Green bonds are debt securities whose funds are used to finance or refinance projects with environmental benefit, such as renewable energy, energy efficiency or clean transport. They pay interest and repay the principal just like a conventional bond, but the issuer undertakes to use the money in green assets and to report how it did so.
What makes a bond green: use of proceeds
A green bond is not a different financial product. It is a bond, normally with the same credit risk as any other debt of the issuer, to which a commitment is added: the amount raised can only go to eligible projects and the investor receives periodic information on its allocation and impact. If you are interested in the basic mechanics, you can find them in our guide on corporate bonds.
The most common eligible categories are renewable energy, energy efficiency, clean transport, green buildings, sustainable water management, pollution prevention and climate change adaptation. It is best not to confuse a green bond with other similar labels:
| Type | Use of proceeds | Issuer commitment |
|---|---|---|
| Green bond | Eligible environmental projects | Allocate the funds and report use and impact |
| Social bond | Social projects (housing, health, inclusion) | Same as green, with social criteria |
| Sustainability bond | Mix of green and social projects | Allocate and report in both categories |
| Sustainability-linked bond | General corporate purposes | Meet performance targets; if not, the coupon increases or another penalty applies |
The standards: Green Bond Principles and the European standard
There is no single legal definition of a green bond worldwide. Two main references coexist.
The Green Bond Principles of the International Capital Market Association (ICMA) are voluntary market guides. They rely on four components: use of proceeds, process for project evaluation and selection, management of proceeds and reporting. They also recommend publishing a green bond framework and submitting it to external review. They are the most widespread reference, and Latin American exchanges and regulators usually take them as a basis in their thematic bond guides.
The European Green Bond Standard comes from Regulation (EU) 2023/2631 of 22 November 2023, and applies from 21 December 2024. Its use is voluntary, but anyone issuing under the name “European Green Bond” or “EuGB” must comply with it in full: the proceeds must align with the EU environmental taxonomy, with limited flexibility; a factsheet must be published before issuance, along with allocation reports and an impact report; and an external reviewer registered and supervised by ESMA must validate the process.
| Aspect | Green Bond Principles (ICMA) | European Standard (EuGB) |
|---|---|---|
| Nature | Voluntary market guide | EU regulation for voluntary use |
| What is green | Broad categories defined by the issuer in its framework | Activities aligned with the EU taxonomy |
| External review | Recommended | Mandatory, by a reviewer registered with ESMA |
| Reporting | Recommended, free format | Mandatory, with templates |
| Cost and effort | Moderate | Higher |
Certification and external review
External review is what gives credibility to the label. The most common forms are the second-party opinion, in which a specialist assesses the green bond framework before issuance; verification, which checks the actual allocation of proceeds; and certification against a third-party standard, such as the Climate Bonds Standard. Some agencies also offer environmental ratings or scores.
For a mid-sized issuer, the usual route is a framework aligned with the Green Bond Principles plus a second-party opinion. The European standard makes sense when the issuance targets European investors who demand it and the assets clearly fit the taxonomy.
What issuing a green bond involves
- Additional work: drafting the framework, commissioning the external review, separating or tracking the proceeds and reporting annually.
- Access to another investor base: funds with environmental mandates that would not buy the same bond without the label.
- Price: do not expect a lower rate. Any difference versus a conventional bond depends on the market at the time and is not guaranteed.
- Reputational risk: if the funds do not go where promised, the damage to reputation and the risk of greenwashing claims are real.
Tokenized green bonds
A tokenized green bond is issued, registered and settled on a distributed ledger instead of traditional book-entry systems. There are already public cases. The Government of Hong Kong placed 800 million Hong Kong dollars in tokenized green bonds in February 2023, presented as the first tokenized green bond issued by a government, and repeated with larger digital issuances in 2024 and 2025. The European Investment Bank issued a digital bond of 1 billion Swedish kronor in 2023 under its Climate Awareness Bonds program, on the so|bond platform of Crédit Agricole CIB and SEB.
Tokenization fits the logic of a green bond because it makes it easier to track the allocation of funds and link impact reporting to the ledger itself, as well as shorten settlement. But the green credential still comes from the framework and the external review, not from the technology.
In Europe, a tokenized bond is a financial instrument subject to MiFID II and is outside MiCA, which excludes those instruments in its Article 2.4. In Spain it can be registered on distributed ledger technology under Article 8 of Ley 6/2023 and Real Decreto 814/2023, and since 5 June 2026 offerings of up to 12 million euros are exempt from a prospectus. We cover this in tokenized bonds in Europe and in tokenization of debt and bonds in Spain.
For a mid-sized issuer with a solar farm, a charging network or an efficiency program, a tokenized green bond of moderate size can be a way to reach investors that banks do not bring your way. Review the use cases in tokenization for energy projects and, if you issue from the region, in tokenization for Latin American issuers.
Does your project have green assets that could be financed with a tokenized bond? Take the issuance diagnosis (2 min) or request a proposal.
This content is informative and educational. It does not constitute legal, tax, or investment advice. Check the current version of each regulation in the BOE and on EUR-Lex.
HokenFi is a software and infrastructure provider; it does not provide regulated services (CASP, ESI, EAF, or ERIR). This article is informative and does not constitute financial or legal advice.
Frequently asked questions
What is the difference between a green bond and a conventional bond?
Financially, almost none: it pays interest, returns the principal at maturity and its risk is usually the issuer's. The difference is the commitment to use the funds only in eligible environmental projects, publish a green bond framework, submit it to external review and report the allocation and impact every year. That additional work is what opens the door to investors with an environmental mandate.
Is the European Green Bond Standard mandatory?
No. Regulation (EU) 2023/2631 has applied since 21 December 2024, but its use is voluntary. Only those who want to use the name “European green bond” or “EuGB” must comply with it fully: alignment with the EU taxonomy, a prior factsheet, allocation and impact reports and an external reviewer registered with ESMA. A bond can still be called green by following only the Green Bond Principles.
Can a green bond be tokenized?
Yes, and there are already public issuances. The Government of Hong Kong placed tokenized green bonds in 2023 and the European Investment Bank issued a digital climate bond in Swedish kronor that same year. Tokenization changes how the bond is registered and settled, not its green requirements: the framework, external review and reporting are still necessary, as is the applicable securities regulation.
