 (2019)

<https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf>

The Climate Bonds Initiative (CBI) is a nongovernmental organization (NGO) based in London that
was launched in 2009 at the United Nation’s Conference of the Parties’ Climate Change summit in
Copenhagen to mobilise climate finance. Its first Climate Bonds Standard (CBS) was issued in 2010
and accompanied by a taxonomy of economic activities compliant with a low-carbon and climate-
resilient trajectory. This first standard played an important role in the normalisation of the green bond
market. It inspired many other standards – sometimes even co-developed in partnership with the CBI –
including the European Union Green Bond Standard (see below) and the Chinese green bonds standards
(see below). It is mainly orientated at environmental protection: its comparatively expensive
certification process limited its market share. It enjoys a relatively strong degree of normativity through
integration into national standards, such as the French GreenFin label (Décret n° 2015-1615 du 10
décembre 2015 relatif au label « Transition énergétique et écologique pour le climat ») or through the
certification contracts.

International Capital Market Association, The Green Bond Principles : Voluntary Process
Guidelines for Issuing Green Bonds (2021)
<https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-
Bond-Principles-June-2021-140621.pdf>

The International Capital Market Association (ICMA) is a self-regulatory organization and trade
association based in Zurich, which represents financial institutions active in the international capital
market worldwide. In 2014, it started to host the secretariat of the Green Bond Principles. The Green
Bond Principles were initially developed by ESG teams of Bank of America, Merrill Lynch, Citigroup
and Crédit Agricole. This standard had a crucial role in the normalisation process of the green bond
market. Its four main pillars became the cornerstone of virtually all green bond standards in the world,
including the Climate Bonds Standard in its 2019 version. This standard does not prescribe any
taxonomy nor any definition of what is green, but processual guidelines for communicating information
about the greenness of the bond. Its main priority is not environmental protection but the promotion of

252
market interests. Through integration into emerging legislation, such as the EU green bond standard
(see below), this standard has a strong degree of normativity. However, it includes legal disclaimers
aiming at protecting parties to green bond transactions from any legal consequence.

2 – Regional and national developments

Green Bond Standards in China : People’s Bank of China, Announcement (2015) No. 39
(2015) [中国人民银行公 告(2015)第 39 号] 中国人民银行 发展改革委 证监会关于印发

《绿色债券支持项目目录（2021 年版）》的通知 ; National Development and Reform

Commission, Guidelines on Green Bond Issuance (2015) [ 绿 色 债 券 发 行 指 引 ], No.

(2015)3504 ; China Securities Regulatory Commission, Guiding Opinions for Supporting the
Green Bond Issuance (2017) [支持绿色债券发展的指导意见], No. (2017)6 ; National
Association of Financial Market Institutional Investors, Guidelines on Green Debt Financing
Tools for Non-Financial Enterprises (2017) [非金 融企业绿色债务融资工具业务指引] ;
People’s Bank of China, National Development and Reform Commission and China Securities
Regulatory Commission, Catalogue of Green Bond Supported Projects (2021 Edition) (2021)
[中国人民银行 发展改革委 证监会关于印发《绿色债券支持项目目录（2021 年版）》

的通知], 银发〔2021〕96 号]

Chinese green bonds standards consist in a set of interconnected standards issued by different financial
regulators (the People’s Bank of China – PBOC, National Development and Reform Commission –
NDRC – and the China Securities Regulatory Commission – CSRC) according to their fields of
competence (respectively, interbank green bonds, corporate green bonds and green bonds trade through
the stock exchanges). Chinese standards were the first State standards in the world. These standards
procedurally drew inspiration from the GBP, and substantially from CBI’s climate taxonomy. Chinese
standards translated and transformed CBI’s taxonomy into two green bond catalogues (2015 and 2021
versions). China’s green definitions nonetheless remain environmentally less ambitious than CBI’s
standard. Chinese standard’s normative force is difficult to assess in the absence of any study published
in English on their implementation.

European Green Bond Standards: European Union Technical Expert Group on Sustainable
Finance, EU Green Bond Draft Standard (2019) ; Commission, ‘Proposal of 6 July 2021 for
a Regulation of the European Parliament and of the Council on European Green Bonds’
COM(2021) 391 Final ; Regulation (EU) 2020/852 of the European Parliament and of the
Council on the establishment of a framework to facilitate sustainable investment, and
amending Regulation (EU) 2019/2088 [2020] OJ L 198/13

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The European Commission set up a Technical expert group on sustainable finance (TEG) – composed
of members from civil society, academia, business and the finance sector – to assist it in developing
sustainable finance policies, including the EU green bond standard and the EU sustainable finance
taxonomy. The TEG drafted a proposal for an EU green bond standard ( EUGBR). This proposal was
transformed into a regulation proposal directly drafted by the Commission. The EUGBR incorporate
influences from the GBP, the CBS and – regarding the control of the verifiers – from the Chinese
standards. This proposed EUGBR regulation defines what is “green” by reference to the 2019
Taxonomy regulation. The degree of environmental ambition is still unknown, provided that the
delegated acts of the Taxonomy regulation are not all published. The EUGBR is meant to be a voluntary
standard and to be open for use by non-EU actors.

Other regional and national green bonds standards on the model of the GBP: The
Association of Southeast Asian Nations (ASEAN), ASEAN Green Bond Principles (2018) ;
Securities and Exchange Board of India, Disclosure Requirements for Issuance and Listing of
Green Debt Securities CIR/IMD/DF/51/2017 (2017) ; Financial Services Authority
(Indonesia), Regulation of Financial Services Authority on the Issuance and Terms of Green
Bonds 60 /POJK.04/201, (2017) ; Ministry of Environment (Japan), Green Bond Guidelines
(2020) ; Securities Commission (Malaysia), Sustainable and Responsible Investment Sukuk
Framework (2019) ; Securities and Exchange Commission, (Philippines) Guidelines on the
Issuance of Green Bonds under the ASEAN Green Bonds Standards (2020) ; Securities and
Exchange Commission (Nigeria), Green Bonds Issuance Rules (2018) ; Securities and
Exchange Commission (Thailand), Guidelines on Issuance and Offer for Sale of Green Bond,
Social Bond and Sustainability Bond (2020).

The standards listed above essentially follow the model given by the GBP, by setting procedures to
ensure the transparency of the proceed allocation. There are some nuances, in particular regarding
Islamic green bonds – also called green sukuk. The normative force of these standards varies from being
purely informational documents about best practices to being mandatory regulation.

ANNEX 2 : TABLE OF EQUIVALENCE BETWEEN THE EQUATOR PRINCIPLES III,

JUNE 2013, THE GREEN BOND FRAMEWORK, OCTOBER 2013 AND THE GREEN
BOND PRINCIPLES, JANUARY 2014.

254
The Equator Principles, June 2013 Bank of America, Merrill Lynch, The Green Bond Framework, Euroweek, octobre 2013 Green Bond Principles, Janvier 2014
www.equator-principles.com https://www.climatebonds.net/2014/05/fyi-full-text-green-bonds-framework-steering-cttee-now-set-w-boaml-citi-jpm-ms-others https://www.climatebonds.net/files/uploads/2014/01/Green-Bond-Principles-FINAL.pdf
Framework for Green Bonds

This paper puts forward a proposed Framework for Green Bonds to be applied by issuers looking to bring Green Bonds to the market and investors
looking to maintain the integrity of their investments as they attempt to allocate funds towards a greener economy. The paper suggests the establishment
of a Green Bond Working Group and encourages comments and feedback to the Draft Framework proposed here.
Green Bonds Working Group
PREAMBLE The Green Bonds Working Group (GBWG) should be a collaboration of investors, issuers, and financial institutions that seek to promote a Framework
Large infrastructure and industrial Projects can have adverse impacts on people and on the that will establish and protect the credibility of the Green Bond asset class by promulgating a set of practices relating to Green Bond issuance that I.
environment. As financiers and advisors, we work in partnership with our clients to identify, assess encourage transparency, ethics, and integrity. EXECUTIVE SUMMARY
and manage environmental and social risks and impacts in a structured way, on an ongoing basis. Collaboration Green Bonds enable capital-raising and investment for new and existing projects with
Such collaboration promotes sustainable environmental and social performance and can lead to Establishing a Framework that enjoys widespread acceptance requires open collaboration. This will include but not be limited to collaboration with: environmental benefits. Recent activity indicates that the market for Green Bonds is developing
improved financial, environmental and social outcomes. Institutional investors in bonds including insurance companies, bond investment funds, pension funds, and others; rapidly. The Green Bond Principles (GBP) are voluntary process guidelines that recommend
We, the Equator Principles Financial Institutions (EPFIs), have adopted the Equator Principles in Multi-Lateral Institutions, agencies, corporates and other institutions that issue bonds; transparency and disclosure and promote integrity in the development of the Green Bond
order to ensure that the Projects we finance and advise on are developed in a manner that is socially Underwriters and lead managers that are active in the Green Bond market; market by clarifying the approach for issuance of a Green Bond. The GBP are intended for
responsible and reflects sound environmental management practices. We recognise the importance Rating agencies and other professional services providers to the bond market; broad use by the market: they provide issuers guidance on the key components involved in
of climate change, biodiversity, and human rights, and believe negative impacts on project-affected Regulatory agencies that oversee the bond market; launching a credible Green Bond; they aid investors by ensuring availability of information
ecosystems, communities, and the climate should be avoided where possible. If these impacts are NGOs such as Climate Bonds Initiative (CBI), CERES and others that contribute to thought leadership on energy, environment, climate change, necessary to evaluate the environmental impact of their Green Bond investments; and they
unavoidable they should be minimised, mitigated, and/or offset. sustainability and finance; assist underwriters by moving the market towards standard disclosures which will facilitate
We believe that adoption of and adherence to the Equator Principles offers significant benefits to us, Academic institutions such as LSE (Grantham Climate Change Institute), Oslo (CICERO), Columbia, Stanford, Tsinghua, and others that conduct transactions.
our clients, and local stakeholders through our clients’ engagement with locally Affected research on energy, environment and climate change; The GBP include guidelines for: Use of Proceeds, Process for Project Evaluation and Selection,
Communities. We therefore recognise that our role as financiers affords us opportunities to promote Government agencies at the national, regional and local levels. Management of Proceeds, and Reporting. There is diversity of opinion on the definition of
responsible environmental stewardship and socially responsible development, including fulfilling our Green Bonds Framework Green Projects; therefore it is not the intent of the GBP to opine on the eligible Green Project
responsibility to respect human rights by undertaking due diligence 1 in accordance with the Equator The Green Bonds Framework is a written set of voluntary guidelines by which investors, issuers, banks, investment banks, underwriters, placement categories. The GBP recommend issuers communicate their Use of Proceeds categories clearly
Principles. agents and others may communicate about the characteristics of any given Green Bond. The Framework has seven (7) parts: so that investors can determine the bond's consistency with their investment strategy. The
The Equator Principles are intended to serve as a common baseline and framework. We commit to Definition of Green Bonds transparency and disclosure recommended by the GBP are intended to provide the informational
implementing the Equator Principles in our internal environmental and social policies, procedures Criteria for Use of Proceeds basis for the market to increase capital allocation to environmentally beneficial purposes
and standards for financing Projects. We will not provide Project Finance or Project-Related Issuer’s Process for Project Evaluation without any single authority or gate keeper.
Corporate Loans to Projects where the client will not, or is unable to, comply with the Equator Management of Proceeds The four banks that served as a drafting committee for the Principles will propose in 2014 a
Principles. As Bridge Loans and Project Finance Advisory Services are provided earlier in the Project Additional Assurance governance process that will allow for diverse stakeholder input into the GBP. It is anticipated
timeline, we request the client explicitly communicates their intention to comply with the Equator Reporting that an independent third party will be designated to serve as a secretariat whose
Principles. Central Forum administrative duties will include facilitating information exchange with issuers, investors,
EPFIs review the Equator Principles from time-to-time based on implementation experience, and in The Framework allows issuers to claim “Green Bond” status and then obliges the issuer to report on and create transparency on the actual use of funds. underwriters, and other stakeholders such as non-profit environmental organizations, non-
order to reflect ongoing learning and emerging good practice. Various parts of the Framework are described in the following sections. government organizations, academics and other thought leaders.
II.
TYPES OF GREEN BONDS
Green Bonds are instruments in which the proceeds will be exclusively applied (either by
specifying Use of Proceeds, Direct Project Exposure, or Securitization) towards new and existing
Green Projects – defined here as projects and activities that promote climate or other
environmental sustainability purposes. There are currently four types of Green Bonds
(additional types may emerge as the market develops and these will be incorporated in annual
GBP updates):
Green Use of Proceeds Bond: a standard recourse-to-the-issuer debt obligation for
which the proceeds shall be moved to a sub-portfolio or otherwise tracked by the issuer
SCOPE and attested to by a formal internal process that will be linked to the issuer’s lending
The Equator Principles apply globally and to all industry sectors. and investment operations for projects. Pending such investment, it is recommended
The Equator Principles apply to the four financial products described below when supporting a new that the issuer make known to investors the intended types of eligible investments for
Project: the balance of unallocated proceeds. (See Management of Proceeds section below.)
1. Project Finance Advisory Services where total Project capital costs are US$10 million or more. Green Use of Proceeds Revenue Bond: a non-recourse-to-the-issuer debt obligation in
2. Project Finance with total Project capital costs of US$10 million or more. 1) Definition of Green Bonds which the credit exposure in the bond is to the pledged cash flows of the revenue
3. Project-Related Corporate Loans 2 (including Export Finance in the form of Buyer Credit) where streams, fees, taxes etc., and the Use of Proceeds of the bond goes to related or
all four of the following criteria are met: In general, a Green Bond is one for which the issuer declares that the proceeds will be applied (either by ring-fencing, direct project exposure or unrelated Green Project(s). The proceeds shall be moved to a sub-portfolio or otherwise
i. The majority of the loan is related to a single Project over which the client has Effective securitization) towards climate and/or environmental sustainability purposes. The issuer is expected to report on the actual use of proceeds either at the tracked by the issuer and attested to by a formal internal process that will be linked to
Operational Control (either direct or indirect). time of issuance or on an on-going basis over the life of the bond. A Green Bond is hereby defined in three categories: the issuer’s lending and investment operations for projects. Pending such investment, it
ii. The total aggregate loan amount is at least US$100 million. is recommended that the issuer make known to investors the intended types of eligible
iii. The EPFI’s individual commitment (before syndication or sell down) is at least US$50 Green Use of Proceeds Bond: a standard Full Faith and Credit (FF&C) senior debt obligation for which the bond proceeds shall be allocated within investments for the balance of unallocated proceeds. (See Management of Proceeds
million. treasury to a special sub-portfolio for which the balance will be reduced only by amounts invested in Green Projects. Pending such investment, the sub- section below.)
iv. The loan tenor is at least two years. portfolio will be invested in money market instruments. Green Project Bond: a project bond for a single or multiple Green Project(s) for which
4. Bridge Loans with a tenor of less than two years that are intended to be refinanced by Project the investor has direct exposure to the risk of the project(s) with or without potential
Finance or a Project-Related Corporate Loan that is anticipated to meet the relevant criteria Green Project Bond: a Project Bond for a single or multiple green project(s) for which the investor has direct exposure to the risk of the project(s). recourse to the issuer.
described above. Examples: Shepherd's Flat Wind Farm Project Bonds, Desert Sunlight Project Bonds, and others. Green Securitized Bond: a bond collateralized by one or more specific projects, including
While the Equator Principles are not intended to be applied retroactively, the EPFI will apply them to but not limited to covered bonds, ABS, and other structures. The first source of
the expansion or upgrade of an existing Project where changes in scale or scope may create Green Securitized Bond: a corporate or institutional bond, including but not limited to Covered Bonds, ABS, CLO’s, CDO’s and other such structures, repayment is generally the cash flows of the assets. This type of bond covers, for
significant environmental and social risks and impacts, or significantly change the nature or degree collateralized by one or more specific projects. The first source of repayment is the project(s) in the collateral pool. This category covers, for example, example, asset-backed securitizations of rooftop solar PV and/or energy efficiency
of an existing impact. asset-backed securitizations of rooftop solar PV and/or energy efficiency assets. assets.

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APPROACH
Project Finance and Project-Related Corporate Loans
The EPFI will only provide Project Finance and Project-Related Corporate Loans to Projects that meet
the requirements of Principles 1-10.
Project Finance Advisory Services and Bridge Loans
Where the EPFI is providing Project Finance Advisory Services or a Bridge Loan, the EPFI will make
the client aware of the content, application and benefits of applying the Equator Principles to the
anticipated Project. The EPFI will request that the client communicates to the EPFI its intention to
adhere to the requirements of the Equator Principles when subsequently seeking long term
financing. The EPFI will guide and support the client through the steps leading to the application of
the Equator Principles.
For Bridge Loans categorised A or B (as defined in Principle 1) the following requirements, where
relevant, apply. Where the Project is in the feasibility phase and no impacts are expected during the
tenor of the loan, the EPFI will confirm that the client will undertake an Environmental and Social
Assessment (Assessment) process. Where Environmental and Social Assessment Documentation
(Assessment Documentation) has been prepared and Project development is expected to begin
during the tenor of the loan, the EPFI will, where appropriate, work with the client to identify an
Independent Environmental and Social Consultant and develop a scope of work to commence an
Independent Review (as defined in Principle 7).
Information Sharing
Recognising business confidentiality and applicable laws and regulations, Mandated EPFIs will share,
when appropriate, relevant environmental and social information with other Mandated Financial
Institutions, strictly for the purpose of achieving consistent application of the Equator Principles.
Such information sharing shall not relate to any competitively sensitive information. Any decision as
to whether, and on what terms, to provide financial services (as defined in the Scope) will be for
each EPFI to make separately and in accordance with its risk management policies. Timing
constraints may lead EPFIs considering a transaction to seek authorisation from their clients to start
such information sharing before all other financial institutions are formally mandated. EPFIs expect
clients to provide such authorisation.

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 III.
GREEN BOND PRINCIPLES
The GBP recommend concrete process and disclosure for issuers which investors, banks,
investment banks, underwriters, placement agents and others may use to understand the
characteristics of any given Green Bond.
The GBP have four components:
1) Use of Proceeds
2) Process for Project Evaluation and Selection
3) Management of Proceeds
4) Reporting
2) Criteria for Use of Proceeds 1. Use of Proceeds
The cornerstone of a Green Bond is the utilization of the proceeds of the bond. For a Green Use
The cornerstone of a Green Bond is the declaration on how the proceeds of the bond will be applied, that is, the list of eligible Green Project Categories of Proceeds Bond or a Green Use of Proceeds Revenue Bond, the issuer should declare the
Principle 1: Review and Categorisation to which the issuer will allocate proceeds. This is where environmental and climate NGOs and agencies will expect to have input and be heard, by eligible Green Project categories (including types of investments made indirectly through
When a Project is proposed for financing, the EPFI will, as part of its internal environmental and publishing Taxonomies for eligible Green Project categories. financial intermediaries) in the Use of Proceeds section of the legal documentation for the
social review and due diligence, categorise it based on the magnitude of its potential environmental It is intended that Green Bonds, as an asset class, shall be managed "by the market" with no single authority or gating-keeping function. It is important security. The GBP recommend that all designated Green Project categories provide clear
and social risks and impacts. Such screening is based on the environmental and social categorisation that the market is open to commentary by all players. The Framework recognizes a wide array of eligible Green Bond Categories including, but not environmental benefits that can be described and, where feasible, quantified and/or assessed.
process of the International Finance Corporation (IFC). limited to: There are several categories and sets of criteria defining eligible Green Projects already in
Using categorisation, the EPFI’s environmental and social due diligence is commensurate with the Renewable energy existence in the market. Issuers and other stakeholders can refer to examples in the Appendix.
nature, scale and stage of the Project, and with the level of environmental and social risks and Waste management The GBP recognize several broad categories of potential eligible Green Projects for the Use of
impacts. Land use Proceeds including but not limited to:
The categories are: Forestry Renewable energy
Category A – Projects with potential significant adverse environmental and social risks and/or Agriculture Energy efficiency (including efficient buildings)
impacts that are diverse, irreversible or unprecedented; Biodiversity Sustainable waste management
Category B – Projects with potential limited adverse environmental and social risks and/or impacts Clean transportation Sustainable land use (including sustainable forestry and agriculture)
that are few in number, generally site-specific, largely reversible and readily addressed through Energy efficiency Biodiversity conservation
mitigation measures; and Clean water Clean transportation
Category C – Projects with minimal or no adverse environmental and social risks and/or impacts. Other mitigation Clean water and/or drinking water
2. Process for Project Evaluation and Selection
Principle 2: Environmental and Social Assessment The issuer of a Green Bond should outline the investment decision-making process it follows to
For all Category A and Category B Projects, the EPFI will require the client to conduct an Assessment determine the eligibility of an individual investment using Green Bond proceeds. Where
process to address, to the EPFI’s satisfaction, the relevant environmental and social risks and applicable, the issuer should, as a first step, review the investments’ overall environmental
impacts of the proposed Project (which may include the illustrative list of issues found in Exhibit II). profile. In all cases, the issuer should establish a well-defined process for determining how the
The Assessment Documentation should propose measures to minimise, mitigate, and offset adverse investments fit within the eligible Green Project categories identified in the Use of Proceeds
impacts in a manner relevant and appropriate to the nature and scale of the proposed Project. disclosure.
The Assessment Documentation will be an adequate, accurate and objective evaluation and A process of review should determine and document an investment’s eligibility within the
presentation of the environmental and social risks and impacts, whether prepared by the client, issuers’ stated eligible Green Project categories. If possible, issuers should work to establish
consultants or external experts. For Category A, and as appropriate, Category B Projects, the impact objectives from the projects selected. To the extent feasible, issuers should consider
Assessment Documentation includes an Environmental and Social Impact Assessment (ESIA). One or direct and indirect impacts of Green Projects, such as cases where investments lock-in a current
more specialised studies may also need to be undertaken. Furthermore, in limited high risk level of emissions into the future.
circumstances, it may be appropriate for the client to complement its Assessment Documentation 3) Issuer’s Process for Project Evaluation Multilateral and bilateral agencies and other International Finance Institutions have established
with specific human rights due diligence. For other Projects, a limited or focused environmental or processes to ensure that environmental criteria are considered for each project to which they
social assessment (e.g. audit), or straight-forward application of environmental siting, pollution The issuer of a Green Bond should outline the investment decision making process to which it commits when choosing to invest in a Green Project. For allocate funds, independent of whether they qualify for use of Green Bond proceeds. These
standards, design criteria, or construction standards may be carried out. example ADB, AfDB, EIB, EBRD, IFC, KBN, NIB, World Bank, and most other International Finance Institutions (IFIs) have adopted multi-step processes reviews are carried out with resident teams of environmental experts. The GBP recommend all
For all Projects, in all locations, when combined Scope 1 and Scope 2 Emissions are expected to be to ensure that environmental and social criteria are considered for each project to which they will dedicate funds. For example, for project finance, some issuers, where applicable, engage in similar environmental reviews of the projects they are
more than 100,000 tonnes of CO 2 equivalent annually, an alternatives analysis will be conducted to established investment evaluation processes include the World Bank Environmental and Social Safeguard Policies, the International Finance financing. In addition to the Green Bond process, criteria and assurances that an issuer
evaluate less Greenhouse Gas (GHG) intensive alternatives. Refer to Annex A for alternatives analysis Corporation’s Performance Standards, EIB Environmental & Social Practices Handbook, the European Principles for the Environment, the Equator provides, many Green Bond investors may also take into consideration an issuer's overall
requirements. Principles, and the OECD Common Approaches. environmental and social and governance framework.
Principle 3: Applicable Environmental and Social Standards
The Assessment process should, in the first instance, address compliance with relevant host country
laws, regulations and permits that pertain to environmental and social issues.
EPFIs operate in diverse markets: some with robust environmental and social governance, legislation
systems and institutional capacity designed to protect their people and the natural environment;
and some with evolving technical and institutional capacity to manage environmental and social
issues.
The EPFI will require that the Assessment process evaluates compliance with the applicable
standards as follows:
1. For Projects located in Non-Designated Countries, the Assessment process evaluates compliance
with the then applicable IFC Performance Standards on Environmental and Social Sustainability
(Performance Standards) and the World Bank Group Environmental, Health and Safety
Guidelines (EHS Guidelines) (Exhibit III).
2. For Projects located in Designated Countries, the Assessment process evaluates compliance with
relevant host country laws, regulations and permits that pertain to environmental and social
issues. Host country laws meet the requirements of environmental and/or social assessments
(Principle 2), management systems and plans (Principle 4), Stakeholder Engagement (Principle 5)
and, grievance mechanisms (Principle 6).
The Assessment process will establish to the EPFI’s satisfaction the Project's overall compliance with,
or justified deviation from, the applicable standards. The applicable standards (as described above)
represent the minimum standards adopted by the EPFI. The EPFI may, at their sole discretion, apply
additional requirements.
3. Management of Proceeds
The net proceeds of Green Bonds should be moved to a sub-portfolio or otherwise tracked by
the issuer and attested to by a formal internal process that will be linked to the issuer’s lending
Principle 4: Environmental and Social Management System and Equator Principles 4) Management of Proceeds and investment operations for projects. So long as the Green Bonds are outstanding, the
Action Plan balance of the tracked proceeds should be periodically reduced by amounts matching
For all Category A and Category B Projects, the EPFI will require the client to develop or maintain an Another aspect of the Green Bond Framework is to declare how the proceeds of the issuance will be managed. For example, Green Use of Proceeds investments made during that period. Pending such investments, it is recommended that the
Environmental and Social Management System (ESMS). Bonds placed to date provide for the proceeds to be accounted for separately. The Green Bond market may allow certain issuers, such as multi-lateral issuer make known to investors the intended types of eligible instruments for the balance of
Further, an Environmental and Social Management Plan (ESMP) will be prepared by the client to institutions and government agencies, with the appropriate track record and reputation to set its own process for allocation of funds and disclosure of this unallocated proceeds.
address issues raised in the Assessment process and incorporate actions required to comply with the allocation to the market. The management process to be followed by the issuer for tracking the proceeds should be
applicable standards. Where the applicable standards are not met to the EPFI’s satisfaction, the clearly and publicly disclosed. The environmental integrity of Green Bond instruments will be
client and the EPFI will agree an Equator Principles Action Plan (AP). The Equator Principles AP is To date, most issuers of Green Bonds have established their own internal mechanism for tracking the flow of funds from Green Bond proceeds to enhanced if an external auditor, or other third party, verifies the internal tracking method for
intended to outline gaps and commitments to meet EPFI requirements in line with the applicable individual eligible projects (example: IFC, EIB, KEXIM, Massachusetts, World Bank). However, as the Green Bond market expands over time, investors the flow of funds from the Green Bond proceeds. Depending on issuers’ and investors’
standards. may require that auditors verify the flow of funds from Green Use of Proceeds Bonds to eligible Green Projects. expectations, outside review of the internal tracking method may or may not be necessary.

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 Principle 5: Stakeholder Engagement
For all Category A and Category B Projects, the EPFI will require the client to demonstrate effective
Stakeholder Engagement as an ongoing process in a structured and culturally appropriate manner
with Affected Communities and, where relevant, Other Stakeholders. For Projects with potentially
significant adverse impacts on Affected Communities, the client will conduct an Informed
Consultation and Participation process. The client will tailor its consultation process to: the risks and
impacts of the Project; the Project’s phase of development; the language preferences of the
Affected Communities; their decision-making processes; and the needs of disadvantaged and
vulnerable groups. This process should be free from external manipulation, interference, coercion
and intimidation.
To facilitate Stakeholder Engagement, the client will, commensurate to the Project’s risks and
impacts, make the appropriate Assessment Documentation readily available to the Affected
Communities, and where relevant Other Stakeholders, in the local language and in a culturally
appropriate manner.
The client will take account of, and document, the results of the Stakeholder Engagement process,
including any actions agreed resulting from such process. For Projects with environmental or social
risks and adverse impacts, disclosure should occur early in the Assessment process, in any event
before the Project construction commences, and on an ongoing basis.
EPFIs recognise that indigenous peoples may represent vulnerable segments of project-affected
communities. Projects affecting indigenous peoples will be subject to a process of Informed
Consultation and Participation, and will need to comply with the rights and protections for
indigenous peoples contained in relevant national law, including those laws implementing host
country obligations under international law. Consistent with the special circumstances described in
IFC Performance Standard 7 (when relevant as defined in Principle 3), Projects with adverse impacts
on indigenous people will require their Free, Prior and Informed Consent (FPIC).
Principle 6: Grievance Mechanism
For all Category A and, as appropriate, Category B Projects, the EPFI will require the client, as part of
the ESMS, to establish a grievance mechanism designed to receive and facilitate resolution of
concerns and grievances about the Project’s environmental and social performance.
The grievance mechanism is required to be scaled to the risks and impacts of the Project and have
Affected Communities as its primary user. It will seek to resolve concerns promptly, using an
understandable and transparent consultative process that is culturally appropriate, readily
accessible, at no cost, and without retribution to the party that originated the issue or concern. The
mechanism should not impede access to judicial or administrative remedies. The client will inform
the Affected Communities about the mechanism in the course of the Stakeholder Engagement
process.
Principle 7: Independent Review
Project Finance
For all Category A and, as appropriate, Category B Projects, an Independent Environmental and
Social Consultant, not directly associated with the client, will carry out an Independent Review of the
Assessment Documentation including the ESMPs, the ESMS, and the Stakeholder Engagement
process documentation in order to assist the EPFI's due diligence, and assess Equator Principles
compliance.
The Independent Environmental and Social Consultant will also propose or opine on a suitable
Equator Principles AP capable of bringing the Project into compliance with the Equator Principles, or IV.
indicate when compliance is not possible. ASSURANCE
Project-Related Corporate Loans Attention will be paid to the accuracy and integrity of sustainability information and data whose
An Independent Review by an Independent Environmental and Social Consultant is required for disclosure is recommended by the GBP and which will be reported by issuers to stakeholders
Projects with potential high risk impacts including, but not limited to, any of the following: and used for strategic decision making by investors. There are a variety of ways for issuers to
There is no universally accepted definition of FPIC. Based on good faith negotiation between the client obtain outside input to the formulation of their Green Bond offerings such that they address
and affected the issues raised by the GBP. There are also several levels of independent assurance that can
indigenous communities, FPIC builds on and expands the process of Informed Consultation and be provided to the market. Such guidance and assurance might include, in order of increasing
Participation, ensures the rigor:
meaningful participation of indigenous peoples in decision-making, and focuses on achieving (i) Second party consultation: for example, an issuer (“first party”) can hire an expert
agreement. FPIC does not consultant (“second party”) with climate expertise to help in the establishment of a
require unanimity, does not confer veto rights to individuals or sub-groups, and does not require the Green Bond’s eligible Green Project categories. The issuer may choose to keep the
client to agree to recommendations of the consultant private.
aspects not under their control. Process elements to achieve FPIC are found in IFC Performance (ii) Publicly available reviews and audits: if an expert consultant or auditor and an
Standard 7. issuer so choose, a consultant’s recommendations or an auditor’s evaluation may be
• adverse impacts on indigenous peoples put in the public domain by the issuer.
• Critical Habitat impacts 5) Additional Assurance (iii) Third party, independent verification/certification: at the moment, at least one or
• significant cultural heritage impacts more standards intended for use by accredited third parties to certify Green Bonds
• large-scale resettlement Some issuers may choose to supply additional information or assurances, internal or external, about the integrity of their Green Bond programs. are in development. The GBP are supportive of certification of Green Bonds against
In other Category A, and as appropriate Category B, Project-Related Corporate Loans, the EPFI may fully developed and vetted standards. It is also the intention of the GBP to allow for
determine whether an Independent Review is appropriate or if internal review by the EPFI is sufficient. At the point of this publication, there are no Green Bonds in the market with external certification. However, some issuers have chosen to obtain a third 5third party evaluation/audit of conformance with the guidelines recommended
This may take into account the due diligence performed by a multilateral or bilateral party opinion such as CICERO, whilst others have successfully brought Green Bonds to market without this additional assurance. As the market herein. (Further review in 2014 will refine this intended use and related
financial institution or an OECD Export Credit Agency, if relevant. develops, more forms of additional assurance may evolve and this Framework accommodates those future developments. communications.)
Principle 8: Covenants
An important strength of the Equator Principles is the incorporation of covenants linked to
compliance.
For all Projects, the client will covenant in the financing documentation to comply with all relevant
host country environmental and social laws, regulations and permits in all material respects.
Furthermore for all Category A and Category B Projects, the client will covenant the financial
documentation:
a) to comply with the ESMPs and Equator Principles AP (where applicable) during the
construction and operation of the Project in all material respects; and
b) to provide periodic reports in a format agreed with the EPFI (with the frequency of these
reports proportionate to the severity of impacts, or as required by law, but not less than
annually), prepared by in-house staff or third party experts, that i) document compliance
with the ESMPs and Equator Principles AP (where applicable), and ii) provide representation
of compliance with relevant local, state and host country environmental and social laws,
regulations and permits; and
c) to decommission the facilities, where applicable and appropriate, in accordance with an
agreed decommissioning plan.
Where a client is not in compliance with its environmental and social covenants, the EPFI will work
with the client on remedial actions to bring the Project back into compliance to the extent feasible. If
the client fails to re-establish compliance within an agreed grace period, the EPFI reserves the right
to exercise remedies, as considered appropriate.

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Principle 9: Independent Monitoring and Reporting
Project Finance
To assess Project compliance with the Equator Principles and ensure ongoing monitoring and
reporting after Financial Close and over the life of the loan, the EPFI will, for all Category A and, as
appropriate, Category B Projects, require the appointment of an Independent Environmental and
Social Consultant, or require that the client retain qualified and experienced external experts to
verify its monitoring information which would be shared with the EPFI.
Project-Related Corporate Loans
For Projects where an Independent Review is required under Principle 7, the EPFI will require the
appointment of an Independent Environmental and Social Consultant after Financial Close, or
require that the client retain qualified and experienced external experts to verify its monitoring
information which would be shared with the EPFI.
Principle 10: Reporting and Transparency
Client Reporting Requirements
The following client reporting requirements are in addition to the disclosure requirements in
Principle 5. 4. Reporting
For all Category A and, as appropriate, Category B Projects: In addition to reporting on the Use of Proceeds and the eligible investments for unallocated
• The client will ensure that, at a minimum, a summary of the ESIA is accessible and available proceeds, issuers should report at least annually, if not semi-annually, via newsletters, website
online 4 . updates or filed financial reports on the specific investments made from the Green Bond
• The client will publicly report GHG emission levels (combined Scope 1 and Scope 2 proceeds, detailing wherever possible the specific project and the dollars invested in the
Emissions) during the operational phase for Projects emitting over 100,000 tonnes of CO 2 project.
equivalent annually. Refer to Annex A for detailed requirements on GHG emissions 6) Reporting The GBP recommend the use of quantitative and/or qualitative performance indicators which
reporting. measure, where feasible, the impact of the specific investments (e.g. reductions in greenhouse
EPFI Reporting Requirements In addition to reporting on the allocation of Green Bond proceeds to specific Green Projects, many Green Use of Proceeds Bond investors expect issuers gas emissions, number of people provided with access to clean power or clean water, or
The EPFI will report publicly, at least annually, on transactions that have reached Financial Close and to report at least annually, if not semi-annually, via newsletters, website updates or filed financial reports, on the specific Green Projects which received avoided vehicle miles travelled, etc.). While there is variability in impact measurement
on its Equator Principles implementation processes and experience, taking into account appropriate Green Bond funding. In this reporting, investors encourage the use of metrics which measure (where feasible) the impact of the specific Green Projects systems, much progress towards standardization has been made in the past several years.
Except in cases where the client does not have internet access. (e.g., in terms of actual tons of carbon avoided or number of people provided with access to clean power or clean water or number of cars kept off the Issuers are recommended to familiarize themselves with impact reporting standards and,
confidentiality considerations. The EPFI will report according to the minimum reporting roads, etc.). It may also become best practice for the issuer to report on the flow of funds from Green Bond proceeds to eligible Green Projects as part of where feasible, to report on the positive environmental impact of the investments funded by
requirements detailed in Annex B. its audited annual report. Green Bond proceeds.
7) Central Forums for Use of Proceeds Taxonomies

The Green Bonds Working Group would like to see established a range of Taxonomies that can be used to describe the eligible Green Project
Categories to which Green Bond proceeds can be allocated. The Green Bonds Working Group requests that interested parties (e.g., CBI, CERES,
CICERO, PRI Initiative, and others) submit a Taxonomy for inclusion in the Appendices of the Framework and each maintain its Taxonomy in its own
Central Forum.

For the benefit of both the issuer and investor community, the GBWG recommends that each Central Forum collate opinions from environmental experts
(e.g., LSE’s Grantham Research Institute on Climate Change and the Environment, and/or CICERO, and/or Stanford University’s Global Climate &
Energy Project) on the “Greenness” of the eligible Green Project Categories named in each proposed Taxonomy.

These central warehouses of expert environmental opinions would enable investors to become aware of and educated on the degree of environmental
benefit (or harm) of various proposed eligible Green Project Categories permitted under each Taxonomy. Investors could then base their decision to
invest in a particular Green Bond on these expert environmental opinions.

These Central Forums would also present a valuable resource for issuers looking to come to market, by debating which of their proposed eligible Green
Project Categories are viewed as viable by the environmental community. The issuer’s decision about which eligible Green Project Categories to include
in the Use of Proceeds for their Green Bond could be guided by these expert opinions.

The GBWG looks to amend the Appendices over time with as additional interested parties submit additional Taxonomies.
DISCLAIMER
The Green Bond Principles are voluntary process guidelines that neither constitute an offer to purchase
or sell securities nor constitute specific advice of whatever form (tax, legal, environmental, accounting or
DISCLAIMER regulatory) in respect of Green Bonds or any other securities. The Green Bond Principles do not create
The Equator Principles is a baseline and framework for developing individual, internal environmental any rights in, or liability to, any person, public or private. Issuers adopt and implement the Green Bond
and social policies, procedures and practices. The Equator Principles do not create any rights in, or Principles voluntarily and independently, without reliance on or recourse to the Green Bond Principles,
liability to, any person, public or private. Financial institutions adopt and implement the Equator and are solely responsible for the decision to issue Green Bonds. Underwriters of Green Bonds are not
Principles voluntarily and independently, without reliance on or recourse to the IFC, the World Bank responsible if issuers do not comply with their commitments to Green Bonds and the use of the resulting
Group, the Equator Principles Association, or other EPFIs. In a situation where there would be a clear net proceeds. If there is a conflict between any applicable laws, statutes and regulations and the
conflict between applicable laws and regulations and requirements set out in the Equator Principles, guidelines set forth in the Green Bond Principles, the relevant local laws, statutes and regulations shall
the local laws and regulations prevail. prevail.
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