Grace Chou[1]
According to the announcement made by the Taipei Exchange, in view of the actual and current needs in the financial market for sustainable bonds and in reference to the custom and practices in the international financial markets, the Taipei Exchange released and implemented the Operation Directions for Sustainable Bonds on April 29, 2021 by integrating the provisions of the Operation Directions for Green Bonds and the Operation Directions for Sustainability Bonds and added the requirements for accreditation of social bonds and relevant requirements in order to establish a more comprehensive system for the OTC trading of sustainable bonds. Under the Operation Directions for Sustainable Bonds, the scope of sustainable bonds covers green bonds, social bonds and sustainability bonds. The Taipei Exchange officially launched the dedicated segment for sustainable bond and listed the first batch of social bonds on May 18, 2021.
Under the Operation Directions for Sustainable Bonds, the term “green bond” means a bond whose proceeds are used exclusively for green investment projects; “social bond” means a bond whose proceeds are used exclusively for social benefit investment projects; “sustainability bond” means a bond whose proceeds are used exclusively for a combination of both green investment projects and social benefit investment projects.
The above green investment projects refer to those which invest in the following matters with substantive environment improvement benefits:
1. Development of renewable energy and energy technologies.
2. Improvement or energy efficiency and energy conservation.
3. Reduction of greenhouse gases.
4. Waste recycling or reuse.
5. Conservation of agricultural and forestry resources.
6. Conservation of biodiversity.
7. Pollution prevention and control.
8. Water resource conservation, purification, or reclamation, recycling and reuse.
9. Other climate change accommodation matters or any other matter approved by the Taipei Exchange.
Green investment projects may not be a fossil fuel power generation projects. However, this restriction does not apply to those which meet the technical screening criteria formulated under green bond standards adopted in customary practices of international financial markets.
The above social benefit investment projects refer to those which invest in the following matters with substantive environment improvement benefits:
1. Affordable basic living infrastructure.
2. Essential services requirements.
3. Affordable housing.
4. Employment generation, and programs designed to prevent and/or alleviate unemployment stemming from socioeconomic crises.
5. Food security and economic development and safeguards of rights.
6. Socioeconomic advancement and empowerment.
7. Other matters approved by the Taipei Exchange.
The types of securities eligible for sustainable bonds are limited to fixed income securities without equity characteristics such as: (1) straight corporate bonds, (2) financial debentures, (3) international bonds, (4) NTD-denominated foreign straight bonds, (5) beneficiary securities or asset-based securities, and (6) Islamic fixed income securities.
The issuer shall prepare a Bond Framework in accordance with the regulatory requirements, and the Bond Framework shall be certified by a certification body that issues an assessment opinion or certification report that the Bond Framework complies with the requirements under the Operation Directions for Sustainable Bonds or principles of green bonds, social bonds or sustainability bonds adopted in customary practices of international financial markets according to the type of sustainable bond accreditation for which the issuer is applying. With respect to exceptions to external assessment or certification under a green bond investment project, i.e., state-owned energy supply enterprises that meet certain requirements, such enterprises may issue their own assessment opinions in accordance with customary green bond principles adopted in international financial markets.
In addition, the issuer should disclose the contents of the Bond Framework in the prospectus. In addition, the issuer shall make an announcement on the use of proceeds in accordance with the prescribed deadlines on the Internet information reporting system designated by the Taipei Exchange during the duration of the sustainable bond or during the use of the proceeds raised. The issuer shall also obtain an opinion or certification report from a certification body annually on whether the use of proceeds is in compliance with the Bond Framework within the prescribed period.
[1] The author is a lawyer at Lee, Tsai & Partners. However, the contents of this article merely reflect personal opinions and do not represent the position of this law firm.