The green and blue bond program enables the Asian Development Bank (ADB) to support its developing member countries seeking to deliver environmentally sustainable growth to help reduce poverty and improve the quality of life of their people.
All ADB green bonds and blue bonds are consistent with the Green Bond Principles. The Green Bond Principles are voluntary guidelines coordinated by the International Capital Markets Association that recommend transparency and disclosure and promote integrity in the development of the green bond market. In addition to the Green Bond Principles, ADB blue bonds are consistent with the voluntary Sustainable Blue Economy Finance Principles, hosted by the United Nations Environment Programme – Finance Initiative, of which ADB is a signatory.
Green bonds include investments that support climate change mitigation (such as renewable energy, energy efficiency, and sustainable transport) and climate change adaptation (such as energy infrastructure resilience, water supply and infrastructure, agriculture, and transport).
Blue bonds include investments that contribute to: (i) marine and coastal ecosystem management and restoration (such as management, restoration, sustainable fisheries, and sustainable aquaculture), (ii) pollution control for marine and coastal environments, including the rivers that drain to the ocean (such as management of solid waste, non-point source pollution, and wastewater), and/or (iii) sustainable coastal and marine development (such as sustainable ports and shipping, and marine renewable energy).
Both green bonds and blue bonds would include investments such as construction of new assets, as well as maintenance, enhancement, improvement or repair of existing assets. Green bond- and blue bond-eligible projects would exclude lending to financial intermediaries.
Eligible Projects for Green Bond Financing
Projects eligible for green bond financing include investments in climate change mitigation projects and climate change adaptation projects:
Climate change mitigation projects are those that target a reduction of greenhouse gas (GHG) emissions into the atmosphere, or the sequestration (removal) of GHGs from the atmosphere. GHG reductions are measured against the GHG emissions that would have occurred in absence of the project (“business as usual”). Mitigation projects typically include those that fall under these sectors – Renewable Energy, Energy Efficiency, and Sustainable Transport.
Climate change adaptation projects are those which target the reduction of vulnerability of human or natural systems to the consequences of climate change and enhance resilience and adaptive capacity. Such projects typically include those that fall under these sectors – Energy Infrastructure Resilience, Water Supply and Other Urban Infrastructure and Services, Sustainable Transport, and Agriculture.
Climate change mitigation and climate change adaptation projects may also contribute to other environmental objectives that are not listed in this framework, such as natural resources conservation, urban environment improvement, eco-efficiency, and disaster risk management.
Eligible Projects for Blue Bond Financing
Projects eligible for blue bond financing include projects that contribute to ocean health through ecosystem and natural resources management, pollution control, and/or sustainable coastal and marine development.
Ecosystem and Natural Resources Management – Ecosystem management and natural resources restoration, Sustainable fisheries management, and Sustainable aquaculture.
Pollution Control – Solid waste management, Resource efficiency and circular economy, Non-point source pollution, and Wastewater management.
Marine Development – Ports and shipping, and Marine renewable energy.
Process for the Evaluation and Selection of Projects Eligible for Green Bond or Blue Bond Financing
All projects: ADB’s environmental and social safeguards are a cornerstone of its support for inclusive economic growth and environmental sustainability in Asia and the Pacific. ADB’s Safeguards Policy Statement (SPS) (2009) provides a consolidated policy framework covering environment, involuntary resettlement and indigenous people and it is applicable to all ADB-financed and/or ADB-administered projects and their components.
The SPS aims to promote sustainable project outcomes by protecting the environment and people from potential adverse impacts by (i) avoiding adverse impacts of projects on the environment and affected people, where possible; and (ii) minimizing, mitigating, and/or compensating for adverse impacts when avoidance is not possible. Policy implementation involves a structured process of impact assessment, planning, and mitigation to address the adverse impacts of projects throughout their life cycles. The process is managed by ADB’s own safeguard specialists and the safeguard documents are disclosed to the general public in a form, manner, and language accessible to them, and the information is updated as necessary during the project cycle. Under the SPS, ADB aims to help borrowers and/or clients strengthen their safeguard systems and develop the capacity to manage environmental and social risks. All of ADB’s investment projects are screened and categorized on a sliding scale of A to C, based on the significance of potential impacts or risks, or categorized as financial intermediary at the project identification stage.
Climate change risks and other social and governance aspects (e.g., poverty reduction, gender, labour, and anticorruption) are also addressed during project preparation in accordance with ADB’s operational policies and strategies.
ADB’s green and blue bond working group meets on a quarterly basis. Sector experts select and confirm eligibility of projects. The climate and environment team checks whether such projects are in compliance with the SPS and other criteria, such as whether a project has an ongoing compliance case. Projects are nominated for discussion by sector experts and the working group decides to include projects based on consensus. The precautionary principle is normally followed to exclude projects where there is any doubt. The list of eligible projects is summarized in the annual impact report which is signed-off by senior management (i.e., Director General of the Sustainable Development and Climate Change Department).
Projects Eligible for Green Bond Financing: In 2012, the Multilateral Development Banks (MDBs), including ADB, developed a joint approach for tracking and reporting of climate change mitigation and adaptation finance. This joint approach is a harmonized methodology for reporting on climate change finance. Based on the principles of the general typology of mitigation and adaptation activities included in the joint MDB approach, ADB has been assessing, tracking and reporting its annual climate change mitigation and adaptation finance since 2011.
Eligible projects for green bond financing are identified by ADB energy, climate change, transport, and environmental specialists on a continuous basis firstly using the joint MDB approach for tracking and reporting of climate change mitigation and adaptation finance and then taking into account the additional selection criteria, including the project’s classification, as earlier outlined, as a means of identifying “green” projects that deliver environmentally sustainable growth, and compliance with environmental and social safeguards.
Projects Eligible for Blue Bond Financing: Eligible projects for blue bond financing are identified by ADB environmental specialists on a continuous basis taking into account the selection criteria including the project’s classification to identify “blue” projects.
Allocation of Proceeds
Green bond and blue bond net proceeds will be allocated within ADB’s treasury to special sub-portfolios that will be linked to ADB’s
lending operations to the eligible projects. So long as the green bonds and blue bonds are outstanding, the balances of the relevant sub-portfolios will be reduced at the end of each quarter by amounts matching disbursements made during the quarter in respect of the eligible projects. Pending such disbursement, the relevant sub-portfolios will be invested in liquid instruments, consistent with ADB’s liquidity policy.
Monitoring and Reporting
Green bond and blue bond newsletters will provide allocation and impact reporting, detailed highlights of specific examples of eligible projects and relevant impact indicators. Development effectiveness and compliance with environmental, social and governance aspects (as covenanted in the legal agreement) is monitored on an ongoing basis by ADB during project implementation in accordance with ADB’s operational policies and strategies. Each eligible green or blue project loan will also have applicable environmental and social safeguard documents.
Through supervision and monitoring at project level it is ensured that safeguard and other requirements are complied with during project preparation and implementation. If issues with safeguards compliance are identified, borrowers must take corrective action to rectify the situation, as covenanted in their legal agreement. Project-affected people can also directly submit complaints to the Accountability Mechanism which provides a forum where they can voice and seek solutions to their problems and report alleged noncompliance of ADB’s operational policies and procedures.
External Review – Second Party Opinion
ADB’s Green and Blue Bond Framework has been reviewed by CICERO Shades of Green, a leading provider of Second Opinions on green bond frameworks, to confirm the alignment with the Green Bond Principles.
This is an extract from Asian Development Bank’s Green and Blue Bond Framework report and can be accessed here