Green, social and sustainability bonds

How does a bond raise money?

Your business, or the entity issuing the bond, is the issuer. Investors buy the bond when it is issued, providing financing. They become creditors: the issuer owes payments under the bond's terms.

A conventional bond typically pays interest, called a coupon, and repays the principal, the amount borrowed, at maturity or according to an agreed schedule. Plan for both the interest and the principal repayment. A project's environmental or social benefit does not itself pay the investors. The SC's InvestSmart introduction to bonds explains these basics and the risk that an issuer cannot meet its payments.

The sustainability label adds commitments about the financing purpose, records and disclosures. Investors still assess the issuer's ability to repay and the terms of the investment.

Choose the label by what you will finance

These three instruments are use-of-proceeds bonds. “Proceeds” means the money raised. Under the principles, the net proceeds, or an equivalent amount, are dedicated to eligible purposes.

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The definitions come from ICMA's Green Bond Principles, June 2025, Social Bond Principles, June 2025 and Sustainability Bond Guidelines, June 2021. They can cover eligible new projects and refinancing of existing projects. Explain which you intend to support.

A green project may also help a community. That extra benefit does not automatically make the bond a sustainability bond: the classification follows the primary objectives of the underlying projects. A sustainability bond deliberately combines green and social purposes.

Make the environmental benefit clear

Green categories extend beyond solar. They include clean transport, water management, pollution prevention, biodiversity protection and adaptation to climate impacts. For your proposal, explain the benefit, the evidence supporting it and how you will manage possible environmental or social harm.

Check the chosen standard's exclusions too. For example, the ASEAN Green Bond Standards, revised October 2018, exclude fossil-fuel power generation projects. A category name or supplier's claim alone does not establish eligibility.

Explain who the social project is for

A social proposal needs a clear issue, an intended benefit and a defined target population: the people it aims to reach. Examples include underserved communities, people with disabilities, unemployed people or households facing poverty. Depending on the local context, a project serving the general public may also reach the relevant target population.

Ask: who currently lacks access, how will the project improve that access, and how will we know it reached them? Building a healthcare facility, for example, needs an explanation of the access problem and intended beneficiaries to support the social case. The Social Bond Principles provide the starting point.

A sustainability bond differs from a sustainability-linked bond

For green, social and sustainability bonds, the central commitment is where the money goes.

A sustainability-linked bond connects financial or structural terms to performance against agreed sustainability targets. Its proceeds are generally for business purposes, subject to its documents. A KPI, or key performance indicator, is the measure used; the target specifies the result and date. The ICMA Sustainability-Linked Bond Principles, June 2024 explain this distinction. A bond combining both approaches needs to address both frameworks.

Our sustainability-linked financing guide explores the performance approach through bank facilities. If you are changing emissions-intensive operations over time, the transition-finance guide explains the wider plan and evidence to consider.

Understand the principles, rules and promises

ICMA's principles are voluntary market guidance. They describe credible practice and framework alignment; they do not replace Malaysian requirements.

For an ASEAN Green, ASEAN Social or ASEAN Sustainability label, the SC's applicable issuance guidelines require adoption of the relevant ACMF standards and restrict use of those labels unless the issuance complies. The checked provisions are Chapter 8 of the Lodge and Launch guidelines, revised 30 March 2026, and Chapter 22 of the retail issuance guidelines, revised 28 November 2024.

Ask your adviser which issuance route, investor category and other requirements apply. The SC's current bond and sukuk directory is a useful source locator. The bond documents also establish contractual promises and consequences. Have the adviser explain what happens if a project changes, funds are misallocated or reporting is late.

What does the issuance work involve?

Bring finance, sustainability and operations into the discussion early. The following is a practical preparation sequence, with tasks that may overlap:

1. Assess the financing and appoint advisers. Discuss the amount, repayment capacity, intended investors and suitable structure with an arranger or principal adviser and legal advisers. Establish any rating, trustee, security, disclosure and submission requirements for your route.
2. Prepare the framework. Explain eligible uses, project selection, management of the proceeds and reporting. These are the four common components of the ICMA principles. Connect them to your business's sustainability objectives.
3. Select and document projects. Set criteria, exclusions and approval responsibilities. Gather technical evidence, social-beneficiary information where relevant, and safeguards. Explain any refinancing and how you will handle projects that later cease to qualify.
4. Set up financial tracking. Keep a register or other suitable system linking allocations to eligible expenditure. The standards allow a sub-account, a sub-portfolio or another appropriate tracking method; a separate bank account is not the only approach. Explain how unallocated money will be held temporarily.
5. Arrange external review and complete the issuance. Agree the review scope, resolve findings and make the relevant disclosures. The arranger handles investor discussions and placement alongside the required documentation and regulatory process. Investor interest and pricing need assessment for the actual transaction.
6. Maintain the records and reports. Assign owners for allocation records, outcome data, investor reporting and any subsequent verification. Budget for this work after the money is raised.

The ASEAN Green and ASEAN Social Bond Standards set out the project-selection, tracking and disclosure provisions. ASEAN Sustainability Bond Standards require combined compliance with both, including their exclusions.

Know what the external review covers

A second-party opinion is an independent assessment, usually of the framework's alignment and proposed project types. Later verification may check allocation records or other specified evidence. Read the scope: an opinion on a framework does not prove that future projects delivered their expected results.

ICMA and the ASEAN green and social standards recommend appointing external reviewers; those recommendations are not a universal mandatory-review rule for every bond. The ASEAN standards do impose provisions on reviewer expertise and disclosure when a reviewer is appointed. Your issuance route, chosen certification or contractual commitments may add obligations. Agree what will be checked, when, by whom and at whose cost. See the external-review sections of the ASEAN standards.

Allocation and impact reporting answer different questions

Allocation reporting answers: “Where has the financing been assigned?” It explains the projects or categories, amounts allocated and any remaining unallocated balance. Keep the records behind those figures.

Impact reporting answers: “What benefit is expected or achieved?” Measures might include electricity generated, water saved or the number of intended beneficiaries receiving a service. State the period, method, assumptions and limitations. Distinguish estimates from measured results; spending money is not evidence that an outcome has happened.

You can present both in one report. ICMA recommends updating use-of-proceeds information annually until full allocation and promptly for material developments. Under the ASEAN green and social standards, issuers must report to investors at least annually and provide access to annual reporting throughout the bond's tenure. Confirm the full reporting schedule for your issuance. These distinctions appear in the reporting sections of the Green Bond Principles and ASEAN Social Bond Standards.

Hypothetical example: a Malaysian healthcare group

This is a made-up proposal, not an actual issuance, financing offer or eligibility finding.

Imagine a healthcare group planning rooftop solar and energy-efficiency upgrades across its facilities, alongside new clinics intended to improve access in underserved communities.

Its finance and sustainability teams explore a sustainability bond. They would first assess the environmental projects against green criteria and the clinics against social criteria. For the clinics, they define the access problem, intended communities and how the service will reach them.

The framework identifies eligible expenditure and the approval process. Finance tracks allocations separately for the environmental and social categories. Operations records energy performance, while the clinic team collects appropriate service and beneficiary data.

The allocation report explains how much was assigned to each category and what remains unallocated. The impact report distinguishes expected energy savings from measured savings, and clinic capacity from the number of intended beneficiaries actually served.

The group still needs a repayment forecast, adviser assessment, review arrangements and investor discussions. The combination of projects suggests a label to investigate; it does not establish financing approval or demand.

Would this route suit your business?

A bond may be worth investigating when you have a suitable project pipeline, a credible repayment case and the capacity to manage capital-market disclosures and ongoing reporting. For an SME, start with a comparison against bank financing. Your required amount matters alongside the work and cost involved; this guide sets no minimum issuance size.

Take these questions into the first discussion:

• Issuer and route: Which entity would issue the bond, is it eligible for the proposed route, and which investors could participate?
• Scale and timing: Do eligible projects support the proposed amount and spending plan? What preparation and transaction steps determine the schedule?
• Repayment: Where will coupon and principal payments come from, including if projects are delayed or deliver less than expected?
• Whole cost: What are the arranger, legal, regulatory, rating, trustee, review and ongoing reporting costs that actually apply? Which are initial and which recur?
• Readiness: Who can approve projects, reconcile allocations, collect reliable outcome data and maintain public disclosures?
• Financing terms: What security, covenants (contractual promises or restrictions), repayment schedule and flexibility are available? How would these interact with existing borrowing?
• Investor assessment: Which investors could participate, and what evidence and terms would they need? What is the funding plan if the issue cannot be placed on acceptable terms?

Ask for a comparison with a bank-funded route using the same funding need and assumptions. A sustainability label does not establish lower costs or guaranteed investor demand.

For possible support with qualifying external-review expenses, see the SRI Sukuk and Bond Grant Scheme guide. The grant guide distinguishes CMM's older published form from later Budget 2026 proposals. Confirm operative terms, funds and claim acceptance before relying on reimbursement.