A diversified industrial company embarks on a climate transition strategy to invest in a more fuel-efficient airline fleet. To finance the investment, the CSO analyzes sustainable finance instruments and recommends instruments most suitable to issue.
Which of the following financial instruments should the CSO recommend and why?
A green bond is the most suitable financial instrument for the company to recommend because the proceeds of a green bond can be clearly identified and tied to a particular project, such as investing in a more fuel-efficient airline fleet. This aligns directly with the company's climate transition strategy and ensures that the financing is used specifically for environmental benefits, offering transparency and accountability to the investors.
C Green bonds are bonds whose proceeds are earmarked for environmental projects. They combine several innovations: They are separately labeled, their proceeds are ring-fenced, and the (planned) use of their proceeds is reported both to prospective bondholders ex ante and to current bondholders once projects are implemented. In this way, they differ from typical corporate or government bonds, which function as general-purpose borrowings, where the issuer can then use the proceeds as needed.
This should have been sustainability bond and not green bond ,as green bonds are for environment projects.
Sustainability bonds are a combination of the two, in that they are meant to simultaneously address both environmental and social objectives. Also there is no concept of favorite pricing related to corporate sustainability objective. There is no need to address social objective in the case study, hence answer should be C.
Green bond Under ICMA green bond principles, eligible green bond projects include energy efficiency
Sustainability bonds are a combination of the two, in that they are meant to simultaneously address both environmen-tal and social objectives.