How an EU-wide standard could encourage market participants to issue & invest in EU green bonds and improve the effectiveness, transparency, comparability & credibility of the market
The European green deal of 11 December 2019 underlined the need to better direct financial and capital flows to green investments. The European green deal investment plan of 14 January 2020 announced that the Commission would establish an EU green bond standard (EUGBS).
Once it is adopted by co-legislators, this proposed Regulation will set a gold standard for how companies and public authorities can use green bonds to raise funds on capital markets to finance such ambitious large-scale investments, while meeting tough sustainability requirements and protecting investors.
This will be useful for both issuers and investors of green bonds. For example, issuers will have a robust tool 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.
The new EUGBS will be open to any issuer of green bonds, including companies, public authorities, and also issuers located outside of the EU.
There are four key requirements under the proposed framework:
Taxonomy-alignment: The funds raised by the bond should be allocated fully to projects that are aligned with the EU taxonomy
Transparency: Full transparency on how the bond proceeds are allocated through detailed reporting requirements
External review: All European green bonds must be checked by an external reviewer to ensure compliance with the Regulation and taxonomy alignment of the funded projects
Supervision by the European Securities Markets Authority (ESMA) of reviewers: External reviewers providing services to issuers of European green bonds must be registered with and supervised by the ESMA. This will ensure the quality of their services and the reliability of their reviews to protect investors and ensure market integrity
This report builds on the interim report that was published on 6 March 2019. More than 100 organisations provided feedback on the interim report and the feedback received was generally positive. A large majority of the respondents supported the creation of a voluntary EU GBS. The TEG has carefully studied the detailed feedback received from participating stakeholders and has created an improved version of the EU GBS.
Building on the recommendations of the June 2019 report, the TEG published on 9 March 2020 their usability guide for the EU green bond standard. This guide offers market actors guidance on the use of the proposed standard and the set-up of a market-based registration scheme for external verifiers. The usability guide contains an updated proposal for a green bond standard (annex 1).
In order to respond to the most frequently asked questions by stakeholders about the TEG’s final report and the Commission’s next steps, a joint document with frequently asked questions was published by the Commission and the TEG.
Building on the work of the TEG (see details of its recommendations below), the Commission launched an inception impact assessment and a call for feedback to explore the possibility of a legislative initiative for a European green bond standard.