Green Covered Bonds

This briefing paper by the Climate Bonds Initiative explains the structure of covered bonds and argues for their application to low-carbon finance. It highlights how the dual recourse structure of covered bonds—providing claims over both a dedicated asset pool and the issuer—can lower funding costs for banks and increase institutional investment in green infrastructure and energy-efficient buildings.

• Covered bonds are highly-regulated securities issued exclusively by banks, featuring a dual recourse structure that grants investors a claim over both a dedicated 'cover' pool of assets and the issuer. This structure typically results in superior credit ratings and lower funding costs compared to unsecured debt, allowing banks to provide cheaper loans for priority sectors like public infrastructure and housing.
• The market for green covered bonds began to emerge in 2016, with the first green covered bond issued in Germany. Additionally, the Bank of China issued a USD 500m 'dual recourse' green bond in November 2016, which utilized a cover pool consisting of Chinese climate-aligned bonds listed on the ChinaBond China Climate Aligned Bond Index.
• In May 2015, BerlinHyp issued a green Pfandbrief—a type of covered bond governed by dedicated legislation that represents approximately 25% of the global covered bond market. The issue was for EUR 500m (USD 545m) with a 7-year tenor and a 0.125% coupon; it was four times oversubscribed and attracted 15 new investors. The cover pool consisted of mortgages for green buildings located in Germany, France, the UK, the Netherlands, and Poland.
• Covered bonds benefit from preferential regulatory treatment, such as being classified as highly liquid assets under the Basel III Liquidity Coverage Ratio (LCR) and receiving low risk spread factors under Solvency II. Recent EU regulations further exempt them from bail-in processes and assign them low risk weights.
• To scale the green covered bond market, the document suggests earmarking green assets in existing cover pools, particularly within the mortgage sector, where outstanding mortgage covered bonds in the EU equal about 30% of outstanding residential mortgage loans. It also recommends that the public sector support the development of green definitions and expand legislation to include assets like solar and wind energy leases.

APA

Climate Bonds Initiative (2017). Green Covered Bonds. https://www.climatebonds.net/files/drupal-files/files/March17_CBI_Briefing_Covered_Bonds.pdf

Chicago

Climate Bonds Initiative. Green Covered Bonds. 2017. https://www.climatebonds.net/files/drupal-files/files/March17_CBI_Briefing_Covered_Bonds.pdf.

Wikipedia

{{cite report |author=Climate Bonds Initiative |title=Green Covered Bonds |date=February 2017 |url=https://www.climatebonds.net/files/drupal-files/files/March17_CBI_Briefing_Covered_Bonds.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{climatebondsinitiative2017green, author = {{Climate Bonds Initiative}}, title = {{Green Covered Bonds}}, institution = {Climate Bonds Initiative}, year = {2017}, month = feb, url = {https://www.climatebonds.net/files/drupal-files/files/March17_CBI_Briefing_Covered_Bonds.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }