UPSC Prelims 2026 Question: 

A bond whose proceeds are used only to finance or refinance a combination of both environmental and social  projects is called:

Answer: 3 

Explanation:  

A Sustainability Bond is a bond whose proceeds are used to finance or refinance a combination of both  environmental (green) and social projects.

• According to the guidelines of the International Capital Market Association, sustainability bonds  combine the features of both green bonds and social bonds and are aligned with the Green Bond Principles  (GBP) and Social Bond Principles (SBP). 
• Green Bonds finance projects with environmental benefits such as renewable energy, clean transportation,  energy efficiency, wastewater management, and climate adaptation. 
• Social Bonds finance projects with positive social outcomes such as affordable housing, food security,  healthcare, education, and support for vulnerable populations. 
• Sustainability Bonds finance a combination of both green and social projects. 
• Sovereign Bonds are simply government-issued debt securities and are not necessarily linked to  sustainability objectives. 

Therefore, option (3) is the correct answer.