Sustainability Bond Guidelines June 2021 June 2021 Sustainability Bond Guidelines Introduction The Green Bond Principles (GBP), together with the Social Bond Principles (SBP), the Sustainability Bond Guidelines (SBG) and the Sustainability-Linked Bond Principles (SLBP) are published under the governance of the Principles. The Principles are a collection of voluntary frameworks with the stated mission and vision of promoting the role that global debt capital markets can play in financing progress towards environmental and social sustainability. The Principles outline best practices when issuing bonds serving social and/or environmental purposes through global guidelines and recommendations that promote transparency and disclosure, thereby underpinning the integrity of the market. The Principles also raise awareness of the importance of environmental and social impact among financial market participants, which ultimately aims to attract more capital to support sustainable development. A market has developed for bonds aligned to both the GBP and the SBP. These transactions reflect the continuing development of the use of proceeds bond market. Specific examples of such transactions can be found in the sustainable finance section of ICMA’s website. These guidelines 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 GBP and SBP (i.e. Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds and Reporting) and their key recommendations on Bond Frameworks and the use of External Reviews therefore also apply to Sustainability Bonds. The Principles offer approaches that reflect issuer level sustainability commitments, which can supplement or provide an alternative to a focus on use of proceeds. Such commitments can be expressed through Sustainability-Linked Bonds, as well as through dedicated issuer strategies and disclosures as recommended by the Climate Transition Finance Handbook when communicating Paris-aligned transition plans. An illustration of the products and related guidance covered by the Principles is depicted in Appendix I. The 2021 edition of the SBG is consistent with the 2021 editions of the GBP and SBP. 2 Sustainability Bond Definition Note 1 The four types of Green Bonds and Social Bonds referred to in Sustainability Bonds are any type of bond instrument where the Appendix I of the GBP and the SBP respectively would also the proceeds or an equivalent amount will be exclusively apply to Sustainability Bonds, when Green and Social Projects applied to finance or re-finance a combination of both Green are combined. and Social Projects. Sustainability Bonds are aligned with the four core components of both the GBP and SBP with the Note 2 former being especially relevant to underlying Green Projects It is recognised that there is a market of bonds with sustainable and the latter to underlying Social Projects. themes, including those linked to the Sustainable Development It is understood that certain Social Projects may also Goals (“SDGs”), in some cases issued by organisations that have environmental co-benefits, and that certain Green are mainly or entirely involved in sustainable activities, but Projects may have social co-benefits. The classification of their bonds may not align to the four core components of the a use of proceeds bond as a Green Bond, Social Bond, or Principles. In such cases, investors will need to be informed Sustainability Bond should be determined by the issuer based accordingly and care should be taken to not imply GBP or SBP on its primary objectives for the underlying projects. features by a Sustainability Bond or SDG reference. These issuing entities are encouraged to adopt where possible the It is important to note that Sustainability Bonds should not be relevant best practice of the GBP and SBP (e.g. for reporting) considered fungible with bonds that are not aligned with the for such existing sustainability, SDG or otherwise themed bonds, four core components of the Principles. Bonds issued under and to align future issues with the Principles. earlier Green and Social Bond Guidance released prior to this version are deemed consistent with the SBG. A mapping of the GBP and SBP to the Sustainable Development Goals (SDGs) is now available and aims to provide Finally, where issuers wish to finance projects towards a broad frame of reference by which issuers, investors and implementing a net zero emissions strategy aligned with market participants can evaluate the financing objectives of a the goals of the Paris Agreement, guidance on issuer level given Green, Social or Sustainability Bond/Bond programme disclosures and climate transition strategies may be sought against the SDGs. It can be found in the sustainable finance from the Climate Transition Finance Handbook. section of ICMA’s website. Note 3 Resource Centre It is recognised that issuers may wish to align their Sustainability Recommended templates and Green, Social and Sustainability Bonds with both the SBG and the SLBP. For the avoidance of Bond resources can be found in the sustainable finance doubt, such an approach remains at the discretion of issuers and section of ICMA’s website. Completed templates can be is neither recommended nor discouraged. published online for market information at the Resource Centre by following the instructions at the link above. 3 Appendix I The Principles Use of Proceeds* General Purposes* Green, Social, Sustainability Bonds Sustainability-Linked Bonds (“GSS” or “UoP”) (“SLBs”) Core Components: Core Components: 1. Use of Proceeds 1. Selection of Key Performance Financial Indicators (KPIs) Instrument 2. Process for Project Evaluation and Selection 2. Calibration of Sustainability Guidance 3. Management of Proceeds Performance Targets (SPTs) 4. Reporting 3. Bond characteristics Key Recommendations: 4. Reporting 1. Bond Frameworks 5. Verification 2. External Reviews Climate Transition Finance Handbook (CTFH) Thematic (Guidance may be applied to GSS/UoP Bonds or SLBs) Guidance * Under the GBP, SBP and SBG, an amount equal to the net bond proceeds is dedicated to financing eligible projects (Use of Proceeds Bonds) while under the SLBP, proceeds are primarily for the general purposes of an issuer in pursuit of identified KPIs and SPTs (Sustainability-Linked Bonds). A bond that combines SLB and Use of Proceeds features should apply guidance for both types of bonds. Disclaimer The Sustainability Bond Guidelines provide voluntary process guidelines that neither constitute an offer to purchase or sell securities nor constitute specific advice of whatever form (tax, legal, environmental, accounting or regulatory) in respect of Sustainability Bonds or any other securities. The Sustainability Bond Guidelines do not create any rights in, or liability to, any person, public or private. Issuers adopt and implement the Sustainability Bond Guidelines voluntarily and independently, without reliance on or recourse to the Sustainability Bond Guidelines, and are solely responsible for the decision to issue Sustainability Bonds. Underwriters of Sustainability Bonds are not responsible if issuers do not comply with their commitments to Sustainability Bonds and the use of the resulting net proceeds. If there is a conflict between any applicable laws, statutes and regulations and the guidelines set forth in the Sustainability Bond Guidelines, the relevant local laws, statutes and regulations shall prevail. 4 Contact details ICMA Paris Representative Office 62 rue la Boétie 75008 Paris France Tel: +33 1 70 17 64 70 sustainabilitybonds@icmagroup.org www.icmagroup.org