Chapter 5

Question 1

Green SF

Answer 1

SF focused on environmental related risks and opportunities

Question 2

Climate Policy Initiative

Answer 2

an NGO that assembles a comprehensive accounting standard - seen as gold standard in tracking climate financial flows from public and private sources

Question 3

SF products come in 3 broad varieties

Answer 3

1. use of proceeds (earmarked and ring-fenced for S use (ex: green bonds))
2. instrument is linked to S targets (through interest rate penalty or reward on achievement of a specific target)
3. selection criteria for inclusion or targeted engagement with management of a company (ex: S equity funds)

Question 4

Green Bonds

Answer 4

Proceeds are earmarked for environmental projects
1. separately labeled
2. proceeds are ringfenced
3. planned use of proceeds is reported to prospective bondholders ex ante and to current bondholders once projects are implemented

–> investment banks handle underwriting

Question 5

Green Bond Principles

Answer 5

1. use of proceeds
2. process for project evaluation and selection
3. management of proceeds
4. reporting

Question 6

Use of proceeds

Answer 6

should provide clear env. benefits (ex: renewable E, poluttion prevention and control)

Question 7

Process for project evaluation and selection

Answer 7

Issuer of green bond should clearly communicate to investors
1. env. S objectives
2. process to determine how projects fit within eligible green projects cases
3. related eligbility criteria to identify and manage potentially material env. social risks

Question 8

Management of proceeds

Answer 8

Net proceeds of G bonds should be credited to a sub-account, moved to sub-portfolio or otherwise tracked by issuer and attested by the issuer linked to lending and investment operations for green projects

Question 9

Reporting

Answer 9

Issuers should have up to date info on use of proceeds and renew annually until full allocation. AR should include list of projects which G Bond proceeds have been allocated + external review

Question 10

Social Bonds

Answer 10

bonds with earmarked proceeds for projects that will bring social benefits

Question 11

S Bonds

Answer 11

combo of G and social bonds

Question 12

Green loans

Answer 12

expected to ring-fence ; borrowers expected to report on use of proceeds

Question 13

S linked Bonds (SLB)

Answer 13

coupon paid by issuer is linked to issuer firm’s achievement of pre=agreed S targets

Question 14

S linked loans (SLL)

Answer 14

Interest rate on the loan is linked to a company’s achievement of certain S benchmarks

• measured by S performance targets (SPT) measurement improvements in borrower’s S profile

Question 15

KPI (Key performance indicators)

Answer 15

Measure how well a company is performing - . They provide clear data that shows whether efforts are effective, whether emissions are decreasing, or if climate-related goals are being met.
–should be relevan, measurable, externally verifiable, and able to be benchmarked

Question 16

Main sector with green loans

Answer 16

1. power sector (85%)(renewable E, P generation)
2. utilities
3. real estate

Question 17

SLLP framework (SLL principles)

Answer 17

1. relationship to borrower’s overall S strategy
2. target setting - measuring the S of the borrower
3. reporting
4. review

Question 18

SLLB framework (SLLB principles)

Answer 18

1. Selection of KPIs
2. Calibration of SPT (S performance targets)
3. bond characteristics
4. reporting
5. verification

Question 19

SPT

Answer 19

should be ambitious, represent a material improvement in KPIs. compared to benchmark be consistent with issuer’s overall strategic S strategy; be determined on predefined timeline

Question 20

Available data on climate change is not straightforward

Answer 20

TR: often estimated rather than reported by the company
PR: have similar shortcomings as ESG RATINGS

Question 21

Primary sources for ESG scores

Answer 21

1. external providers
2. discussions with company
3. corporate S reports
4. Regulatory disclosures

Question 22

EU Taxonomy

Answer 22

sets performance thresholds for economic activites- once in force, any investment or lending for a recognized activity counts as S.

To count as S, activities must make a substantive contribution to at least 1/6 env. objectives

Question 23

EU taxonomy env. objectives

Answer 23

1. climate change mitigation
2. climate change adaptation
3. S use of and protection of water and marine resources
4. transition to a circular economy
5. pollution prevention and control
6. protection and restoration of biodiversity and ecosystems