Reports of the second party are private and may be

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reports of the second party are private, and may be made publicly available only at the discretion of the issuer. Audits : Issuers are encouraged to have independently verified or audited certain aspects of their green bond process, such as the internal tracking method and the allocation of funds from proceeds. The verification can be provided by qualified third parties, or by internal and/or external auditors. These independent reports and audits may be put in the public domain at the discretion of the issuer. Third-party certifications : Second-party standards intended for use by qualified third parties to certify green bonds are in use or in development. The GBP are supportive of the development of and use of such standards for the certification of green bonds, as defined by the GBP. BOX 5: REVIEW AND ASSURANCE IN THE GREEN BOND MARKET 10 . GREEN BONDS: MOBILISING THE DEBT CAPITAL MARKETS FOR A LOW-CARBON TRANSITION
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FOR INVESTORS Advantages Disadvantages Commonly cited l Investors can balance risk-adjusted financial returns with environmental benefits l Satisfies Environment, Social an Governance (ESG) requirements and green investment mandates l Improved risk assessment in an otherwise opaque fixed income market through use of proceeds reporting l Potential use pure-play, project and ABS to actively hedge against climate policy risks in a portfolio that includes emissions- intensive assets l Recognised by UNFCCC as non-state actor “climate action” l Small and nascent (and potentially less liquid) market, small bond sizes l Lack of unified standards can raise confusion and possibility for reputational risk if green integrity of bond questioned l Limited scope for legal enforcement of green integrity l Lack of standardisation can lead to complexities in research and a need for extra due diligence that may not always be fulfilled Infrequently cited l Engagement and private dialogue with issuers on ESG topics related to green bond issuance results in information that enhances credit analysis, through more comprehensive credit profiles of borrowers (BlackRock, 2015) l Added transparency of proceeds use and reporting requirements provides informational advantage otherwise unavailable (on spending efficiency, project details and updates, impact performance) which gives green bond investors a significant information advantage (Nikko, 2014) l Tracking of proceeds use and reporting leads to improved internal governance structures and a positive feedback loop which improves the overall credit quality of the issuer (Nikko, 2014) FOR ISSUERS Advantages Disadvantages Commonly cited l Demonstrating and implementing issuer’s approach to ESG issues l Strong investor demand can lead to oversubscription and potential to increase issuance size l Improving diversification of bond issuer investor base, potentially reducing exposure to bond demand fluctuations l Evidence of more “buy and hold” investors for green bonds which can lead to lower bond volatility in secondary market l Reputational benefits (e.g. marketing can highlight issuer’s
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