The Proposed European Green Bond Standard

The recently proposed EU Green Bond Standard (‘EU GBS’) set forth by the European Commission (‘EC’) creates a voluntary standard for issuers with primary objectives to:

• Increase the environmental ambition of the green bond market
• Provide a consistent standard for the public and private sector to use green bonds to raise funds through the capital markets to finance environmentally ambitious investment while meeting a high standard of sustainability to protect investor from greenwashing
• Provide issuers with a robust method of demonstrating they are funding green projects aligned with the EU Taxonomy while protecting investors from greenwashing by enabling them to readily assess the environmental sustainability

The EU GBS will be available to any issuer of green bonds, including issuers located outside of the EU. Four key requirements under the proposed framework include:

• Funds raised by the bond should be allocated fully to projects aligned with the EU Taxonomy;
• Full transparency on how bond proceeds are allocated through detailed reporting requirements;
• All EU green bonds must be checked by an external reviewer to ensure compliance with the Regulation and that funded projects are aligned with the EU Taxonomy.
• External reviewers providing services to issuers of EU green bonds must be registered with and supervised by the European Securities Markets Authority (‘ESMA’). This will ensure the quality and reliability of their services and reviews to protect investors and ensure market integrity.

The EU GBS requires the following mandatory information to be published in connection with the issuance of an EU Green Bond (‘EU GB’).

• EU Green Bond Factsheet: an EU GB may only be offered to the public in the EU following publication of an EU GB factsheet. The issuer will need to ensure that the EU GB factsheet has been subject to a pre-issuance review with a positive opinion by an external reviewer.
• Annual Allocation Reports: to be published every year until the full allocation of the proceeds of the bond. They must be made public within 3 months of the end of the reference year, to demonstrate that the proceeds of EU GBs have been allocated as required.
• Post-Issuance Review Report: issuers will be required to obtain a post-issuance review by an external reviewer of the first allocation report following full allocation of bond proceeds. The post-issuance review report must assess whether the issuer has allocated the proceeds of the bond in compliance with the EU GBS requirements and complied with the intended use of proceeds as set out in the EU GB Factsheet.
• Impact Report: issuers will need to perform an impact report demonstrating the environmental impact of the use of proceeds, after the full allocation of the proceeds and at least once during the lifetime of the bond.
• Prospectus Requirements: where a prospectus is to be published under to the EU Prospectus Regulation such prospectus must clearly indicate that the bond is issued in accordance with the EU GBS in the use of proceeds section of the regulation.

The EC in consultation with the European Council (‘The Council’) Economic and Financial Commission (‘EFC’) subgroup on European Sovereign Debt Markets (‘ESDM’) and the The Council’s Green Bonds Working Group (‘GBWG’) collaborated with the Member State Expert Group on Sustainable Finance (‘MSEG’) conducted public consultation and targeted review and assessment of the proposed EU GBS concerning labels and standards for a range of financial product-sets. Consultation concerning the proposed EU GBS spanned public and private sector stakeholders from 20 Member States, 2 European Countries and 2 Non-European Countries. 11 cross-sector stakeholders from 17 Member States participated in interviews and national debt management officers from 17 Member States provided feedback.

The European Securities Markets Authority (‘ESMA’) opined on a potential registration and supervision regime for External Reviewers at the EU level.

The EC Joint Research Centre (‘JRC’) prepared several academic papers, working papers and reports concerning green bonds, including;

• Green Bonds and Company’s Environmental Performance: Feasibility Study
  Green Bonds and Use of Proceeds Reporting: What Do We Know From Market Data Providers?
• The Pricing of Green Bonds: Are Financial Institutions Special?
• Green Bonds as a Tool Against Climate Change