Supporting Communications: FAQ

Understanding the Hydropower Bond Criteria
What is a bond?
A bond is a debt instrument or type of loan or IOU that governments, companies and other entities issue tofinance or refinance projects. The issuing entity guarantees to repay the bond over a certain time period, plus
either a fixed or variable rate of return to the bond buyer. A bond is a financial instrument that allows theissuer to borrow funds with the promise to pay them back with interest by a certain date.

What is a Green Bond?
Green Bonds are a fast-growing type of debt instrument similar in financial structure to a ‘vanilla’ bondoutlined above. They are an instrument for earmarking private financing to fund projects that deliverenvironmental benefits. Most Green Bonds are use of proceeds bonds, with the issuer committing toinvestors that all funds raised will go only to specified projects with positive environmental outcomes.

What is a Climate Bond?
Climate Bonds are a subset of Green Bonds. Proceeds must be invested in assets compatible with a low carbon
future in which infrastructure or management projects are adaptable and resilient to current and futureclimate change. A Climate Bond is used by governments, companies, municipalities, and commercial anddevelopment banks to finance, (or refinance) projects that address climate change, such as wind farms, solar
and hydropower plants, and rail transport and sea walls in cities threatened by rising sea levels.

What is the Climate Bonds Initiative (CBI)?
Climate Bonds Initiative (CBI) is an international investor-focused and not-for-profit organisation working
solely to mobilize the $100 trillion bond market for climate change solutions. We promote investment inprojects and assets necessary for a rapid transition to a low carbon and climate resilient economy. The strategy
is to develop a large and liquid Green and Climate Bonds market that will help drive down the cost of capitalfor climate projects in developed and emerging markets; to grow aggregation mechanisms for fragmented
sectors; and to support governments seeking to tap debt capital markets. Our work falls into threeworkstreams: market intelligence, developing a trusted standard and providing policy models and advice.

Why is hydropower important in the context of climate change?
Hydropower has a prominent position in many of the world’s major power grids. According to the World
Energy Council, hydropower generated about 71% of the world’s renewable electricity in 2016 (1,064GW),
and its capacity is expected to double by 2050, as only 8% of hydroelectric potential has been tapped in Africa,and only 20% in Asia. In 2019, 15.9% of the world’s electricity was generated from hydropower, making it oneof the most significant technologies of the global energy market. Hydropower accounts for nearly half of Paris
Agreement-participating countries’ additional renewable capacity.
Further, upwards of 90% of energy storage globally is via pumped storage.
Sustainable hydropower projects can contribute to addressing climate adaptation needs as defined by theParis Agreement, but stakeholders must be able to verify their credentials. The hydropower Climate Bond
Criteria supports investors’ decision-making process on which projects are eligible to help reduce emissions,adapt to climate change, and secure climate resilience. The Criteria also includes metrics, methodologies, andtools to measure and monitor compliance.
Given its potential as a renewable resource and its already prominent place in the energy market, investment
in Hydropower as a green alternative to fossil fuels is taking place in various areas of the world. In response,
CBI has introduced the Hydropower Criteria to enable investors to support projects that truly support theobjectives of the Paris Agreement and mitigate environmental and social risks upfront.

What is a hydropower Climate Bond?
This is shorthand for a Climate Bond where the proceeds are used for hydropower related assets and projects,
and those assets and projects contribute to climate mitigation and adaptation goals.
As examples, hydropower Climate Bonds can be used for run-of-river facilities, impoundment facilities,
pumped storage facilities and associated infrastructure for these facilities.
Like vanilla bonds, hydropower Climate Bonds can be issued by governments, municipalities, multinationalbanks or corporations.

Why do we need Criteria for hydropower projects and assets?
The Criteria take a bold new approach by defining rigorous standards for both the reduction of greenhousegas (GHG) emissions and resilience to climate change. We build on existing protocols, tools and best practicefor good environmental and social performance. There is presently no set standard for these bonds; some are
not aligned with the objectives of the Paris Agreement, whereas others that may contribute to fighting climatechange are not labelled ‘green’. CBI aims to develop standards that allow investors to identify bonds aligned
to the objectives of the Paris Agreement on climate change.
A number of bond issuers are using Green Bonds to finance or refinance hydropower projects and assets;
however, not all of these Green Bonds have been well received in the market due to investor concerns overclimate change-related risks.
CBI is providing a solution by introducing the new Climate Bond Criteria for hydropower. These Climate Bonds
will be subject to robust and transparent screening criteria that will ensure that any hydropower (or other)
projects or assets are in line with the goals of the Paris Agreement and adhere to good international andindustry practices by aiming to reduce environmental and social impacts.
Climate Bonds offer investors and stakeholders a way to verify a project’s environmental credentials and seek
to define the gold standard for projects and assets that advance the goals of the Paris Agreement while
reducing negative impacts on local environments and societies.

What kinds of projects and assets are eligible and under what conditions?
Climate Bonds can finance the construction, acquisition, and management of inland hydropower facilities andrelated infrastructure (e.g., transmission lines), as well as the production of components for these assets. Tidal
power and other marine applications can also be financed via Climate Bonds, but CBI covers them under the
Marine Renewables Sector Criteria.
The process of producing energy from biodegradable municipal solid waste (MSW), including sewage sludge
and food waste, is covered by the Water Infrastructure Criteria and the Waste Management Criteria,
respectively, under the Climate Bonds Standard. However, wastes such as manure and wet wastes (farm andcrop wastes) are in the scope of the Bioenergy Criteria.

Projects and assets that meet the Hydropower Criteria for Climate Bonds should have a low GHG footprint
while enabling climate adaptation and resilience in line with the objectives of the Paris Agreement.
Additionally, they will not cause significant negative impacts in respect of wider environmental or social issues.
As a general principle, bonds will meet the requirements of the Climate Bonds Standard if the projects/assets
financed by the bonds promote low carbon infrastructure as well as adaptation and resilience to climatechange in the systems in which they are located. To meet the requirements of the Hydropower Criteria, eachhydropower project or asset must undergo a two-part assessment.
The Mitigation Criteria require hydropower facilities operational pre-2020 to have a GHG footprint of less than
100g CO2e/ kWh or a power density of less than 5W/m 2, and facilities becoming operational in 2020 or laterto have a GHG footprint of less than 50g CO2e/ kWh or a power density of less than 10W/m 2. The GHG footprint
can be demonstrated either via assessment using the G-res tool (developed by the International Hydropower
Association and the UNESCO Chair for Global Environmental Change), or a site-specific assessment in line with
the IEA Hydropower Framework.
It should be noted that the G-res tool and the site-specific assessments use identical scientific thresholds todetermine low-GHG emissions. Multiple methods of determining GHG levels are offered as a way to ensurethat projects/assets that would otherwise meet low-GHG standards or may be able to meet the standards
after taking a few mitigating steps, are not unduly barred from approval for a Climate Bond.
Second, facilities seeking inclusion in a Climate Bond must meet strict standards for adaptation and resilience
to climate change within their local systems. There is no predictive screen through which facilities can pass
the “A&R” portion of the Climate Bond Criteria tests; each site must undergo an assessment, carried out by anaccredited assessor, using the ESG Gap Analysis Tool. This tool will identify gaps between the facility’s practices
and international best practices regarding environmental and social impacts. If gaps are identified, an
Environmental and Social Action Plan must be established and implemented. CBI has set strict limits on the
maximum number of gaps allowed and the time frames within which these gaps must be bridged. The
Hydropower Criteria also require a re-assessment at the conclusion of each Action Plan to ensure that facilities
have bridged the gaps and are in step with international best practices.
Projects and assets will not meet the Hydropower Criteria unless they pass both the Mitigation Criteria andA&R Criteria.

What is certification?
A Climate Bonds Certified hydropower bond is a bond which has been independently verified to see that theproceeds have been or will be spent on hydropower infrastructure assets and projects, in compliance with theterms of the Hydropower Criteria of the Climate Bonds Standard. The Climate Bonds Standard Board will haveapproved the Certification on that basis.

How is compliance verified?
For an issuer to have its bond qualify as a Certified Climate Bond, an approved third party must verify
compliance with CBI’s Climate Bond Standard. Assessments must be carried out by accredited assessors who
have expertise in the hydropower industry. The Climate Bond Standards Board is then responsible forapproving the certification. For further information: https://www.climatebonds.net/certification.

How have these Criteria been developed and what is CBI’s role?
The Hydropower Criteria were drafted through a rigorous science-based process undertaken by a Technical
Working Group (TWG) of global hydropower experts to determine the scope and nature of the Criteria througha consensus-based collaborative approach. An Industry Working Group (IWG) was also convened to advise on

the practicality of the Criteria being developed. A list of members of these groups is available athttps://www.climatebonds.net/hydropower.
In 2016, the Climate Bonds Initiative launched a TWG to develop the technical Criteria for the eligibility of
projects and assets, as well as guidance on the tracking of eligibility status during the term of the bond.
Members of the TWG include representatives of WWF, IHE Delft (formerly UNESCO), the Alliance for Global
Water Adaptation, the National Planning Commission of South Africa, the Swiss State Secretariat for Economic
Affairs (SECO), IUCN, TNC, the International Hydropower Association, the Norwegian Ministry of Petroleum &Energy, Water Power & Law Group PC, IIED, and the IEA Technology Collaboration Program on Hydropower aswell as independent experts. A Hydropower IWG made up of potential bond issuers, investors, financial
intermediaries and verifiers was also convened to provide input to the recommendations.
The TWG adhered to the Climate Bonds Science Framework, a robust, scientifically grounded analysis on
emission mitigation pathways, technology options and impacts.
The Climate Bonds Science Framework is overseen by the CBI Board and implemented by the Climate Bonds
Initiative Secretariat and a network of climate research institutions led by the Potsdam Institute for Climate
Impact Research.
The Hydropower Criteria were approved by the Climate Bonds Standard Board. The Board provides
independent oversight over the implementation and operation of the Climate Bonds Standard & Certification
Scheme. The Board members comprise a range of asset owners’ civil representatives and NGOs withapproximately US$34tn of assets under management.

How does the Criteria account for environmental and social responsibility?
The Climate Bonds Standard is focused on climate impacts: climate mitigation and climate adaptation andresilience. The working concept of climate resilience is not limited to the resilience of the hydropower facility
itself to climate change but also encompasses the facility’s impact on the resilience of affected populations
and ecosystems. Defining climate adaptation and resilience can, therefore, be challenging. However, it is clearthat many topics which have been a part of environmental and social (ES) assessments for a number of years
overlap significantly with climate adaptation and resiilence: for example, the potential impact of climatechange on hydrological conditions, and consequently water supply and local livelihoods; or climate change
exacerbating ecological problems such as impaired species migration and algae blooms. Environmental andsocial impacts such as these, already complex and interconnected, become more so when climate change
impacts and risks are taken into account, and there is a logic to addressing all key ES factors, rather than trying
to separate them out.
Therefore, the utilisation of the ESG Gap Analysis Tool, with its broad scope of factors assessed, enables asufficiently broad interpretation of resilience, encompassing a range of environmental and social aspects
interconnected with climate change, in addition to those directly identified in its Climate Mitigation andResilience section. Generally speaking, the Climate Bonds Standard does not usually address primarily social
impact issues, but in this case, it has been considered necessary to include them.
Therefore, the Adaptation & Resilience component of the Criteria addresses 12 different aspects of theenvironmental and social impacts of hydropower projects and assets. These are:
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Environmental and social assessment and management
Labour and working conditions
Water quality and sediments
Community impacts and infrastructure safety
Resettlement
Biodiversity and invasive species
Indigenous peoples

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Cultural heritage
Governance and procurement
Communication and consultation
Hydrological resource
Climate change mitigation and resilience

Any facility or project that does not adequately adhere to international good practice or fails to bridge practice
gaps within the set time frames is disqualified from inclusion in Climate Bonds.

What is not covered by the Criteria?
The Hydropower Criteria do not cover other indirect emissions related to the construction of dams andresulting from activities elsewhere in the value chain, such as fuel and material extraction, manufacture ortransport. This choice was made in the interest of keeping the assessment reasonably simple, and becauseeven for large dams, embedded emissions due to construction tend to be low on an emissions intensity basis.
The Criteria also do not cover the economic viability of projects and assets. CBI acknowledges that the Criteria
cannot deal with all aspects of hydropower, water management, energy and economic development. They
can, however, work with other standards and ethical and policy choices to ensure the most sustainableoutcome.

How were the G-Res and ESG tools developed?
The G-res tool is the result of a joint research project of the International Hydropower Association and
UNESCO. If the assessment is carried out on-site, it must comply with the IEA Hydro Framework as describedin the ‘Guidelines for the Quantitative Analysis of Net GHG Emissions from Reservoirs’.
The HESG is based on the framework of the Hydropower Sustainability Assessment Protocol (HSAP). It
addresses the ESG elements addressed under the HSAP, but not other, non-ESG elements addressed in the
HSAP.
The HSAP was developed between 2007 and 2010 following a review of the World Commission on Dams’
recommendations, the Equator Principles, the World Bank Safeguard Policies and IFC Performance Standards,
and IHA’s own previous sustainability tools. A multi-stakeholder forum jointly reviewed, enhanced and built
consensus on what a sustainable project should look like.
This forum included representatives of environmental NGOs (WWF, The Nature Conservancy), social NGOs
(Oxfam, Transparency International), development banks (World Bank), governments (China, Zambia, Iceland,
Norway, Germany) and the hydropower sector.
A draft of the HSAP was released in 2009, which was trialled in 16 countries across six continents, resulting in
the final version being published in 2010. The HSAP was updated in 2018 to include a topic on climate change
resilience and mitigation.
The HESG was developed by the International Hydropower Association (IHA) between February 2017 and June2018 under the mandate of the Hydropower Sustainability Assessment Council, with the support of the Swiss
State Secretariat for Economic Affairs (SECO).

How are the G-Res and ESG tools governed?
The Hydropower Sustainability Tools are governed by a multi-stakeholder body, the Hydropower Sustainability
Assessment Council (HSAC) and the Hydropower Sustainability Governance Committee (HSGC).

The HSAC is composed of seven chambers each representing a different segment of hydropower stakeholders.
These are:• Hydropower consultants, contractors or equipment suppliers• Hydropower operators or developers• Environment or conservation organisations• Social impacts, project affected communities, and indigenous peoples' organisations• Development, public or commercial banks, financial organisations, and private investors/ investment
funds• Emerging and developing economy country governments• Advanced economy country governments
Each chamber elects a chair and alternate who represent the HSAC in promoting the use and integrity of thetools.
The HSGC is currently independently chaired by Dr Ashok Khosla, and composed of the following members:• Jian-hua Meng, WWF• James Dalton, IUCN
• Richard Taylor, RMT Renewables Consulting• Jürgen Schuol, Voith• Ruth Tiffer-Sotomayor, World Bank
• Elisa Jianliang Xiao, New Development Bank
• Daniel Menebhi, Swiss State Secretariat for Economic Affairs• Geir Hermansen, Norwegian Agency for Development Cooperation• Shi Guoqing, China Hohai University• Sunil Poudel, Nepal Ministry of Energy• Lesha Witmer, Women for Water Partnership• Jiwari Abdullah, Sarawak Energy Berhad• Roger Gill, Hydrofocus• Pedro Sirgado, EDP Portugal
Among other responsibilities, the role of the HSGC is to approve the accreditation of assessors, to adjudicate
on any breach of the Licence Agreement, and to decide on any rescindment of accreditation as well as to act
as arbiter in cases of dispute concerning the outcome of an assessment.
The IHA Sustainability acts as management entity (ME) to the HSAC and is responsible for overseeing training
and accreditation and coordinating governance activities.

What assurance is there on the robustness of the assessment?
Assessment under the ESG Gap Analysis tool must be carried out by an accredited assessor licensed by theInternational Hydropower Association. Accredited assessors are named individuals.
Accreditation of assessors is defined under clause 8 of the Terms and Conditions for Use of the HSAP and HESG
and accredited assessors are required to:• Have at least 6 years of relevant experience in the sector;• Have appropriate auditing qualification or experience (e.g., certification on an IRCA-certified auditing
course which includes sufficient content on ISO 19011, such as an EMS Lead Auditor course) and at
least 40 hours of IRCA-certified training in EMS, health and safety or social auditing;• Complete a 40-hour training course (authorised by the HSAC) and pass a final exam. At this point they
become a Provisionally Accredited Assessor; and• Complete practical training by participating in one official HSAP or HESG Assessment and receive
positive appraisal by the Accredited Lead Assessor involved in the assessment. At this point they
become a Fully Accredited Assessor.

Further, to become an accredited Lead Assessor, they are also required to:•••Within any 24-month period, participated in at least three assessments where they are responsible
for at least six different HSAP topics, across at least two of the lifecycle stages of the HSAP; andServed as a trainee Accredited Lead Assessor on an Official Assessment under the guidance of an
Accredited Lead Assessor; andDemonstrate proficiency in the key Lead Assessor areas of competence.

All Accredited Assessors abide by a Licence Agreement, that includes the following quality control clauses:
1. The Licensee will not unilaterally modify the relevant Hydropower Sustainability Tool, the Official
Report template or the Accredited Assessor Training Manuals without prior written approval of the
HSGC. Other HSGC-provided materials can be tailored to individual use, but such tailoring will be
subject to good faith requirements.
2. The Licensee will perform the Services with all due skill, care and diligence including good industry
practice and in compliance with the Code of Ethics. The Licensee acknowledges and agrees that theexercise of the rights granted to the Licensee under this Agreement is subject to all applicable laws,
enactments, regulations and other similar instruments in whichever jurisdiction the Licensee isproviding Services.
3. In respect of any Services where claims are made, the HSGC or the ME may at any reasonable time
during the Agreement make written request to:(a) Inspect evidence cited by the Licensee in support of conclusions drawn in an Official
Assessment Report;(b) Inspect the Terms of Reference, scoping document, interview schedule, list ofinterviewees, evidence register and site visit plan in relation to the Licensee’s delivery ofServices;(c) Audit the Licensee’s delivery of Services, to establish that the methodology used for theassessment and the conclusions drawn in the Official Assessment Report are objective,
credible and replicable; or(d) Receive any such information that the HSGC or ME reasonably feels it requires to makean appropriate assessment of the veracity of the report or claim.
The Licensee will not unreasonably refuse such requests and will provide reasonable assistance tothe HSGC in making such inspection or audit. The Licensee will pay the cost incurred by the HSGC for
the inspection and audit if a breach of contract that warrants termination of this Agreement is
identified.
4. The Licensee will ensure that he/she will only employ, sub-contract or otherwise engage, in deliveryof the Services, other Provisionally Accredited Assessors or Accredited Assessors, within noted
restrictive requirements.
5. The Licensee will promptly provide to the ME copies of any Official Assessments undertaken by the
Licensee for the purposes of quality control and for inclusion in the ME’s databases. Unofficial
Assessments may also be included in these databases
6. The Licensee will promptly provide to the ME details of any complaints he/she has received relating
to the Hydropower Sustainability Tools or the Services together with reports on the manner in whichsuch complaints are being, or have been, dealt with, and will comply with any reasonable directions
given by HSGC in respect of such complaints.
Accredited assessors are provided with four reference manuals to develop their ability to use the Protocol inas consistent a manner as possible, so that assessments are objective, credible and replicable, and results canbe compared. The focal areas of the manuals are shown in Figure 1. Manuals 2 and 3 provide guidance toassessors for planning and carrying out an assessment.

In addition, assessors are provided with:• ‘Good Practice Guidelines’: this expands on what is expected by statements on HESG and HSAP
scoring criteria and provides detailed explanations of the requirements of that statement in order toachieve good practice, including definitions of terms and relevant examples.
• ‘Hydropower Sustainability Assessment Guidance’ embedded in the HSAP: this includes definitions,examples of evidence and potential interviews.
• Specific assessment guidance within each topic – currently available for four of the elements tested
within the ESG tool.
These documents describe what the assessor will be looking for in the assessment.
The draft final report is published online with a 60 day period for comments.

What are the reporting requirements for certification?
The Climate Bonds Standard includes reporting requirements both pre- and post-issuance of Climate Bonds.
In the case of hydropower related use of proceeds, issuers of Certified Climate Bonds must publicly disclose
the accredited assessor’s report on the assessment carried out under the ESG Gap Analysis Tool, and theassociated ESAP (if significant gaps were identified). CBI provides a link to these documents on our website.
CBI also encourages applicants to address the concerns of local communities by undertaking the adaptation
and resilience assessment with the free, prior and informed participation (FPIC) of indigenous peoples, anddisclose any identified impacts on protected areas such as Ramsar and UNESCO World Heritage sites notalready covered by the ESG Tool.

Is there any risk that the Criteria are too strict and discourage certification?
It might be difficult for some developers to meet the Criteria. However, the Criteria must be strong enough toensure the project or asset contributes to the achievement of the Paris Agreement climate objectives. In
developing the Hydropower Criteria, CBI has considered the need for a balance between rigour andpracticality. We have built on existing protocols and made the process streamlined and fair to ensure
certification is feasible.

Hydropower is a long-term investment, so today’s Criteria may be superseded bytechnology or new scientific findings. Have you taken this into consideration?
The Hydropower Criteria will be reviewed no more than three years after launch, earlier if needed, at which
point the TWG will take stock of issues that arise and developments in improved methodologies and data that
can increase the climate integrity. As a result, the Criteria are likely to be refined as more information becomes
available. However, certification will not be withdrawn retroactively from bonds certified under earlier
versions.

Given current climate science, shouldn’t all bonds comply with climate
standards?
We want to identify bonds that contribute to the achievement of the Paris Agreement, in all relevant sectors.
Sector Criteria already developed by CBI include solar energy, wind energy, marine renewable energy,
geothermal power, production of biofuels, buildings, land transport, shipping, water infrastructure, waste
management, forestry and agriculture. In addition to hydropower, sector criteria currently under development
include electricity grids and storage and a number of industrial sectors. We will shortly develop criteria forheavy industry and other key sectors that need to transition to a low carbon economy. We specifically exclude
fossil fuels and nuclear energy.

Disclaimer: "The Climate Bonds Standard Board operates legally as an advisory committee of the Climate Bonds
Initiative Board and oversees the development of the Climate Bonds Standard. Neither the Climate Bonds
Standard Board nor any organisation, individual or other person forming part of, or representing, the Climate
Bonds Standard Board (together, "CBSB") accepts or owes any duty, liability or responsibility of any kindwhatsoever to any issuer which wishes to apply for any of its bonds to be certified under the Climate Bonds
Certification Scheme ("Scheme"), or to any issuer whose bonds may at any time be certified under the Schemeor to any other person or body whatsoever, whether with respect to the award or withdrawal of any
certification under the Scheme or otherwise. All advice or recommendations with respect to any certification
under the Scheme or otherwise that CBSB provides to the Climate Bonds Initiative Board is provided to it in anadvisory capacity only and is not to be treated as provided or offered to any other person.”