Glossary

Green Bond

A fixed-income instrument whose proceeds are contractually earmarked exclusively for financing or refinancing specific environmentally beneficial projects — such as certified green construction, renewable energy, or energy efficiency retrofits — as distinct from general-purpose sustainability-linked financing.

The defining structural feature that separates a green bond from a sustainability-linked loan is use-of-proceeds restriction: a green bond issuer must track and report that bond proceeds fund an eligible green project pool (often verified against a framework such as the Green Bond Principles or Climate Bonds Initiative standards), whereas a sustainability-linked loan places no restriction on proceeds and instead ties pricing to the borrower achieving portfolio-wide sustainability KPIs. REITs and real estate operating companies have become significant green bond issuers, using proceeds to fund LEED- or BREEAM-certified new developments, energy efficiency retrofits across a portfolio, or green building acquisitions, and issuance is frequently accompanied by a second-party opinion or third-party verification of the underlying green project framework to satisfy institutional fixed-income investors focused on ESG mandates. Because green bond investors typically accept the same credit risk and yield expectations as conventional bond investors — the 'greenium,' or pricing benefit for green-labeled debt, has historically been modest and inconsistent — the primary issuer motivation is often investor diversification and ESG reporting credibility rather than a material reduction in cost of capital.