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On 6 July 2021, the European Commission published its proposal for an EU green bond framework (Commission Proposal) with the objective of creating a high-quality voluntary standard for bonds financing sustainable investment and to increase investment in the EU's transition towards a sustainable economy.
Under the Commission Proposal, issuers of bonds that wish to use the designation of "European green bond" or "EuGB" for their bond issuances will be required to comply with certain uniform requirements to demonstrate that they are funding legitimate green projects aligned with the EU Taxonomy, including providing full transparency on how the bond proceeds are utilised. To be accredited as an EuGB, a bond must be assessed by an external reviewer. That reviewer must itself be registered with ESMA and must comply with certain transparency rules, professional qualification requirements and conflict of interest provisions.
Provisional agreement reached on EU Green Bond Framework
On 28 February 2023, the European Parliament and the Council of the EU announced that provisional agreement has been reached on the EU green bond framework. The following changes to the Commission Proposal were highlighted:
- While the Commission Proposal imposed an obligation that 100% of the proceeds raised by an EuGB must be allocated to taxonomy-aligned economic activities, the European Parliament and the Council have indicated that the revised framework allows for some flexibility whereby 15% of the proceeds from a green bond could be invested in economic activities for which no technical screening criteria have been developed under the EU Taxonomy to determine if that activity contributes to a green objective;
- The agreed text also provides for a voluntary disclosure framework for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU which do not fully meet the criteria for an EuGB; and
- Issuers choosing to use the EuGB standard when marketing a green bond will be obliged to show how those investments feed into the transition plans of the issuer as a whole. The European Parliament has noted in this regard that the standard "requires companies to be engaging in a general green transition".
The agreed text must now be formally confirmed by the European Parliament and the Council of the EU and adopted by both institutions before it is considered final and published in the Official Journal. It will apply 12 months after its entry into force.
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