Chapter 5 Flashcards
Sustainable finance
Any fin prod / service taking Sus into account
Green finance, climate finance
Green fin - sustainable finance focused on environment-related risks and opportunities
Climate fin - climate change-related fin flows (also funding mitigation & adaptation in developing countries)
Green bonds
Bonds whose proceeds are earmarked for env projects, that can also include Climate related goals
Social bonds, sus bonds
Social bond - Their proceeds are earmarked for social benefit
Sus bonds - with both environmental and social benefits
Green loan
Loan whose proceeds are used for env and climate-related projects
Sustainable fund
Fund that consists of sus instruments (e.g. green bond funds) and funds with shares in sus companies
ESG integration
Collecting ESG issues data, integrating it into investing and lending decisions
How much $ in global assets under management is sustainably invested in 2022
30.3 trillion
Green bonds def
Bonds whose proceeds (meaning - money raised from issuing the bond) are earmarked (meaning - reserved for) environmental projects
ex ante (e.g. use of bond proceeds is explained to prospective bond holders)
“beforehand”, in advance, before they bought the bond
4 core components of Green Bond Principles
- Use of proceeds - use proceeds for Green projects, described in legal documentation, with clear, quantified where possible, env benefits (e.g. renewable energy, pollution prevention, etc.)
- Process for Project Evaluation and Selection - communicate to investors env sus objectives of the eligible Green Projects, how they fit into Green Projects categories
- Management of Proceeds - tracking of proceeds by the issuer
- Reporting - renewed annyally up to date info about the use of proceeds. Descr of projects and amounts allocated
Underwriting
Depends on the context. Sometimes - only assessing the risk of lending money before issuing the loan (ability to repay, income, creditworthiness). Sometimes - assessment + issuing the loan
Green loan underwriting - what are the main sectors?
47% - renewable energy
23% - power generation
8% - utilities
6% - real estate
Sustainability-linked bond & how it works
Coupon on the bond is linked to the issuer’s achievement of pre-agreed sus targets (will pay less if performs well, or will pay more if does not perform well)
Sus linked loans and how they work
IR on the loan is linked to a borrower’s achievement on sus benchmark
Green / ESG index
Stock market index, including companies based on various sus performance standards
TCFD
Task Force on Climate-Related Financial Disclosure
Listed firms
Сompany whose shares are traded on a stock exchange
EU taxonomy
A European Union framework that sets performance thresholds for economic activities, by sector and subsector, to determine which investments are environmentally sustainable.
when an evonomic activity counts as “green” by EU taxonomy?
It substantially contribs to at least one of:
1. CC mitigation
2. CC adaptation
3. Sustainable use 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
+ No significant harm to other goals of the 6 above + meet minimum safeguards
fleet def
group of vehicles owned or operated by a company, government, or organization..
