A bond whose proceeds are ring-fenced for identified environmental projects, and whose value rests entirely on verifying that ring-fence.
A green bond is an ordinary bond as far as credit risk goes, the investor remaining exposed to the issuer's signature alone, but its proceeds are earmarked for identified projects, whether renewable energy, energy efficiency, clean transport or adaptation. All of its added value therefore rests on a promise of allocation and on the machinery that verifies it, annual allocation reports, external audit and second-party opinions, failing which the security is simply an ordinary bond with a label. The weakness long noted is the fungibility of cash, since an issuer can fund through a green bond expenditure it would have made anyway, what the literature calls a failure of additionality. The European Union answered with a voluntary and demanding standard, tied to the taxonomy and accompanied by a register of external reviewers, giving an enforceable benchmark where the market had run on private principles. For an insurer as investor, these securities belong both to asset management and to regulatory reporting, since they feed the alignment indicators the taxonomy requires it to publish.
Regulation (EU) 2023/2631 of 22 November 2023 created the European green bond standard, applicable from 21 December 2024, conditioning use of the label on allocating proceeds to taxonomy-aligned activities and on verification by a registered external reviewer.
green bond, emprunt vert, obligation environnementale