The European Parliament has recently introduced Regulation (EU) 2023/2631 of 22 November 2023 on European Green Bonds (the “EuGB Regulation”). The EuGB Regulation aims to provide a unified standard for green bond issuance in the EU, supporting both EU and non-EU issuers, public and private entities, in financing environmentally sustainable projects.
The Green Bond label is designed to complement existing market standards offering issuers a new tool to attract funds for green initiatives. The EuGB Regulation is built around three core principles:
- Alignment with EU Taxonomy: Green bond proceeds must fund activities aligned with the EU Regulation 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the “EU Taxonomy Regulation”), which classifies environmentally sustainable economic activities. This alignment ensures that investments contribute meaningfully to the EU’s environmental goals.
- Transparency: issuers will be required to disclose detailed information before and after issuance using standardised templates, ensuring accountability and clear communication about the use of funds.
- External review: bonds must undergo pre- and post-issuance reviews by registered external reviewers, adding a layer of credibility to the process.
Key requirements for issuers
To use the designation 'European Green Bond' or ‘EuGB’, issuers must ensure that bond proceeds are directed towards projects that align with the EU Taxonomy Regulation. Additionally, the EuGB Regulation allows for some flexibility, such as allocating up to 15% of funds to activities without defined taxonomy criteria, providing room for growth in emerging areas of sustainability.
Issuers must comply with specific disclosure requirements laid down in Article 15 of the EuGB Regulation, namely:
- before the bond is issued: produce a factsheet outlining how the funds will be allocated, submit it for a pre-issuance review and obtain a positive opinion from an external reviewer;
- after the bond is issued: provide annual allocation reports to demonstrate how the funds were spent;
- once all bond proceeds are allocated: submit a post-issuance review and an impact report, detailing the environmental outcomes of the funded projects.
Issuers shall notify ESMA of the publication of all documents referred to in Article 15 of the EuGB Regulation within 30 days of their publication.
Moreover, unless the issuer is exempt under the EU Regulation 2017/1129 of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market (the “EU Prospectus Regulation”), the issuance should be accompanied by an EU Prospectus Regulation compliant prospectus.
Sovereign issuers and securitisation bonds
Sovereign issuers benefit from some flexibility, including the option to use state auditors for post-issuance reviews and the ability to avoid demonstrating project-level taxonomy alignment for certain public expenditure programmes.
In the case of securitisation bonds, the EuGB Regulation permits the use of the “Green Bond” label if the bond proceeds are used in line with the EU Taxonomy Regulation, although specific exposures are excluded from scope, such as fossil fuel-related activities. Securitisation bonds issued for the purpose of a synthetic securitisation are not for the time being eligible to use the designation “European Green Bond”.
Optional disclosure for other ESG bonds
The EuGB Regulation also introduces optional disclosure templates for bonds marketed as environmentally sustainable or sustainability-linked. Issuers of these bonds must provide information on how proceeds contribute to environmental goals, ensuring transparency for investors. The European Commission is mandated to publish guidelines and adopt delegated acts with a view to establishing voluntary templates for these disclosures.
Role of external reviewers
External reviewers play a crucial role in verifying the alignment of bonds with the EU Taxonomy Regulation. They must be registered with ESMA and meet specific governance requirements. Both pre- and post-issuance reviews are mandatory, ensuring that the bonds remain aligned with the green objectives throughout their lifecycle.
Role of the CSSF
The CSSF is the competent authority in Luxembourg to ensure compliance by issuers and, where applicable, originators and securitisation vehicles with their respective obligations under the EuGB Regulation, i.e.:
- where a “Green Bond” prospectus is published and the CSSF is the competent authority of the home Member State designated pursuant to the EU Prospectus Regulation, issuers shall notify the CSSF of the publication of each of the documents referred to in Article 15 of the EuGB Regulation via the e-prospectus application without undue delay after each publication;
- for securitisation “Green Bonds”, where the CSSF is the competent authority designated in accordance with Article 29(5) of Regulation (EU) 2017/2402 of 12 December 2017 laying down a general framework for securitisation (the “Securitisation Regulation”), originators shall notify the CSSF via email to prospectus.filing@cssf.lu of the publication of each of the documents referred to in Article 15 of the EuGB Regulation, using the filing form for originators which is available on the CSSF website, without undue delay after each publication;
- the CSSF will also be responsible for supervision of issuers that use the optional post-issuance disclosure templates as regards compliance with those templates.
On 22 January 2025, the Luxembourg Parliament (Chambre des Députés) voted the Draft Law No. 8387, which inter alia amends the Luxembourg law of 16 July 2019 on the operationalisation of European regulations in the area of financial services to implement Article 49 of EuGB Regulation by defining the administrative sanctions and other administrative measures that the CSSF may impose to ensure compliance with the EuGB Regulation.
In summary, the EU Green Bond label introduced by the EuGB Regulation (which is directly applicable in all EU Member States since 21 December 2024, except for certain provisions set forth in Article 72), offers a comprehensive and transparent framework for financing sustainable projects, setting clear guidelines and responsibilities for issuers, reviewers, and investors alike. With its introduction, the EU aims to drive forward its environmental goals while fostering confidence in green finance.
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