The ABCs of green bonds

Green bonds are debt instruments where proceeds are used to fund new or existing projects that have positive environmental or climate effects. The criteria for the eligibility of green projects include reducing greenhouse gas emissions, promoting the sustainable use of natural resources and conservation activities.

The primary purpose of green bonds is to match investors looking to incorporate products with specific environmental or “green” attributes into their investment portfolios. With countries like Japan making environmental issues a central priority, the demand for financial products that incorporate sustainability is currently thriving.

In 2018, UBS entered into a real estate joint venture with Mitsubishi Corporation in Japan (MC-UBS) and issued a highly innovative five-year 8 billion Japanese Yen (JPY) green bond in Japan’s REIT (J-REIT) market. MC-UBS then issued a second five-year JPY 7 billion green bond in 2019 to invest in further green initiatives across the portfolio.

The first green bond issued by The Japan Retail Fund Investment Corporation (JRF) was to refinance bank loans originally used to acquire a Development Bank of Japan (DBJ) Green Building certified asset, the G-Bldg. Kichijoji 02, an urban retail property in Tokyo. The second bond was used primarily to invest in green initiatives across the portfolio including their flagship asset, Mozo Wonder City, a shopping mall and JRF’s first asset to be DBJ Green Building certified.

Our framework and policy

The JRF Bond Framework has been independently assessed as fulfilling the four pillars of the Green Bond Principles 2017 which relate to: the use of proceeds, the process for project evaluation and selection, the management of proceeds and reporting.

JRF uses the DBJ Green Building Certification Programme or the CASBEE Certification Rank to determine the eligibility of green buildings. The fund has an internal process to track and monitor the allocation and amount of outstanding proceeds. In addition, they report annually on key environmental performance indicators including electricity, fuel and water consumption as well as CO2 emission of the assets funded through the green bonds.

The MC-UBS Sustainability Committee promotes JRF’s sustainability activities in alignment with its Environmental Charter and Responsible Property Investment Policy. UBS are proud to be the first J-REIT asset manager to sign the UN Principles for Responsible Investment (PRI) and the Montreal Carbon Pledge. In addition, we are signatory to the Principles for Financial Action towards a Sustainable Society, supported by the Ministry of the Environment and the UN Environment Programme Finance Initiative (UNEP FI).

How UBS uses the proceeds

The proceeds are allocated toward the acquisition of new assets or the enhancement of existing assets that meet eligible green projects criteria, as well as refinancing existing debts that have already been allocated to these eligible green projects. These are evaluated and selected by the MC-UBS Sustainability Committee in accordance with its commitment to integrating environmental considerations into investment and operation processes.

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