Sustainability standards and labels

The green bond market is the most developed market among sustainability-focused securities. It is supported by several different internationally recognised standards that may be used by green bond issuers (depending upon the issuance market and investors). The standards used by LGX issuers are outlined below, along with a table comparing the different standards.

When the proceeds from an instrument are used exclusively to finance or refinance green projects, the bond will be displayed as a green bond.

For LGX international securities, issuers may align with ICMA’s Green Bond Principles, the CBI Climate Bonds Standard eligibility taxonomy and/or another framework aligned to the former.

There are several broad categories of eligibility for green projects which are aligned with the ICMA Green Bond Principles and the CBI taxonomy:
 

• Renewable energy
• Energy efficiency
• Pollution prevention and control
• Environmentally sustainable management of living natural resources and land use
• Terrestrial and aquatic biodiversity conservation
• Clean transportation
• Sustainable water and wastewater management
• Climate change adaptation
• Eco-efficient and/or circular economy adapted products, production technologies and processes
• Green buildings which meet regional, national or internationally recognised standards or certifications

Green bond standards used by LGX issuers

ICMA - Green Bond Principles (GBP)
The Green Bond Principles (GBP), updated in June 2018, are voluntary process guidelines that recommend transparency and disclosure and promote integrity in the development of the green bond market by clarifying the issuance approach. The GBP are intended for broad use by the market: they provide issuers guidance on the key components involved in launching a credible green bond; they aid investors by ensuring availability of information necessary to evaluate the environmental impact of their green bond investments; and they assist underwriters by moving the market towards standard disclosures which will facilitate transactions.


CBI - Climate Bonds Standard
The Climate Bonds Standard sets out the requirements to be met for issuers seeking a Climate Bond Certification. The requirements are separated into pre-issuance requirements, which need to be met for issuers seeking certification ahead of issuance, and post-issuance requirements, which need to be met by issuers seeking continued certification following the issuance of the bond.


Comparison of green bond standards and frameworks

The table below provides a comparison of various green bond standards, including the ICMA Green Bond Principles, Climate Bonds Standard and the PBOC Green Catalogue. In addition, a comparison of these with the draft EU Green Bond Standard published as an appendix to the final report of the European Commission’s High Level Expert Group on Sustainable Finance has been provided for information purposes.

Specific topic	ICMA Green Bond Principles	CBI Climate Bonds Standard	Chinese standards	Draft EU Green Bond Standard
Reference of alignment with standard/framework in legal documentation	Recommended	Required	Not required	Required
Project categories	Guidance on high-level categories	Linked to detailed qualification criteria	Detailed green catalogue	Compliance with a detailed EU sustainability taxonomy
Disclosure of proportion of proceeds used for refinancing	Recommended	Required	Recommended	Required
Impact monitoring and reporting	Recommended	Addressed in Climate Bonds Standard qualification criteria	Recommended	Required to report whether issuer is monitoring impact or not and if so, disclose estimated/actual impact
External review requirements	Recommended External review may be partial, covering only certain aspects of an issuer's  green bond or associated green bond framework, or full assessing alignment with all four core components of the GBP	Required	Recommended	Required External review must confirm, at a minimum, the alignment, at issuance, of the EU green bond with all four core components of the EU GBS, or alternatively, confirm the alignment of the EU green bond programme as a whole
Publication of external review	Recommended	Recommended	Recommended	Required
Accreditation of external reviewers	Not addressed in GBP	Have a dedicated “Approved verifier” list	Required	Sets out accreditation requirements for external reviewers

 

When the proceeds from an instrument are used exclusively to finance or refinance social projects, the bond will be displayed as a social bond. There are several broad categories of eligibility for social projects that align with the ICMA’s Social Bond Principles (SBP):

• Affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy)
• Access to essential services (e.g. health, education and vocational training, healthcare, financing and financial services)
• Affordable housing
• Employment generation including through the potential effect of SME financing and microfinance
• Food security
• Socioeconomic advancement and empowerment

Examples of target populations include, but are not limited to:

• People living below the poverty line
• Excluded and/or marginalised populations and/or communities
• Vulnerable groups, including as a result of natural disasters
• People with disabilities
• Migrants and/or displaced persons
• Undereducated persons
• Underserved, owing to a lack of quality access to essential goods and services
• Unemployed persons

There are several categories and sets of criteria defining social projects that can be used as complementary guidance.

The ICMA’s Social Bond Principles (SBP), updated as of June 2018, promote integrity in the social bond market through guidelines that recommend transparency, disclosure and reporting. They are intended for use by market participants and promote market integrity through guidelines that recommend transparency, disclosure and reporting.

When the proceeds of a bond are used to finance a blend of green and social projects, aligned with the GBP and SBP, the bond will be classified as a sustainability bond. Sustainability bonds are bonds where the proceeds will be exclusively applied to finance or re-finance a combination of both green and social projects. It is understood that certain social projects may also have environmental co-benefits and that certain green projects may have social co-benefits. The classification of the use of proceeds of the bond, i.e. green bond, social bond or sustainability bond, should be determined by the issuer based on its primary objectives for the underlying projects.

ICMA - Sustainability Bond Guidelines (SBG)
The Sustainability Bond Guidelines, as of June 2018, have been published to confirm the relevance of the principles in this context and facilitate the application of their guidance on transparency and disclosure to the sustainability bond market. The common four core components of the principles and their recommendations on the use of external reviews and impact reporting therefore also apply to sustainability bonds.

Depending upon the nature of the Chinese domestic issuer, they are subject to different green bond guidelines which will define what constitutes eligible projects to be financed by a Chinese domestic green security.  The following guidelines exist:

• Green bonds issued by financial entities are subject to the People’s Bank of China (PBOC) Green Bond Endorsed Project Catalogue
• Green domestic corporate bonds (and in general non-listed companies) are subject to the National Development and Reform Commission (NDRC) Green Bond Guidelines
• Green bonds issued by listed companies and corporate asset backed securities are subject to the China Securities Regulatory Commission (CSRC) Guidelines for Supporting Green Bond Development

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Note that (as per CBI) the PBOC Green Bond Endorsed Project Catalogue accepts retrofits of fossil fuel power stations, clean coal and coal efficiency improvements, and rail lines that mainly transport fossil fuels, which are not accepted under the Climate Bonds Initiative’s eligibility taxonomy.

PBOC Green Bond Endorsed Project Catalogue
In December 2015, the PBOC published the Green Projects Catalogue for green financial bonds. The catalogue, aimed at financial entities, defines eligible green projects and provides guidelines for project classification and eligibility criteria within the following six environmental sectors: 
 

• Energy saving
• Pollution prevention and control
• Resource conservation and recycling
• Clean transportation
• Clean energy
• Ecological protection and climate change adaptation

National Development and Reform Commission (NDRC) green bond guidelines
In December 2015, the National Development and Reform Commission (NDRC), China’s national policy management agency, published its guidelines for green domestic corporate bonds. The guidelines, intended for non-listed companies, clarify what projects are eligible as green. NDRC’s guidelines are limited to a list of qualifying green projects that should be supported by green corporate bonds and proposals for policy incentives for green bonds. The NDRC guidance lays out some requirements for allocation of proceeds during the bond term. For example, issuers can use up to 50% of the bond proceeds to repay bank loans and invest in working capital. However, it does not establish rules for management of proceeds and reporting. NDRC’s guidelines also define a list of 12 project categories eligible for green bond issuance, which are largely in line with the catalogue of projects endorsed by PBOC. The exception is with nuclear energy, which is included by NDRC but not endorsed by PBOC.

Areas covered by the guidelines are:
 

• Technology improvement for energy saving and emission reduction
• Green urbanisation (energy saving)
• Energy-saving and environmental protection industry
• Pollution prevention and control
• Circular economy
• Water saving and unconventional water use
• Green urbanisation – transport  
• Clean and efficient use of energy
• New energy – hydropower, wind, nuclear, solar, bioenergy, geothermal, shallow geothermal energy, marine and air energy
• Ecological agriculture and forestry
• Ecological civilisation demonstration projects
• Low-carbon industry projects and demonstration projects

China Securities Regulatory Commission (CSRC) guidelines for listed companies
In March 2017, China Securities Regulatory Commission (CSRC), the regulator overseeing the issuance of bonds from listed corporates and corporate asset-backed securities, released new guidelines for Chinese listed companies. The CSRC guidelines have adopted the green definitions used by PBOC, with a restrictive provison excluding highly polluting and high-energy consumption companies that conflict with the national industrial planning policy. They also require the relevant company to deliver a commitment letter to CSRC regarding the green characteristics of the issuance. The guidelines include a prohibition in principle on the issuances of green bonds by non-green issuers.

• Alignment between China and international standards

  + -

  Green labelling

  	Current level of alignment	Roadmap to achieve harmonisation for Chinese and international green bonds
  Management of proceeds	Fully aligned	Continue current approach
  Reporting and disclosure	Fully aligned	Continue current approach
  External reviews and assurance	Closely aligned	Further encourage third party assurance as standards and criteria are adopted and Chinese verifiers' capabilities improve

  Green Definitions

  	Current level of alignment	Roadmap to achieve harmonisation for Chinese and international green bonds
  Categories	Mostly aligned	Excellent alignment already. A small number of areas to explore further, such as low-carbon equipment supply chains and projects involving fossil fuels
  Sector-specific criteria	Some alignment	Further work on investigating overlaps and differences between Chinese definitions and international criteria. Important work needed to align with international efforts as China builds-out (or adopts) its library of sector-specific criteria
  Basis for criteria	Some alignment	Use a scientific framework to ensure that the project-level criteria for green bonds are in line with China’s national environmental targets, including emission reduction targets

  Climate Bond Initiative – Roadmap for China: green bond guidelines for the next stage of market growth – April 2016
• An overview of green definitions endorsed by PBOC and NDRC

  + -
  PBOC: China Green Bond Endorsed Project Catalogue

  Categories	Sub-categories
  1. Energy saving	Industrial energy-saving Sustainable buildings Energy management centre Urban and rural infrastructure construction with energy-saving efficiency
  2. Pollution prevention and control	Pollution prevention and control Environmental restoration project Clean utilisation of coal
  3. Resources conservation and recycling	Water saving and unconventional water use Redevelopment and integrated utilisation of tailings and associated mine byproducts Recycling and utilisation of industrial solid waste exhaust gas and effluent Recycling, processing and utilisation of renewable resource Remanufacturing of electromechanical products Recycling and utilisation of biomass resources
  4. Clean transportation	Railway transportation Urban rail transit Public urban and rural transportation Waterway transportation Clean fuel new energy automobile Internet application on transportation
  5. Clean energy	Wind power generation Solar photovoltaic (PV) power generation Smart grid and energy internet Distributed energy resource Solar thermal application Hydropower generation Other new energy application
  6. Ecological protection and climate change adaptation	Natural ecological protection and protective development of tourism resource Ecological agriculture, husbandry and fishery Forestry development Emergency prevention and control of disaster

  NDRC green bond guidelines

  	Areas
  1. Energy saving	Technology improvement for energy saving and emission reduction Green urbanisation – energy Energy saving and environmental protection industry
  2. Pollution prevention and control	Pollution prevention and control
  3. Resources conservation and recycling	Circular economy Water saving and unconventional water use
  4. Clean transportation	Green urbanisation – transport
  5. Clean energy	Clean and efficient use of energy New energy – hydropower, wind, nuclear, solar, bioenergy, geothermal, shallow geothermal energy, marine and air energy
  6. Ecological protection and climate change adaptation	Ecological agriculture and forestry Ecological civilisation demonstration projects Low-carbon industry projects Low-carbon demonstration projects

  Climate Bond Initiative – Roadmap for China: green bond guidelines for the next stage of market growth – April 2016
   

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An ESG fund incorporates environmental, social and governance (ESG) factors into its investment decisions and processes following specific investment selection strategies.

ESG fund labels accepted by LGX
Funds labelled by a labelling agency benefit from added credibility, transparency and superior quality standards. ESG funds having one of the below labels can be displayed on LGX. 

A green fund invests its assets in environment-related sectors and activities, incorporating specific investment selection strategies into its investment decisions and processes.

Green fund labels accepted by LGX
Funds labelled by a labelling agency benefit from added credibility, transparency and superior quality standards. Green funds having one of the below labels can be displayed on LGX. 

A social fund invests its assets in social-related sectors and activities, incorporating specific investment selection strategies into its investment decisions and processes.

Social fund label accepted by LGX 
Funds labelled by a labelling agency benefit from added credibility, transparency and superior quality standards. Social funds having the below label can be displayed on LGX.