Inside this Topic Guide
Green and sustainable finance is a broad term and covers different financial products which fund and support investment in projects which have environmental and social benefits and typically promote a low carbon or 'net zero' economy and other sustainable societal goals. Established products include green, social and sustainability-linked bonds and loans and newer products include sustainable securitisations.
There is strong international political and regulatory will and desire to develop climate smart, environmentally friendly financing. More recently, this has expanded to include broader sustainability goals. This is driven in part by the commitment in the 2015 Paris Agreement and the 2021 Glasgow Climate Pact to hold global average temperature increases well below 2 degrees Celsius above pre-industrial levels and by the need for highly significant investment to support a low carbon future economy. Many governments and nations have also committed to ambitious net zero targets which aim to achieve the goals of the Paris Agreement. Many of these key commitments were re-affirmed at COP26 in November 2021 with the Glasgow Climate Pact specifically emphasising the need to mobilise climate finance from all sources to achieve the Paris Agreement goals. Complementary to the net carbon reduction aims are the United Nations Sustainable Development Goals adopted in 2015. These include goals related to the environment, education, poverty and gender equality. Increasingly financial products are being aligned to SDGs and broader ESG metrics. There are consequently a large number of global and national initiatives and developments in this area for example see Recent Major Developments below.
Green bonds were the first form of green finance, issued first by multi-lateral investment institutions in 2007, followed by corporates in 2013 and the first sovereign green bond in 2016. The market tends to follow the voluntary ICMA principles when issuing green or sustainable bonds.
Mirroring developments in the capital markets, the Loan Market Association (LMA), the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Associations (LSTA) have published the Green Loan Principles, Sustainability-Linked Loan Principles and Social Loan Principles.
Most recently there has been a focus on the development of sustainable securitisation. In June 2022, ICMA published its first set of targeted securitisation documents – new definitions for green secured bonds and a related Q&A for sustainable securitisation.
The volume of sustainable finance products is increasing exponentially. Environmental Finance suggest that, according to preliminary figures, total issuance of sustainable bonds - including green, social, sustainability, sustainability-linked and transition bonds - crossed $4 trillion in June 2023.
Other Clifford Chance resources are available on ESG see the ESG and sustainability: funds and investment management Topic Guide on the Clifford Chance Financial Markets Toolkit and further related resources can be found on our Clifford Chance ESG page.
