[co-author: Oliver Williams]

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“).

Background

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.

Next Steps

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.

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