Entry into force of new regulation and its purpose
On 30 November 2023, Regulation (EU) 2023/2631 of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds (the “EuGBs Regulation”) was published in the Official Journal of the EU.
This EuGBs Regulation lays down uniform requirements for issuers of bonds who wish to use the designation « European Green Bond » or « EuGB » for their bonds that are made available to investors in the EU. These requirements are aligned with the framework of the European taxonomy, which defines the economic activities that the EU considers to be environmentally sustainable.
The EuGBs Regulation shall, for the most part, apply from 21 December 2024 except for some provisions which already apply since 20 December 2023 and a few provisions which shall only apply from 21 June 2026.
Who can issue an EuGB and the main conditions
European Green Bonds can be issued by financial and non-financial undertakings, as well as non-corporate entities such as sovereigns.
To qualify as an EuGB, the proceeds of the bond must be used to finance economic activities having a lasting positive impact on the environment. The EuGBs Regulation distinguishes between a gradual and a portfolio approach:
- The gradual approach implies that issuers must ensure that 85 % of the net proceeds of the bond are allocated to taxonomy-aligned activities before bond maturity. In essence, the proceeds of the EuGB can be allocated to fixed assets, capital and operation expenditures or financial assets that relate to economic activities that meet taxonomy requirements or to assets and expenditures of households.
- Under the portfolio approach, issuers can also allocate EuGB proceeds to a portfolio of fixed assets or financial assets in accordance with taxonomy requirements.
Further requirements applicable to the issuers
Issuer of EuGBs must comply with certain transparency and external review requirements, including:
- The appointment of an independent external reviewer who will be responsible for delivering a pre-issuance review of European Grenn Bond factsheet and a post-issuance review of the European Green Bond annual allocation reports (with the conditions regarding the external reviewers being set out in Title IV of the EuGBs Regulation),
- The publication of a prospectus pursuant to EU Prospectus Regulation (EU) 2017/1129 of 14 June 2017.
There are specific conditions which must be complied with for the use of the designation “European Green bonds” or “EuGB” in respect of securitisation bonds.
The EuGBs Regulation provides that optional disclosure templates shall be made available for issuers of bonds marketed as environmentally sustainable and for sustainability-linked bonds in the EU.
Supervision
Title VI of the EuGBs Regulation sets out the supervisory powers of ESMA and the national competent authorities in respect of compliance with the EuGBs Regulation as well as the available penalties/administrative measures in case of non-compliance.
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