CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Green Initiatives
Haritha Power Ltd., an Indian renewable energy company, plans to issue debt securities in India, and the proceeds will be used only to finance solar parks and energy-efficiency retrofits. The CFO wants to describe the instrument correctly to the board. Which description is most accurate?
The instrument is a green bond because its proceeds are earmarked solely for eligible environmentally beneficial projects such as solar parks and energy-efficiency retrofits. Sustainability-linked bonds depend on performance targets, not use of proceeds, and social bonds fund social outcomes.
- AA green bond, because the proceeds are earmarked exclusively for eligible environmentally beneficial projectsCorrect
- BA sustainability-linked bond, because the proceeds are used for solar parks
- CA social bond, because the projects benefit the public
- DA convertible debenture, because renewable projects always require conversion into equity
Explanation
A green bond is a debt instrument whose proceeds are earmarked for eligible green projects such as renewable energy and energy efficiency. A sustainability-linked bond differs because its financial terms vary with achievement of sustainability targets, not because of use of proceeds. Here the use of proceeds is the defining feature.
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