Eric Phillips

Green bonds: time for new investor protections?

Green bonds, the proceeds of which are intended to be applied to green projects, have increased in popularity as investors seek to tackle the climate crisis alongside maximising economic returns. A feature of green bonds that some may find quite surprising is that the intended use of proceeds of a green bond is not specified in the contractual terms and conditions. The terms and conditions of a green bond are in fact typically identical to those of a conventional bond. The FCA and others have raised the question of whether the “use of proceeds” provisions in green bond documentation should reflect their central purpose and whether the current legally flexible approach to use of proceeds is sufficient to protect investors from “green-washing”. In this In practice article, we outline the reasons why “use of proceeds” provisions have not been tightened in green bonds so far and why, ultimately, the current approach is aligned with the green goals market participants are seeking to achieve.