A type of repo (repurchase agreement) that is designed to finance green assets/ projects/ activities. It is a “green refinancing instrument” that can be annexed to a green bond, so that an issuer can refinance green assets/ projects on an immediate basis and finance the same on a short- to medium term, capitalizing on two green bond issuances. The use of proceeds from an issue are used in an econ-friendly manner, directing more funds into green projects and taking a direct role in supporting global climate initiatives.

The cash leg of the green repo will only be used to finance eligible green loans in line with an overarching framework for debt financing. In this sense, green repo focuses mainly on sustainable finance, and fosters transparency in the allocation of proceeds to eligible green loans, where a seller is also observed in terms of its accountability for fulfillment of a set of green objectives, by means of disclosing a dedicated allocation and impact reporting.

In a repo (a classic repo), the seller (borrower) agrees to repurchase collateral at the same sale price plus a specific amount (repo interest). Changes in the market value of the collateral during the repo period impacts the rightful owner of the collateral, i.e., the seller. The collateral remains on the balance sheet of the seller and does not appear on the balance sheet of the buyer (lender). In other words, if the seller assumes the risk associated with the collateral and remains entitled to any returns on that collateral. In the same token, a repo involving green collateral does not imply that the buyer (lender) will be considered to haven taken any role as to making a green investment.