Green bonds to finance eco-projects PP” 

Green bonds to finance eco-projects: a direct answer to the question of capital availability

Green bonds for financing eco-projects of industrial enterprises (industrial enterprises) are today the most effective tool for attracting long-term cheap capital, allowing to reduce the cost of borrowing by 15-30 basis points compared to traditional loans. If you are the managing director or chief financial officer of an industrial holding company seeking funds to modernize wastewater treatment plants or implement energy efficient lines, this tool gives you access to a pool of investors who are physically unable to invest in dirty assets due to internal ESG mandates. We are seeing a situation where BBB rated companies are receiving financing terms previously available only to AA issuers solely through proper environmental project verification. However, it is important to understand: issuing green bonds is not just a change of sign in the prospectus, but a strict audit procedure, where any mistake in the classification of expenses leads to reputational ruin and the requirement for early repayment.

In our practice of working with industrial issuers, we came across a case that clearly demonstrates the risks of a superficial approach. One large smelter tried to label as “green” the installation of filters that were already required under 2023 legislation. The external verifier refused certification, which led to the placement being frozen and a loss of confidence from institutional investors. The loss from downtime and revision of documentation amounted to more than 4 million rubles, not counting lost profits from a lower rate. This example proves that the principle of additionality is fundamental. You cannot fund what you are legally obligated to do; Green bonds are only intended for projects that exceed regulatory requirements or are completed ahead of the schedule set by the regulator.

Project selection criteria and taxonomy compliance

The first step before issuing green bonds to finance green projects requires a careful comparison of the planned investment with the national taxonomy of green projects. In the current market conditions of 2026, regulators have tightened the requirements: a simple claim of “benefits for nature” is not enough. The project must fall into clearly defined categories, such as pollution prevention, water management, low-carbon energy transition or circular economy. For example, if your business plans to replace an outdated boiler with a new biomass boiler, this is a qualifying project. But if you simply replace the pipe with the same pipe, but a slightly larger diameter, without reducing emissions, the project will be rejected by an external evaluator.

We recommend using the compliance matrix at the stage of forming the investment program. It must contain not only a technical description of the equipment, but also a calculation of the expected environmental effect in physical units: tons of CO2 equivalent reduction, cubic meters of water saved, percentage reduction in waste generation. Investors buying such securities demand transparency. They want to see that every ruble raised through green bonds goes strictly to targeted needs. Mixing funds in the same account with the operating budget is unacceptable. It is required to open a special sub-account or create a virtual wallet to track the movement of funds (tracking) in order to provide a report at any time that the money was not used to pay off old debts or pay dividends.

Particular attention should be paid to the principle of “do no harm” (Do No Significant Harm – DNSH). Even if your project reduces carbon emissions, it should not cause significant harm to other environmental aspects. A classic example of error: building a hydroelectric dam to generate clean energy that floods valuable forest areas or disrupts fish migration. In this case, the project cannot be financed through a green instrument, despite the obvious benefits in terms of decarbonization. Our experts recommend conducting a preliminary environmental audit by an independent third party before preparing a prospectus. This allows you to identify “red flags” in advance and adjust the technical specifications, avoiding costly rework at the final stage.

Release mechanics and the role of an external verifier

The process of structuring a transaction using green bonds to finance PP eco-projects is fundamentally different from issuing conventional corporate papers by a key element - the presence of a Second Party Opinion (SPO). Without the opinion of an accredited verifier, your bonds will remain just debt obligations without a “green” premium. The verifier reviews four pillars: the use of proceeds, the project evaluation and selection process, the management of proceeds, and reporting. It is important to choose an organization that is included in the register of recognized verifiers, since the opinion of an unknown company may not be accepted by large funds and banks when forming their investment portfolios.

The turnaround time for receiving an SPO is typically 3 to 6 weeks, which must be factored into your placement schedule. The verifier requests a huge array of documents: technical data sheets of equipment, design and estimate documentation, efficiency calculations, internal company policies in the field of sustainable development. In our experience, there was a case where a delay in providing data on the supply chain of raw materials for a new bio-plant pushed back the release date by a month. The issuer lost a favorable window on the market when the key rate was at a minimum, and as a result placed securities 1.5% more expensive than planned. This emphasizes the importance of preparing all documentation “in-house” before contacting an external consultant.

The cost of verifier services varies and depends on the complexity of the project portfolio. For a single project (for example, installation of one solar power plant), the price will be lower than for a portfolio of disparate initiatives throughout the holding. However, it is absolutely impossible to save at this stage. Cheap opinions often contain vague wording that does not meet the requirements of ICMA international standards or local exchange rules. Investors read these reports carefully. If they see that the verifier has only formally confirmed the status without an in-depth risk analysis, they will demand increased returns for the risk of greenwashing. A quality SPO acts as a seal of quality, reducing the issuer's cost of capital over the life of the bond.

Selecting the right technology partner during the upgrade phase plays a critical role in successful project verification. Let's take, for example, a companyWuxi Kaisheng Electric Power and Petrochemical Equipment Co., Ltd., which specializes in the design and manufacture of high-performance heat transfer equipment for the energy and petrochemical sectors. Their products, including titanium shell-and-tube heat exchangers, 316 stainless steel corrugated tube bundles and air coolers, are certified to stringent international ASME and PED standards. When an industrial enterprise replaces outdated components with equipment from such a manufacturer, it receives not just new equipment, but a documented increase in energy efficiency and a reduction in its carbon footprint. The high corrosion resistance of materials (from C46400 marine brass to N06625 nickel alloys) and the ability to operate under extreme pressures and temperatures allow such projects to easily pass the green taxonomy audit. Investors and verifiers are more likely to approve applications based on technologies with a proven contribution to energy conservation and water desalination, making partnerships with specialized manufacturers such as Wuxi Kaisheng an important asset when structuring a green bond.

Comparison of requirements for conventional and green bonds

Financial efficiency and liquidity premium

The big question CFOs ask is: Is the extra effort to produce worth it? Market statistics for 2025–2026 show the sustainable existence of a “green premium” (greenium). This is the difference in yield between green and conventional bonds of the same issuer with the same term and currency. On average, issuers save from 0.15% to 0.40% per annum. For an issue of 5 billion rubles, this is a direct savings on interest in the amount of tens of millions of rubles over the entire circulation period. In addition, green bonds often have increased liquidity in the secondary market, as they are more readily purchased by market makers seeking to improve their own ESG ratings.

However, there is also the other side of the coin - the costs of structuring. Preparation of Second Party Opinion, additional audit, development of a monitoring system and publication of reports require a budget. These expenses can range from 2 to 5 million rubles, depending on the scale of the issue. Therefore, issuing green bonds to finance PP eco-projects makes sense only if the volume of placement is above a certain threshold (usually from 1–2 billion rubles). For smaller amounts, transaction costs may completely offset the benefit of the reduced coupon rate. We recommend conducting detailed financial modeling (cost-benefit analysis) before deciding to start the process.

It is also worth considering the tax aspect. In a number of jurisdictions, there are income tax benefits or personal income tax exemptions for holders of green securities, which makes them even more attractive to retail investors and expands the subscriber base. While direct tax preferences for issuers are less common, the indirect benefit from wider demand is clear. The order book for green tranches is often oversubscribed many times faster than for regular tranches, allowing the issuer to select the best investors and fix the rate at the lower end of the range. In a volatile market, the ability to close a deal quickly is a critical success factor.

Impact reporting: numbers instead of words

After placing funds, the most important stage begins - monitoring and reporting. Investors are not waiting for pretty pictures with leaves, but dry numbers. An Impact Report must be published annually until the bonds are fully redeemed. It must disclose information about the distribution of funds (allocation) and the achieved environmental effect. If you took money to build a wind farm, you must indicate: installed capacity in MW, amount of electricity generated in MWh, amount of CO2 emissions avoided in tons. The use of standard calculation methods, such as the GHG Protocol methods or local standards of the Ministry of Economic Development, is mandatory for data comparability.

The problem for many issuers is the lack of data collection systems at the individual project level. The accounting department sees general numbers for the plant, but does not highlight figures specifically for the new line, financed by green bonds. This creates enormous difficulties in preparing the report. The solution is to introduce a sub-metering system - installing additional energy, water and emission meters directly at the financing facility. Yes, this requires capital expenditure, but without this data you will not be able to confirm the intended use of funds. A lack of quality reporting could result in bonds being excluded from green indices and future issues facing market mistrust.

It is also important to report on the qualitative aspects of project implementation. In addition to numbers, describe social benefits: creation of new jobs, improved health in the region by reducing smog, educational programs for local residents. These narratives reinforce the company's brand perception as a responsible leader. However, remember the balance: marketing claims must be strictly consistent with factual data. Exaggerating the effect by even 10% may be considered misleading. In our practice, we have seen companies lose trust ratings by trying to take credit for emissions reductions that occurred naturally due to falling production, rather than due to environmental measures.

Managing Risks and Avoiding Greenwashing

The term “greenwashing” has become a nightmare for any issuer of green securities. This is a deliberate or unintentional misleading of investors regarding the environmental friendliness of the project. The risks here are enormous: from lawsuits to boycotts by large international funds. The most common type of greenwashing is financing projects that do not have additional features. As mentioned earlier, if the law requires you to install a filter by 2026, but you issue green bonds to do it in 2027, it is not a green project. This is simply meeting legal requirements using preferential capital.

Another risk is associated with changes in the status of the project during implementation. Life makes adjustments: technologies become outdated, suppliers miss deadlines, costs increase. If during construction it turns out that the equipment used does not correspond to the declared energy efficiency classes, the issuer is obliged to reclassify part of the output from “green” to “regular”. Hiding such information is unacceptable. Transparency in moments of crisis is valued by the market more than an ideal but false picture. We recommend that release documents include clear mechanisms for restructuring the project portfolio. If one project falls out of the green taxonomy, the issuer must have the right to replace it with another equivalent asset within a certain period (usually 12-24 months) without violating the terms of the issue.

Reputational risk is also associated with the company's activities as a whole. It is impossible to be a “green island” inside a “dirty sea”. If a company issues green bonds to modernize one plant, but its core business is open-pit coal mining without reclamation, investors may criticize the overall strategy. This does not mean that such companies are denied access to the market, but they will have to make more efforts to explain their transition finance status. A clear roadmap for business-wide decarbonization, backed by concrete steps, helps mitigate these criticisms and show that green bonds are just the first step in a larger transformation.

Practical steps to launch an issue

For industrial enterprises ready to enter this market, we have developed an algorithm of actions based on successful cases of recent years. The first stage is an internal audit of potential. Assemble a team of finance, technical director and sustainability specialist. Take an inventory of all planned CAPEX projects for the next 3-5 years and select those that fall under the taxonomy criteria. Assess their total volume: if it is not sufficient to cover the costs of issuance, consider including refinancing projects of previously sold green assets (over the last 2-3 years).

1. Development of the Green Bond Framework.This is the main document describing the rules of the game. It sets out the selection criteria, fund management process and reporting methodology. The document must be published on the company website and approved by the board of directors.
2. Selecting a verifier and receiving SPO.Request quotes from multiple providers. Pay attention not only to price, but also to their reputation among target investors. Receiving a positive opinion is a “green light” to enter the market.
3. Structuring the deal with underwriters.Select arranger banks that have strong ESG sales teams. Their task is to find exactly those investors who need green assets, and not just sell paper to anyone.
4. Marketing and roadshows.Present the project to investors, focusing on measurable environmental effects and the reliability of the issuer. Prepare a separate presentation (ESG Teaser) with impact numbers front and center.
5. Placement and post-issue support.After successful placement, immediately open a special account and begin allocating funds. Don't forget about the annual publication of reports - this is your calling card for future issues.

Frequently Asked Questions

Can green bond funds be used to replenish working capital?

Yes, it is possible, but with serious limitations. Funds can only be used to replenish working capital if these funds are used to finance specific green projects that have already been approved and comply with the taxonomy. For example, purchasing a batch of electric vehicles for logistics or purchasing raw materials for the production of biodegradable packaging. You can’t just write “for general corporate purposes” in the prospectus and check the “green” box. Every penny spent must be traceable to a specific environmental asset. Otherwise, the verifier will not sign the report, and investors will demand an explanation.

What to do if the project does not achieve the stated performance indicators?

Technical glitches happen, and the market understands this. The main thing is honesty in reporting. If a wind farm produced 20% less energy due to an abnormally quiet year, you should reflect this in the Impact Report, explaining the reasons for the deviation. There are usually no sanctions for failure to meet targets (unless it is due to fraud), since green bonds are a debt instrument and not a performance contract. However, systematic failure to achieve goals may signal incompetence of management and lead to a decrease in the issuer's credit rating in the future. Investors value the ability to learn from mistakes and adjust strategy.

Is it necessary to involve an international verifier?

No, not necessarily, especially in the current geopolitical climate. The presence of a local verifier accredited by a national exchange or regulator is quite sufficient for placement on the domestic market. Moreover, local experts know better the specifics of national taxonomy and legislation. An international opinion is only required if you plan to list bonds on foreign markets or target international investors who require compliance with ICMA standards. For the domestic market of the Russian Federation or CIS countries, a reputable local provider is quite enough to confirm the status of the issue.

Conclusion and strategic look into the future

Green bonds for financing eco-projects of PP have ceased to be a niche experiment and have become a full-fledged asset class. For the industrial sector, this is a unique chance to attract capital for upgrades that might otherwise be delayed due to the high cost of money. The market is moving towards stricter requirements: soon the concept of “green” will only apply to projects with a zero or negative carbon footprint. Companies that begin building a transparent reporting and verification system now will gain a long-term competitive advantage. They will become the borrowers of choice for banks and the favorites of investment funds in an era of scarcity of quality ESG assets.

Don't wait for a regulator to force you to disclose climate risks. Do this voluntarily, using green financing tools as a driver of business value growth. Remember that investor confidence is built over years, but lost in one bad report. Approach green bond issuance as a strategic company transformation project, not as a way to get cheap money quickly. Only by deeply integrating sustainability principles into your business DNA will you be able to successfully use this tool in the long term.

If your company is considering issuing green bonds and needs expertise in selecting projects, interacting with verifiers or structuring a deal,contact us today. Our team will help you conduct a preliminary audit of your investment portfolio and assess the potential for entering the green debt market. We also recommend that you read our detailedguidance on developing a sustainable development strategyfor industrial enterprises.