Final answer:
A green bond is certified based on the financing of environmental projects, adherence to Green Bond Principles, and an external review by an independent third party. It requires transparency, disclosure, and impact reporting to maintain its status.
Step-by-step explanation:
To be evaluated and designated as a green bond, the bond must finance projects that generate environmental benefits. These can include renewable energy projects, energy efficiency improvements, pollution prevention, sustainable water management, and more. A green bond is typically certified by an external review, which involves a detailed assessment of the bond's environmental credentials and the projects it aims to finance. Green Bond Principles (GBP), which are voluntary guidelines, help in this evaluation by providing a framework for the issuance of green bonds. The GBP ensure transparency, disclosure, and proper reporting, and an issuer must align with these principles to receive the green bond label. Typically, an independent third party will perform an external review to verify the alignment with green criteria. This can take the form of a second-party opinion from a reputable consultancy, or a formal certification against an established standard like the Climate Bonds Standard. Post-issuance, regular reporting on the use of proceeds and the environmental impacts of the financed projects is also required to maintain the green bond status. This periodic reporting is crucial for maintaining transparency and ensuring that the funds raised are being used for their intended, environmentally-friendly purpose.