On 28 February 2023, the Council of the European Union and the European Parliament reached a provisional agreement on the creation of the European Green Bond Standard ("EU GBS").
The idea of an EU Green Bond Standard has been in development for many years. An initial proposal for a European standard for green bonds was mentioned in a report from the EU High-Level Expert Group on Sustainable Finance back in 2017. The European Commission presented its proposal for the EU GBS in July 2021, with the aim of creating a voluntary 'gold standard' available to all bond issuers to help the financing of sustainable investments. Negotiations between representatives of the European Commission, the European Parliament and the Council of the European Union subsequently commenced and have now reached provisional agreement after failing to do so at the end of 2022.
The Provisional Agreement
The EU GBS will create requirements for issuers of environmentally sustainable bonds that intend to use the term 'European green bond' or 'Eu GB' with a requirement for all proceeds of 'EU GBs' to be invested in economic activities that are aligned with the EU taxonomy, provided the sectors concerned are already covered by the Taxonomy. For sectors not yet covered by the Taxonomy and for certain specific activities, it has been agreed there will be a flexibility pocket of 15%. In addition, and importantly, it appears that sustainability disclosures for non-EU GBS, but otherwise sustainable bonds or sustainability-linked bonds, will be via voluntary (rather than mandatory) disclosure templates. The EU GBS will also establish a registration system and supervisory framework for external reviewers of European green bonds. In terms of supervision, the national competent authorities of EU member states will be responsible for ensuring that issuers comply with their obligations under the EU GBS. The provisionally agreed text is expected to be published in the coming days and it will be important to review that to understand the full scope of the new standard.
The provisional agreement needs to be confirmed and then adopted by both the Council of the European Union and the European Parliament to become finalised. Once finalised, the EU GBS will start applying 12 months after entering into force. We will continue to monitor developments and provide further details when the provisionally agreed text becomes available.
Originally Published by 2 March 2023
Visit us at mayerbrown.com
Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2022. The Mayer Brown Practices. All rights reserved.
This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.