SEC amends rules on Green Bonds, admits BVN as valid means of identification in capital market
The Security and Exchange Commission (SEC) has amended investment rules in Green Bonds, including commitment from issuers to invest all the proceeds of the bond in projects that qualify as green project(s) or assets just as it has admitted BVN as valid means of identification in capital market transactions.
The other areas affected by the amendments include rule on Investment advisory services, nominee accounts and investment advisers.
On Conditions for approval of a Green Bond, SEC states, “In addition to the general registration requirements for debt issuances as stated in the Rules and Regulations of the Commission for States, Local Governments, Government, Corporate and Supra-national agencies, an issuer of a Green Bond shall file: A letter from the issuer committing to invest all the proceeds of the bond in projects that qualify as green project(s) or assets in line with this rule; a feasibility study and report stating clearly, the measurable benefits of the proposed Green project or Assets such as Green House Gas reduction, reduction of water use and reduction of harmful emissions; and a prospectus, which shall include project categories, project selection criteria, decision-making procedures, environmental benefits, use and management of the proceeds.
Other conditions include an independent assessment or certification issued by a professional certification authority or person approved or recognized by the Commission; and any other documents that may be required by the Commission
The capital market regulator specifically noted that a feasibility study and report stating clearly, the measurable benefits of the proposed Green project or assets such as Green House Gas reduction, reduction of water use and reduction of harmful emissions, are required for investments in Green Bonds.
In explaining the terms of reference, the SEC highlighted that a Green Bond is any type of debt instrument, the proceeds of which would be exclusively applied to finance or re-finance in part or in full new and/or existing projects that have positive environmental impact. It added that Look-back refers to a maximum period in the past that an issuer will ‘look back’ to in order to identify assets/earlier disbursements to such ‘eligible green projects’ that will be included in the green bond reporting.
SEC noted that to qualify as a green project, the monies shall be invested in one or more of the following: Renewable and sustainable energy; clean transportation; sustainable water management; climate change adaptation; energy efficiency; and sustainable waste management.
Others include sustainable land use, biodiversity conservation, green buildings (Commercial Real Estate Development), and any other categories as may be approved by the Commission from time to time.
On utilization and management of proceeds, SEC said the net proceeds shall only be utilized for the purpose stated in the approved offer documents and shall be tracked as stated in the approved internal policy of the Issuer which shall be disclosed in the offer documents, that an escrow account shall be opened specifically for the net proceeds of the offer.
“The proceeds shall be domiciled with the Custodian and the Trustees shall ensure that the proceeds are used for the purpose stated in the prospectus. The issuer and the Trustees shall be the signatories to the escrow account. The issuer shall invest proceeds in green projects within the given timeframe prescribed in the prospectus, and unallocated proceeds shall be invested by the Trustees in money market instruments with investment grade rating that do not include greenhouse gas intensive projects which are inconsistent with the delivery of a low carbon and climate resilient economy.
On reporting, the regulator indicated that the issuer shall provide to the Commission and Stock Exchange (where listed), at least annually, a Green Bond Report containing the list of the projects and assets to which proceeds have been allocated, for the duration of the bond as well as the reporting process and authority being documented and maintained as part of the issuer’s Green Bond Framework.
“The Green Bond Report shall include: A brief description of the projects and the amounts disbursed, including (where possible) the percentage of proceeds that have been allocated to different eligible sectors and project types and to financing and refinancing. Where confidentiality agreements or competition considerations limit the amount of detail that can be disclosed, the information may be presented in generic terms; the expected impact of the project and assets; qualitative
performance indicators and, where feasible, quantitative performance measures of the impact of the projects; and the methodology and underlying assumptions used to prepare performance indicators and metrics shall be disclosed.
It also stated that the is- suer shall publish an assessment report issued by an independent professional assessment or certification agency on its website or other media and conduct and report annual follow-up assessments of the green projects and associated environmental benefits throughout the tenor of the bond and publish same in its annual report and on its website or other media, a copy of which should be filed with SEC.
“Where the issuer proposes to utilise a proportion of the issue proceeds of the issue of Green Bonds, towards refinancing of existing green assets, the Issuer shall clearly provide in the offer document the details of the portfolio/assets/projects which are identified for such refinancing, and, to the extent relevant, the expected look-back period for refinanced projects,” SEC stated.
Other sundry amendments include the admittance Of BVN as a valid means of identification of Individual clients in the capital market; investment advisers abiding by the Code of Ethics for Investment Advisers and the general code for all CMOs and their employees as stipulated in the Schedule IX of the SEC Rules and Regulations; and are required to keep information about their clients confidential and shall only divulge such inforpartite mation after obtaining the prior consent of that client except in cases where such disclosures are necessary in complying with a law or statutory order.
Investment advisers are also precluded from entering into proprietary transactions that are contrary to advice given to clients for a period of fifteen days from the day of giving the advice provided that during the period, if the investment adviser is convinced that the circumstances have changed, it may then enter into such transactions after communicating a revised assessment to the client at least twenty four hours before entering into such transactions.
The proceeds shall be domiciled with the Custodian and the Trustees shall ensure that the proceeds are used for the purpose stated in the prospectus