Sustainability and Climate Risk (SCR) — Question 61

A diversified industrial company embarks on a climate transition strategy to invest in a more fuel-efficient airline fleet. To finance the investment, the CSO analyzes sustainable finance instruments and recommends instruments most suitable to issue.
Which of the following financial instruments should the CSO recommend and why?

Answer options

• A. A sustainability-linked bond for the purpose of financing a company-wide transition strategy.
• B. A social bond as it offers more flexibility because there is no external review requirement.
• C. A green bond because the use of proceeds can be clearly identified and tied to a particular project.
• D. A sustainable bond so the company will benefit from favorable pricing from the terms linked to the corporate sustainability objective.

Correct answer: C

Explanation

The correct answer is C because a green bond is specifically designed for funding projects that have positive environmental impacts, making it ideal for this airline fleet transition. Options A and D, while related to sustainability, do not directly tie the proceeds to a specific environmental project. Option B is less suitable as social bonds focus on social projects rather than environmental ones.