May 2024
Overview of Taiwan's Sustainable Development Bond System
May 2024
Elva Chuang and Tina Lee
Given that climate change and environmental sustainability have become increasingly important global issues, the Taipei Exchange (hereinafter, the "TPEx") has been assisting enterprises in implementing sustainable development and supporting their sustainable transformation since 2017 by establishing a green bond trading system. Additionally, the TPEx has progressively promoted platforms for social bonds, sustainability bonds, and sustainability-linked bonds (SLBs) to enhance the sustainable development bond market. The following is a brief overview of the types of bonds and the issuance process:
I. Types of Sustainable Development Bonds:
1. Green bonds
Green bonds are bonds where the funds raised are entirely used for green investment projects. These projects are defined as investments in the following areas, with significant environmental benefits:
(1) Development of renewable energy and energy technology
(2) Enhancement of energy efficiency and energy conservation
(3) Reduction of greenhouse gases
(4) Waste recycling, treatment, or reuse
(5) Conservation of agricultural and forestry resources
(6) Conservation of biodiversity
(7) Pollution prevention and control
(8) Water conservation, purification, or recycling and reuse
(9) Other climate change adaptation projects or those recognized by the TPEx
2. Social Bonds
Social responsibility bonds are bonds where the funds raised are entirely used for social benefit investment projects. These projects are defined as investments in the following areas, with significant social benefits:
(1) Affordable basic infrastructure
(2) Basic service needs
(3) Affordable housing
(4) Job creation and programs to mitigate or avoid unemployment due to socio-economic crises
(5) Food security and sustainable food systems
(6) Socio-economic development and rights protection
(7) Other projects recognized by the TPEx
3. Sustainability Bonds
These bonds are where the funds raised are used simultaneously for both green investment projects and social benefit investment projects.
4. Sustainability-Linked Bonds
These bonds link the payment conditions of principal and interest to the issuer's sustainability performance targets (SPTs). Unlike dedicated use-of-proceeds bonds, the funds raised by sustainability-linked bonds (SLBs) are not restricted and can be used for general corporate purposes. Through the establishment of key performance indicators (KPIs), sustainability performance targets, and linking bond payment conditions to these metrics, issuers integrate sustainability into their business strategies and models.
II. Issuance Procedure for Sustainable Development Bonds:
Issuers of sustainable development bonds must first apply to the TPEx for qualification recognition. After obtaining this qualification, they must report the bond issuance to the competent authority. Upon receiving the effective registration notice from the competent authority, the issuer must apply to the TPEx for bond trading 4 to 5 business days before the bond is listed. After the bond issuance, the issuer must annually publish a report on the use of funds for dedicated use-of-proceeds bonds or relevant information for sustainability-linked bonds.
Due to their fixed, low-interest rate characteristics, sustainable development bonds have become a new fundraising avenue for both government and private enterprises. In January 2024, the Taipei City and Kaohsiung City governments respectively completed the listing of social bonds and green bonds, with the funds raised aimed at supporting government MRT construction projects. This demonstrates the forward-looking nature of sustainable development bonds, and their future development is worth ongoing attention.
Elva Chuang and Tina Lee
Given that climate change and environmental sustainability have become increasingly important global issues, the Taipei Exchange (hereinafter, the "TPEx") has been assisting enterprises in implementing sustainable development and supporting their sustainable transformation since 2017 by establishing a green bond trading system. Additionally, the TPEx has progressively promoted platforms for social bonds, sustainability bonds, and sustainability-linked bonds (SLBs) to enhance the sustainable development bond market. The following is a brief overview of the types of bonds and the issuance process:
I. Types of Sustainable Development Bonds:
1. Green bonds
Green bonds are bonds where the funds raised are entirely used for green investment projects. These projects are defined as investments in the following areas, with significant environmental benefits:
(1) Development of renewable energy and energy technology
(2) Enhancement of energy efficiency and energy conservation
(3) Reduction of greenhouse gases
(4) Waste recycling, treatment, or reuse
(5) Conservation of agricultural and forestry resources
(6) Conservation of biodiversity
(7) Pollution prevention and control
(8) Water conservation, purification, or recycling and reuse
(9) Other climate change adaptation projects or those recognized by the TPEx
2. Social Bonds
Social responsibility bonds are bonds where the funds raised are entirely used for social benefit investment projects. These projects are defined as investments in the following areas, with significant social benefits:
(1) Affordable basic infrastructure
(2) Basic service needs
(3) Affordable housing
(4) Job creation and programs to mitigate or avoid unemployment due to socio-economic crises
(5) Food security and sustainable food systems
(6) Socio-economic development and rights protection
(7) Other projects recognized by the TPEx
3. Sustainability Bonds
These bonds are where the funds raised are used simultaneously for both green investment projects and social benefit investment projects.
4. Sustainability-Linked Bonds
These bonds link the payment conditions of principal and interest to the issuer's sustainability performance targets (SPTs). Unlike dedicated use-of-proceeds bonds, the funds raised by sustainability-linked bonds (SLBs) are not restricted and can be used for general corporate purposes. Through the establishment of key performance indicators (KPIs), sustainability performance targets, and linking bond payment conditions to these metrics, issuers integrate sustainability into their business strategies and models.
II. Issuance Procedure for Sustainable Development Bonds:
Issuers of sustainable development bonds must first apply to the TPEx for qualification recognition. After obtaining this qualification, they must report the bond issuance to the competent authority. Upon receiving the effective registration notice from the competent authority, the issuer must apply to the TPEx for bond trading 4 to 5 business days before the bond is listed. After the bond issuance, the issuer must annually publish a report on the use of funds for dedicated use-of-proceeds bonds or relevant information for sustainability-linked bonds.
Due to their fixed, low-interest rate characteristics, sustainable development bonds have become a new fundraising avenue for both government and private enterprises. In January 2024, the Taipei City and Kaohsiung City governments respectively completed the listing of social bonds and green bonds, with the funds raised aimed at supporting government MRT construction projects. This demonstrates the forward-looking nature of sustainable development bonds, and their future development is worth ongoing attention.
