Introduction

The Guidance Handbook (November 2024), published by the International Capital Market Association (ICMA), consolidates interpretative guidance on the Green Bond Principles (GBP), Social Bond Principles (SBP), Sustainability Bond Guidelines (SBG) and Sustainability-Linked Bond Principles (SLBP). It aims to improve consistency, usability and market integrity by clarifying how the Principles should be applied in practice, reflecting market evolution and incorporating newly issued thematic guidance.

1. Fundamentals

Green, Social and Sustainability Bonds are defined as use-of-proceeds instruments where an amount equal to net proceeds is allocated exclusively to eligible environmental and/or social projects. Sustainability-Linked Bonds (SLBs) differ in that proceeds are generally for corporate purposes, with bond characteristics linked to predefined sustainability KPIs and SPTs. Alignment with the Principles is voluntary; however, issuers are expected to disclose clearly whether alignment is maintained over time, as failure to meet commitments may create reputational risk. External reviews are highlighted as a key market practice to support transparency and credibility.

2. Core components of the GBP/SBP

The GBP and SBP are structured around four core components that underpin market integrity: use of proceeds, project evaluation and selection, management of proceeds, and reporting. Issuers seeking alignment must meet all core components, with additional emphasis placed on publicly available bond frameworks and external reviews as key recommendations. The Handbook clarifies that 100% of net proceeds must be allocated to eligible projects, refinancing is permitted subject to disclosure, and issuers are expected to communicate how environmental and social risks associated with projects are identified and managed. Impact reporting is encouraged throughout the life of the bond, using harmonised metrics where feasible, and should be proportionate where only part of a project is financed.

3. Secured GSS bonds

The Handbook provides detailed clarification on the application of the Principles to secured instruments, including covered bonds and securitisations. Two structures are recognised: Secured GSS Collateral Bonds, where all collateral must consist of eligible green or social projects, and Secured GSS Standard Bonds, where proceeds are allocated in line with use-of-proceeds requirements even if collateral includes non-eligible assets. A central requirement is the avoidance of double counting across multiple GSS instruments. Issuers, originators or sponsors must clearly disclose the structure used, allocation methodology, and reporting responsibilities.

4. Core components of the SLBP

SLBs are governed by five core components: selection of KPIs, calibration of SPTs, bond characteristics, reporting and verification. KPIs must be material, relevant and strategically significant to the issuer, while SPTs should be ambitious, time-bound and benchmarked against credible external references where possible. Financial adjustments, most commonly coupon step-ups, are intended to be meaningful and commensurate with the issuer’s sustainability ambition. Annual reporting and independent external verification of performance against SPTs are required to ensure accountability and transparency.

5. Market and technical issues

Available evidence indicates that GSS Bonds generally price in line with conventional bonds, with no consistent performance premium observed. As their risk-return characteristics typically mirror those of non-labelled bonds from the same issuer, GSS Bonds and SLBs are not considered a distinct asset class. Fungibility with non-aligned bonds is discouraged, and any reopening of GSS bonds must respect original documentation and commitments.

6. Governance and membership

The Principles are governed by an Executive Committee with balanced representation from investors, issuers and underwriters, supported by an Advisory Council. The framework is voluntary and market-led, with membership open to organisations active in sustainable finance.

7. Other market and official sector initiatives

The Handbook situates the Principles alongside initiatives such as the Paris Agreement, SDGs and EU Taxonomy, while clarifying that alignment with these frameworks does not automatically imply compliance with the Principles.

8. Indicative examples of types of social and sustainability bonds

Illustrative examples are provided for bonds addressing pandemics and for financing social projects in fragile or conflict-affected states. These issuances must still comply with all core components, with enhanced transparency on intended social outcomes and ongoing reporting.