Which of the following statements best describes a green bond?

Question

BlackTom AI · Accepted Answer

The question asks which statement best describes a green bond, so we will evaluate each option in turn.
Option 1: 'Bonds that finance green projects' — This accurately captures the core idea of a green bond: the proceeds are earmarked for environmental or climate-related projects. It aligns with standard definitions used by issuers and investors, making it the best descriptor among the choices.
Option 2: 'Bonds that get the green light based on governance guidelines' — While governance and due diligence can play a role in the issuance and verification process (for example, in ensuring use of proceeds or reporting), this statement mischaracterizes the essence of a green bond. The defining feature is the use of proceeds for green projects, not simply passing governance checks.
Option 3: 'Bonds that are evergreen and roll on for a specified duration' — Evergreen bonds refer to a debt instrument designed to be perpetual or to roll over indefinitely, not to environmental purpose. While some green bonds could be evergreen, the key attribute of a green bond is the environmental purpose of the proceeds, not the repayment structure. Therefore this option describes a different concept rather than the defining feature of green bonds.
In summary, the first option correctly identifies the primary characteristic of green bonds, while the other two mix in separate concepts (governance considerations and perpetual/rolling structures) that are not what defines a green bond.

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Which of the following statements best describes a green bond?

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