Green bonds are bonds issued to fund environmentally-friendly projects, but currently lack standardized criteria for what qualifies as "green." Several approaches are being developed to set eligibility standards, including the Climate Bonds Initiative's Certified Climate Bond and the Green Bonds Principles. In the absence of binding regulation, some green bonds have financed projects with negative environmental impacts. Formal regulation may emerge through agencies like the Green Bonds Principles or through the establishment of Green Banks at the national and state levels.

1. Background
A “green bond” functions like any other bond
issued by governments, financial institutions or
companies. However, green bonds are distinct in
that their purpose is to acquire funds for
environmentally beneficial purposes only.
“Climate bonds” are a type of green bond that
specifically are supposed to address climate
change problems, though the two terms are often
used interchangeably. The World Bank issued the
first green bonds in 2008. Since then, other
development banks, corporations, governments
and municipalities have issued similar products.1
London-based nonprofit Climate Bonds Initiative
(CBI) estimates that issuance will rise to $100
billion in 2015, up from $40 billion in 2014.2
Evolving Green Bonds Standards
There is no standard for what kinds of activities
can be funded by green bonds. Absent common
standards or criteria, the vast majority of green
bonds are self-labeled by the issuer. For example,
the World Bank decides what projects can be
eligible for green bond proceeds based on its own
selection criteria, but used a third party to review
their criteria (the International Climate and
Environmental Research University of Oslo, or
CICERO).3
There are currently several approaches being
developed to either standardize or set parameters
as to what may be considered to be a green bond.
The Climate Bonds Initiative is attempting to
standardize eligibility criteria with the creation of
the “Certified Climate Bond.” Their aim is to add
value to climate bonds by creating a certification
that represents high standards and regulation and
therefore trust and transparency, laying the
groundwork for a robust climate bond market and
binding regulations in the future.4
The Green Bonds Principles has similar aims of
adding value to green bonds in the form of
standards and regulation. Similar to CBI, their
express purpose is also to add value to this type of
bond by increasing its standards and regulation,
but in addition has the express goal of providing a
framework for binding regulations put forth by
government agencies in the future.5
Environmental harm and green bonds
Though many have financed environmentally
sound projects, due to the lack of standards a
number of projects have fallen into a gray area,
whereby their implementation has resulted in
negative environmental effects. For example,
green bonds have been linked to hydropower
projects (like the Rampur Hydropower Project),
waste incineration projects (like the waste
incineration plant in Talinn, Estonia), and
forestry/timber projects (like a teak plantation in
Brazil), all of which have had negative
environmental effects, often undermining the goal
of green bonds.6
Future of Green Bond Regulation
It is possible agencies like the Green Bonds
Principles are attempting to catalyze formal green
bond regulation themselves, or are aiding the
organization of a formal movement toward official
standards. At the time of this writing, this
possibility has not been confirmed.
Changing Climate of Green Bonds
Basics:
 Currently no binding regulation of green bonds exist other than that which governs all bonds.
 No formal sanctions or investigations of green bonds have been conducted by regulatory/watch dog
agencies.

2. It’s also possible the formal regulation of green
bonds will first come about with the establishment
of Green Banks. In May of 2014 Connecticut
Senators Chris Murphy (D) and Richard
Blumenthal (D), introduced the Green Bank Act of
2014, S.2271. The bill would create a national
green bank modeled after a green bank founded in
Connecticut in 2011, the Clean Energy Finance
and Investment Authority. Rep. Chris Van Hollen
(D-Md.) introduced the companion bill in the
House (H.R. 4522).
This bank would create permanent, reliable, low-
cost financing for clean energy and energy
efficiency projects across the U.S., would provide
seed funding for state Green Banks, and would
regulate bonds issued using “spending safeguards
and public disclosure requirements to ensure the
highest levels of efficacy, accountability and
transparency.”
Internationally there has been some movement for
Green Banks, such as the UK’s national Green
Investment Bank, but there has also been some
movement on Green Banks in the U.S. recently. In
the absence of federal legislation, four U.S. states
have launched Green Banks, and in 2009 a similar
bill to H.R. 4522 passed the House.7
It’s possible formal regulations could result from
within the government or through stakeholder
action, but either way it appears it is only a matter
of time before interest reaches a tipping point.
1
Climate Bonds Initiative. “Bonds & Climate Change - The State of
the Market in 2014.” Climate Bonds Initiative. July 2014. Accessed
15 February 2015. http://www.climatebonds.net/bonds-climate-
change-2014.
2 Wong, Lisa and Justin Eeles. “Green Bonds Go Mainstream.”
Nikko Asset Management. 04 December 2014. Accessed15
February 2015. http://en.nikkoam.com/insights/fixed-income/green-
bonds-go-mainstream.
3 World Bank Treasury. “Green Bond Process Implementation
Guidelines.” The World Bank. Last updated 2014. Accessed 16
February 2015. http://treasury.worldbank.org/cmd/pdf/
ImplementationGuidelines.pdf.
4 Climate Bonds Initiative. “Best Practice Guidelines.” Climate Bonds
Initiative. Last updated 2014. Accessed 15 February 2015.
http://www.climatebonds.net/market/best-practice-guidelines.
5 ICMA. “Green Bond Principles.” International Capital Market
Association. Last updated 2015. Accessed 16 February 2015.
http://www.icmagroup.org/Regulatory-Policy-and-Market-
Practice/green-bonds/green-bond-principles/.
6 Friends of the Earth. “Issue Brief: Green Bonds.” Friends of the
Earth. 2014. Accessed 16 February 2015.
http://libcloud.s3.amazonaw s.com/93/3b/c/4880/Green_Bonds_Fact_
Sheet.pdf.
7 International District Energy Association. “’Green Bank’legislation
reintroduced into Congress.” IDEA. 8 May 2014. Accessed 17
February 2015. http://www.districtenergy.org/blog/2014/05/08/green-
bank-legislation-re-introduced-into-congress/.