Sustainable Finance: ICMA Principles Updated


In June 2021 the International Capital Markets Association (“ICMA”) published a noteworthy update to its Green Bond Principles and refreshed the related Social Bond Principles and Sustainability Bond Guidelines (together, the “Principles”).  The Principles are a key reference point for participants in both the international bond markets and in sustainable finance markets more broadly.  ICMA reports that in 2020 the Principles were referenced by an estimated 97% of sustainable bonds issued globally. 

Updated Principles

The publication of the 2021 edition of the Green Bond Principles (the “GBP”) is the first update to the GBP since 2018. 

Green Bond Principles

The 2021 edition of the GBP outlines the same four core components as the 2018 edition (see below for a summary) but notably adds the following as “Key Recommendations” to heighten transparency:

  • Green Bond Frameworks:  Issuers should explain the alignment of a proposed green bond with the four core components of the GBP in a Green Bond Framework and/or legal documentation, which should be readily accessible by investors.  Issuers should use the Green Bond Framework to contextualise relevant information within its overall sustainability strategy.  Where relevant, taxonomies, green standards or certifications used in the project selection process should be disclosed.  When referring to “Paris-aligned”1 transition strategies, issuers should have regard to guidance in the Climate Transition Finance Handbook (here).
  • External Reviews:  Issuers are encouraged to obtain external reviews both before and after issuance.  The pre-issuance review is assess compliance of the proposed bond with the four core components of the GBP.  Post-issuance, an external auditor or other appropriate third party should verify the issuer’s internal tracking and allocation of proceeds to the selected green project.  ICMA has set out a series of recommendations regarding external reviews in the Guidelines for External Reviews section of its website (here).  Issuers should make external reviews publicly available (eg via their websites).

The four core components mentioned above are:

  1. Use of Proceeds:  This is the key criterion for a bond to constitute a green bond under the GBP.  The proceeds of the bond issuance must be used for an eligible “Green Project” which is to be described in the documentation.  The GBP provide a non-exhaustive list of categories of eligible Green Projects (eg renewable energy, clean transportation).
  1. Process for Project Evaluation and Selection:  Issuers should clearly communicate the environmental sustainability objectives of the intended green project; the process by which the issuer determines how the project fits within the eligible Green Projects categories (including alignment with taxonomies if relevant); and provide complementary information on processes by which the issuer identifies and manages perceived social and environmental risks associated with the relevant project(s).  Issuers are encouraged to have a process in place to identify mitigants to any known material risks of negative social or environmental impact arising from the project being funded.
  1. Management of Proceeds:  The proceeds of a green bond need to be managed carefully to ensure transparency regarding how the proceeds were applied to the selected Green Project.  As noted above, an external review is recommended to verify the issuer’s internal tracking methods.
  1. Reporting:  Issuers should make information on the use of proceeds make readily available.  Where confidentiality or other considerations limit the amount of detail that can be provided, the GBP recommend that information is presented in generic terms or on an aggregated portfolio basis (eg percentage allocated to certain project categories).  Issuers are recommended to use guidance resources available via the sustainable finance section of ICMA’s website (here) including its “Handbook – Harmonised Framework for Impact Reporting” (here).

The updates to the GBP are aimed at bringing it in line with current best market practices, particularly as regards transparency of the integrity of the processes surrounding the application of monies raised via green bonds to verifiable green projects.

Other Updates

The 2021 editions of ICMA’s Social Bond Principles and Sustainability Bond Guidelines (which both comprise of the same four core components) have been refreshed with similar updates (eg by the addition of the two “key recommendations” described above).  Similarly to the GBP, the Social Bond Principles are based on a “use of proceeds” requirement but instead of the bond financing green projects, it should be used for projects with positive social outcomes.  The Sustainability Bond Guidelines relate to bonds which finance a hybrid of the green and social projects contemplated by the GBP and the Social Bond Principles.  The Guidelines should be distinguished from the separate “Sustainability-Linked Bond Principles” (“SLBP”).  While similar sounding, the SLBP do not include a “use of proceeds” element, instead focusing on the issuer setting and meeting certain ambitious ESG-relevant goals.

In addition to the updates discussed above, ICMA has published the following new guidance (available here):

  • Illustrative examples for the selection of Key Performance Indicators (or “KPIs”) for Sustainability-Linked Bond issuers, underwriters and investors
  • A Pre-issuance Checklist for Social Bonds/Social Bond Programmes
  • Guidelines for Green, Social, Sustainability and Sustainability-Linked Bonds’ Impact Reporting Databases
  • Impact reporting metrics for circular economy and/or eco-efficient projects
  • Update of the Green Project Mapping to GBP Environmental Objectives and other Green Classifications
  • Update to the comprehensive GBP Guidance Handbook.


Spurred on by the increasing priority given to climate change mitigation by international policy makers and the unexpected COVID-19 pandemic, the sustainable finance market is now undoubtedly mainstream and growing fast.  The market is, however, still in a relatively early stage of development and consequently, the expectations of issuers and investors (and increasingly regulators) continue to develop.  In that context, the publication of the 2021 editions of the Principles provides a welcome reflection of current market expectations and updates an important touchstone for participants navigating a path through sustainable finance transactions.

  1. This means transition strategies that are aligned with achieving the goals set out in the international Paris Agreement on Climate Change.  The Climate Transition Finance Handbook seeks to provide clear guidance and common expectations to capital markets participants on the practices, actions and disclosures to be made available when raising funds in debt markets for climate transition-related purposes.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.