Green, social and sustainability bonds are fixed-income debt instruments that are structured in the same way as corporate bonds except in the use of the proceeds.
With these types of “thematic bonds”, the proceeds are exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible projects, assets and expenditures that, based on the type of bond, have a positive on impact on the environment, climate and society.
Green bonds refer to debt securities issued by entities whereby the proceeds are used to finance or re-finance environmentally friendly projects or assets.
Social bonds refer to debt securities whereby the proceeds are used to finance or re-finance any project that has a positive impact on society.
Sustainable bonds refer to debt securities whereby the proceeds are used to finance or re-finance projects that consist of a combination of green and social features that have a positive impact on society and environment.
Issuance of green, social and sustainability bonds
The process for issuing green, social and sustainability bonds is the same as that for corporate bonds.
A company aiming to issue green, social and sustainability bond must fulfil the requirements and procedures prescribed in the “Prakas on Public Offering of Debt Securities” and the “Prakas on Debt Securities Offering to Qualified Investors”.
They must also meet the additional requirements prescribed in the “Guidelines on the Offering of Green, Social and Sustainability Bonds” and the “Detailed Guidance on Green, Social and Sustainability Bonds in Cambodia”.
The issuance of green social, and sustainability bonds needs to have in place a “Green Bond Framework” or a “Sustainable Finance Framework” that lays out the information required to demonstrate to investors the integrity of the green, social or sustainability label.
The green bonds framework has four significant principles:
1. Purpose of ‘use of proceeds’
The issuer shall clearly define the purpose of use of proceeds in alignment with the green, social or sustainable bond standard or framework.
2. Assessment and selection of projects
The issuer shall have mechanisms and internal procedures for the assessment and selection of projects or assets that will be used for the issuance of green, social or sustainable bonds.
3. Management of proceeds
The issuer shall have the mechanisms required to properly manage the proceeds in alignment with the set purpose.
4. Reporting
Post-issuance, the issuer shall report to investors regarding:
(i) The management and allocation of proceeds to the nominated project or assets;
(ii) The eligibility of green, social or sustainability bonds;
(iii) The positive and negative impacts on related projects or use of assets in alignment with the applicable standards or frameworks.
Reporting is essential for investors because it discloses a direct link between their investment and the investment performance of the nominated projects and assets.
In addition to the aforementioned principles, the issuer may obtain an assessment by an external reviewer to evaluate and assess the compliance of the nominated projects or assets based on the applicable standards to transparently label bonds as green, social or sustainable, and gain greater confidence from investors.
There are four different external review approaches – secondary party opinion (SPO); certification; verification; and rating or scoring.
References
– Guidance on How to Issue Green Bonds, Social Bonds and Sustainability Bonds.
– Detailed Guidance on Issuing Green Bonds in the Kingdom of Cambodia.
-How to issuance green bonds, social bonds and sustainability bonds https://asianbondsonline.adb.org/green-bonds/pdf/How%20to%20Issue%20Guide%20English%20FINAL%20PRINT.pdf.
Prepared by: Securities and Exchange Regulator of Cambodia, Securities Issuance Supervision Department.
Email: issuance@serc.gov.kh
Phone: 023 885 611.