Provisional Agreement Reached on European Green Bonds

The EU is taking further steps to implement its strategy on financing sustainable growth and the transition to a climate-neutral, resource-efficient economy. Negotiators of the Council and the European Parliament reached a provisional agreement on the creation of European green bonds (EuGB).

The new standard which we are setting will be useful for both issuers and investors of green bonds. Issuers will be able to demonstrate that they are funding legitimate green projects aligned with the EU taxonomy. And investors buying the bonds will be able to more easily assess, compare and trust that their investments are sustainable, thereby reducing the risks posed by greenwashing.Elisabeth Svantesson, Minister for Finance of Sweden

This regulation lays down uniform requirements for issuers of bonds that wish to use the designation ‘European green bond’ or ‘EuGB’ for their environmentally sustainable bonds that are aligned with the EU taxonomy and made available to investors globally. It also establishes a registration system and supervisory framework for external reviewers of European green bonds. To prevent greenwashing in the green bonds market in general, the regulation also provides for some voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU.

Environmentally sustainable bonds are one of the main instruments for financing investments related to green technologies, energy efficiency and resource efficiency as well as sustainable transport infrastructure and research infrastructure.

Under the provisional agreement, all proceeds of EuGBs will need to be invested in economic activities that are aligned with the EU taxonomy, provided the sectors concerned are already covered by it. For those sectors not yet covered by the EU taxonomy and for certain very specific activities there will be a flexibility pocket of 15%. This is to ensure the usability of the European green bond standard from the start of its existence. The use and the need for this flexibility pocket will be re-evaluated as Europe’s transition towards climate neutrality progresses and with the ever increasing number of attractive and green investment opportunities that are expected to become available in the coming years.

As regards supervision, the national competent authorities of the home member state designated (in line with the Prospectus Regulation) shall supervise that issuers comply with their obligations under the new standard.

The agreement is provisional as it still needs to be confirmed by the Council and the European Parliament, and adopted by both institutions before it is final. It will start applying 12 months after its entry into force.

Background

The Commission presented its proposal for a regulation establishing European green bonds on 6 July 2021. The EuGB proposal aims to regulate the use of the designation ‘European green bond’ or EuGB for bonds that pursue environmentally sustainable objectives. It aims to establish a system for the registration and supervision of entities acting as external reviewers for EuGB and to regulate the supervision of issuers of EuGB.

The Council set its position on the proposal on 13 April 2022. Trilogue negotiations started on 12 July 2022 and ended with the provisional agreement reached today.

Source: Council of the EU

A comment from ICMA on the provisional agreement on EU Green Bond Standards, an important milestone for green and sustainability-linked bonds marketed in the EU.

Click here to read: https://t.co/WCNkNMQGVh#sustainability #fixedincome #capitalmarkets #greenbonds #eugbs pic.twitter.com/z1p9YZ7jZN

— ICMA (@ICMAgroup) March 2, 2023

ICMA supports voluntary nature of EU Green Bond (EU GB) label and of wider sustainable bond disclosures

Following the announcement of the provisional agreement reached on the EU Green Bond Standard (EU GBS) under the Swedish Presidency of the Council of the EU, ICMA reiterates its support for the voluntary nature of the proposed EU Green Bond label as well as of the disclosure templates proposed for green bonds and sustainability-linked bonds marketed in the EU.

ICMA has actively engaged with the Commission, Parliament, and Member States to promote the consistency and complementarity of the EU GBS with existing market practices and in support of a European official standard for green bonds. ICMA was represented in all of the Commission’s sustainable finance expert groups since 2017, including the High Level Expert Group (HLEG), Technical Expert Group (TEG) and Platform on Sustainable Finance (PSF).

Looking ahead to the implementation challenges of the EU GBS, ICMA will continue to make recommendations to ensure, among other things, that the proposed voluntary disclosure templates minimise duplication or inconsistencies across other EU sustainable finance legislation. We also underline that the future uptake of the EU GB label will be closely correlated with the resolution of the considerable usability challenges of the EU Taxonomy identified in the extensive report of the Commission’s PSF as well as ICMA’s earlier report.

Nicholas Pfaff, Deputy CEO and Head of Sustainable Finance, ICMA said: “The voluntary nature of the EU Green Bond label and of the wider sustainable bond disclosures should ensure that the EU GBS supports Europe’s leadership in the international sustainable bond market. Sustainable bonds are the pre-eminent source of sustainable market finance and are characterised by transparency, integrity and accountability underpinned by a global standard, the Principles, provided by ICMA.”

ICMA hosts the Principles that underpin sustainable bond issuances globally and represent the international market standard. In 2021, over 98% of the global sustainable bond issuance aligned with the Green, Social, Sustainability, and Sustainability-Linked Bond Principles (the Principles). The Principles benefit from the input of over 420 organisations internationally including issuers and investors coordinated by an elected Executive Committee. Europe has been the clear leader in sustainable bond market activity with around 40% of the outstanding international total. EU Member States and public bodies, as well as the European Commission have issued sustainable bonds aligned with the Principles such as the NGEU Green Bonds. The Green Bond Principles have encouraged issuers to disclose EU Taxonomy alignment of their projects since June 2021.

Source: ICMA

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