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Freshfields Sustainability

| 9 minutes read

From brown to green: How issuers are turning their existing bonds green

Sustainable finance is the name of the game in international debt capital markets. While one in ten bonds issued in 2021 globally had a sustainability label, this number is expected to increase to one in six over the next year or two, according to S&P Global.

More and more issuers are tapping the sustainable finance market by issuing ESG-labelled bonds (ESG bonds). Instead of merely issuing new bonds in ESG format (either to raise new funds or to refinance existing debt), some issuers are now beginning to look at their existing bond book to accelerate their transition to a 100% green financing structure. In order to do so, they ask their bondholders to convert their outstanding, non-labelled bonds into green bonds.

We have advised the first issuers in the European market on these “conversions to green bonds”. In this blog, we describe how it’s done.

Converting existing bonds into green bonds

More and more issuers now have ESG strategies in place, many of which include net zero commitments and interim targets for emissions reductions. The issuing of ESG bonds, either in “use of proceeds” format (such as green bonds) or as sustainability-linked bonds (SLBs), plays an important part in complementing and supporting such strategies and targets. Some issuers have already announced their intention to issue only ESG bonds going forward and are planning gradually to replace their non-labelled bonds with ESG bonds whenever their outstanding bonds mature or are otherwise refinanced.

But what if issuers don’t want to wait and, instead, wish to achieve a 100% green financing structure straight away and have the right asset base to support this? This is where the conversion to green bonds comes in: Issuers are turning their existing, non-labelled bonds into green bonds.

Is bondholder consent required?

Under the terms of normal bonds, issuers can usually use the proceeds of a bond issuance for “general corporate purposes”. Depending on the governing law of the bonds, this would in almost all cases allow issuers to use the proceeds for specific ESG projects or assets, even if that was not specifically set out in the bond documentation when the bond was issued. It could therefore be argued that it should be possible for an issuer to simply announce that, going forward, it will retrospectively allocate an amount equivalent to the outstanding principal amount of the bonds to a portfolio of eligible green projects.

What is more, “use of proceeds” ESG bonds are not (so far, at least) legally regulated instruments which require an issuer to meet certain regulatory requirements or obtain authorisation from a securities regulator. (The EU Green Bond Standard, which will impose certain obligations on issuers before they can issue bonds labelled as “EU Green Bonds”, is not yet in force.) While the market effectively requires green bonds to comply with the Green Bond Principles (the GBPs), as long as the issuer undertakes to comply with the GBPs in respect of its outstanding bonds, there should be no need to ask bondholders for consent. Lastly, it could be argued that turning non-labelled bonds into green bonds should generally have a positive impact on the bonds and, therefore, would not be prejudicial to existing bondholders.

However, an alternative view is that changing the nature of the bonds from non-labelled to green is material for bondholders. For example, certain investors can only invest (or remain invested) in ESG bonds that comply with their internal investment guidelines. This is particularly relevant where the issuer proposes to allocate some of the funds to eligible green assets or projects that have already been funded. For some investors, this “look-back period” cannot be longer than two years. So where an issuer proposes a longer look-back period for its newly-labelled green bonds, such investors may no longer be able to hold the bonds once they turn green. It is therefore only fair that they have a say on the proposed conversion.

What is more, some European securities regulators have been encouraging issuers to carry out consent solicitations for the conversion of their existing bonds into green bonds.

In addition, a consent solicitation exercise gives issuers the opportunity to engage with their investors specifically on their ESG or sustainability strategy. It is therefore common for issuers to reach out to investors following the launch of the consent solicitation process during a roadshow and explain their ESG credentials in one-on-one meetings. While this would be possible in any event, a consent solicitation provides the context for a more formal structure of such engagement. As the conversion process is about existing bonds and does not involve the raising of new money, this allows for the dialogue between the issuer and the investors to focus on the issuer’s ESG strategy rather than broader business performance.

The consent solicitation process

Even if obtaining bondholder consent may not be strictly necessary under the terms of the bonds or local law, if an issuer decides to launch a consent solicitation exercise, it will need to comply with the requirements for bondholder meetings contained in the bond documentation or, where applicable, the relevant provisions of local law. This applies to things like minimum quorum requirements for meetings at first and second call and necessary majorities for approval. Separate bondholder meetings (either held virtually or in-person) are required for each series of bonds. Those series of bonds that do not obtain approval will remain non-labelled.

It is common for issuers to pay a consent solicitation fee when asking bondholders to agree to changes to the terms of the bonds. However, in the conversions to green bonds carried out in the European market so far, no consent solicitation fee was offered. 

Documents required for converting existing bonds into green bonds

In order for issuers to launch a consent solicitation exercise to turn their existing non-labelled bonds green, they will first need to put in place the relevant green bond infrastructure, unless that structure already exists.

Green Bond Framework

The first step for issuers is to prepare a green bond framework (a Green Bond Framework, sometimes also called a “Sustainable Financing Framework” or “Green Financing Framework”). This document governs both (i) the conversion of the issuer’s existing bonds into green bonds and (ii) the issuance of new bonds as green bonds in the future. The issuer typically appoints an investment bank to assist it with preparing their Green Bond Framework.

Under the GBPs, there are four core components that the issuer will need to include in its Green Bond Framework. These four components are:

  • Use of Proceeds:

A description of the different categories of “eligible green projects” to which the proceeds of the bonds can be allocated. All these projects should provide clear environmental benefits and will depend on the issuer’s business sector. They include assets, investments and other related and supporting expenditures for things like renewable energy, energy efficiency, environmentally sustainable land management, clean transportation or green buildings. More and more issuers adopt a dynamic Green Bond Framework that includes more ambitious requirements for eligible green projects over time.

  • Process for project evaluation and selection:

A description of the process by which the issuer determines how the specific projects fit within the eligible green projects categories. The projects should be in line with the issuer’s overall ESG strategy and targets, such as any net zero commitment. The evaluation and selection process is often delegated to a sustainability or ESG committee of the issuer.

  • Management of proceeds:

A description of how the proceeds of the green bonds are managed and how the allocation to eligible green projects is tracked. The GBPs recommend that an external auditor or other third party verifies the internal tracking method and allocation of funds from the green bond proceeds. For the purposes of converting existing bonds into green bonds, this report will need to be prepared prior to launching the consent solicitation exercise and explain to bondholders how the outstanding principal amount of the existing bonds has been allocated retrospectively to eligible green projects.

  • Reporting:

A description of how the issuer will provide investors with up-to-date information on how it has used the proceeds of the green bonds. This will usually be included in the issuer’s Annual Report and include a list of the projects to which green bond proceeds have been allocated as well as a brief description of the projects, the amount allocated and their expected impact.

Second Party Opinion

The issuer will also need to appoint a third party to provide a “second party opinion” (SPO) on its Green Bond Framework. The SPO contains an assessment on the alignment of the Green Bond Framework with the GBPs.

Consent Solicitation Memorandum and Notice of Bondholder Meetings

There are a number of legal documents that are required for a conversion to green bonds. The main document for bondholders is the Consent Solicitation Memorandum (CSM), which includes the details for bondholders on how to participate in the consent solicitation process, as well as a summary of the issuer’s Green Bond Framework. In the conversions carried out in the European market so far, the CSM was incorporated into the notice calling the relevant bondholder meetings.

In addition, the issuer will also need to prepare separate bondholder resolutions and minutes of the bondholder meetings for each series of bonds, as well as certain notices and announcements.

Timing considerations

The requalification process typically takes a number of months, particularly where the issuer does not yet have a Green Bond Framework and an SPO in place. And even where the issuer has a green bond infrastructure already set up, the issuer may need to amend the existing Green Bond Framework and obtain an updated SPO to reflect the proposed requalification process.

With regard to SPOs, while the actual review process and issue of the SPO is a relatively quick process, the current high workload and limited number of SPO providers means that it may take some time before the SPO provider is able to commence work after it has been appointed.

The time period for the consent solicitation exercise itself (from launch) will depend on the relevant bondholder meeting provisions (e.g., notice periods) as well as whether the requalification is approved on first call or second call of the general meeting of bondholders.

There are also a number of other steps of the requalification process, such as analysing the profile of bondholders and the quantity and size of portfolio. These steps may require in-depth analysis and therefore issuers are advised to get started well in advance to make sure that they are fully prepared and have the correct portfolio to support the exercise.

Outlook – converting existing bonds into SLBs?

The conversion of existing non-labelled bonds into green bonds requires issuers to have a portfolio of specific eligible green projects that is at least the size of its outstanding bonds. Where issuers do not meet this requirement but still wish to convert their existing debt into 100% sustainable debt, some issuers are now looking at consent solicitations processes that would allow them to convert their existing bonds into SLBs.

This will require similar steps to those described above, mainly the preparation of an “SLB Framework” that describes the issuer’s key performance indicators (such as a reduction in greenhouse gas emissions) and the related sustainability performance targets (such as a specific percentage reduction of emissions by a certain date). The issuer will also need to decide on the type and size of “penalty” (typically, an increase in the interest rate) under the terms of the bonds in the event the target is not met.

However, the conversion of existing bonds into SLBs is likely to be more complex than converting them into green bonds. This is because an issuer’s outstanding bonds will likely have different maturities so instead of one or two medium-term targets, the issuer will likely need a series of interim targets that can be applied to each series depending on their maturity dates. For bonds that mature in the short term, the “penalty” will also likely need to be in the form of a premium payment on maturity rather than an increase in the interest rate.


We expect more and more issuers to look to convert their existing non-labelled bonds into 100% green or sustainable bonds. This is particularly relevant where debt capital markets are volatile and conditions for primary bond issuances are difficult. Issuers can therefore use the time to achieve a 100% sustainable or green financing structure to differentiate themselves from other issuers and, thus, be in a pole position to issue new green or sustainable debt when market conditions improve.


Freshfields has unrivalled expertise across the spectrum of ESG finance products. Our recent insights on bonds, loans and securitisations are available here:

Please reach out to your usual Freshfields contact if you would like to discuss any of these developments in more detail.


sustainability, sustainable finance