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Definition

Green Bonds

A green bond is a bond whose proceeds are reserved for eligible projects with environmental benefits; the label applies to the financing, not automatically to the issuer's whole business.

What is a green bond?

A green bond raises debt and reserves the proceeds, or an equivalent amount, for eligible projects with environmental benefits. The label describes where the money goes, not whether the issuer's whole business is environmentally sustainable.

Why do green bonds matter to you?

Before issuance, investors and reviewers compare the framework with the project records: eligibility criteria, environmental objective, approval, and risk checks. After issuance, they reconcile allocations to the proceeds ledger, unallocated balance, project list, impact method and source data, and published review.

How do the ICMA Green Bond Principles work?

The June 2025 ICMA Green Bond Principles are voluntary. Their four components are use of proceeds, project selection, proceeds management, and reporting. ICMA recommends a public framework, pre-issuance external review, yearly reporting until full allocation, and post-issuance verification of proceeds tracking and allocation.

What rules apply to the EuGB designation?

Regulation (EU) 2023/2631 has applied since 21 December 2024. An issuer may choose whether to use the European Green Bond or EuGB designation. If it does, compliance with the Regulation's designation requirements is mandatory. These include taxonomy-linked allocation rules, a reviewed pre-issuance factsheet, allocation reports for each 12-month period until full allocation, a post-issuance review of the final allocation report, and an impact report after full allocation.

What evidence must an issuer keep?

  • Dated eligibility and approval records for every financed project.
  • A proceeds register that shows each allocation, supporting expenditure, temporary placement, and unallocated balance.
  • Allocation reports that reconcile to the register and identify the financed projects.
  • Impact workpapers with the method, assumptions, source data, and reviewer records.

What mistakes should you avoid?

  • Calling the whole company green because one bond finances eligible projects.
  • Treating unallocated cash as though it has already financed a project.
  • Reporting environmental results without the method and source data behind them.

Are green bonds mandatory?

No. ICMA alignment is voluntary, and choosing the EuGB designation is optional. Once an issuer uses the EuGB designation, its requirements are not optional. Securities law and the bond documents may create other binding duties.

How is a green bond different from a sustainability-linked loan?

A green bond restricts proceeds to eligible projects. A sustainability-linked loan may fund general business spending. A key performance indicator (KPI) measures progress. A sustainability performance target (SPT) sets the required result that can change the loan's financial or structural terms.

Example

Imagine a hypothetical packaging manufacturer that plans to issue a bond using the EuGB designation to finance new rooftop solar systems. Before issuance, its finance and sustainability teams test each proposed system against the stated project criteria and applicable EU Taxonomy rules. An internal committee records its approval. The issuer gives the factsheet and project file to an external reviewer for the required pre-issuance opinion.

After issuance, treasury records the net proceeds in a dedicated register and links each allocation to an approved invoice. The register shows the remaining balance and where unallocated money is held. Finance uses it to prepare each allocation report. The sustainability team keeps the meter-data source, calculation steps, and assumptions behind its impact estimate. After full allocation, the external reviewer checks the allocation report against the factsheet and allocation rules. The issuer then publishes an impact report supported by the same method evidence. The company and scenario are hypothetical.

Where it comes up

ICMA Green Bond Principles 2025 four core componentsICMA GBP, Use of Proceeds; Project Evaluation and Selection; Management of Proceeds; ReportingOfficial sourceEU Green Bond Standard use-of-proceeds and issuer disclosure rulesRegulation (EU) 2023/2631, Articles 3-5 and 10-12Official source

Related terms

Responsible Investing

Responsible investing considers environmental, social and governance information when investors allocate capital, manage holdings and use their influence to pursue stated financial objectives and, where applicable, sustainability objectives.

Sustainability Reporting

Sustainability reporting is the process of publishing evidence-backed information about a company's environmental, social, and governance impacts, risks, opportunities, policies, targets, and performance for a defined period and business boundary.

Greenwashing

Greenwashing is a false or misleading environmental message that makes a product, service, investment, or business appear more beneficial or less harmful to the environment than the evidence supports.

Sustainability-linked loan

A sustainability-linked loan ties its financial or structural terms to whether the borrower meets agreed, measurable sustainability performance targets for material key performance indicators within set testing periods.

Blended finance

Blended finance uses development finance, sometimes on concessional terms, to mobilise additional commercial investment for sustainable development in developing countries.

European Green Bond Standard

The European Green Bond Standard is the voluntary EU regime that reserves the EuGB label for bonds meeting taxonomy-linked allocation, disclosure, prospectus and external-review requirements.

Sources

Sources checked 2026-08-18

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Green Bonds Definition | Keslio