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Summaries of EU Legislation

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European green bond standard

SUMMARY OF:

Regulation (EU) 2023/2631 on European green bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds

WHAT IS THE AIM OF THE REGULATION?

The regulation:

lays down uniform requirements for issuers who wish to use the designation ‘European green bond’ or ‘EuGB’;
establishes a registration and supervisory system for external reviewers of EuGBs;
provides disclosure templates, notably for pre-issuance disclosures and allocation reports linked to EuGBs.

KEY POINTS

Eligibility

To be able to use the designation European green bond or EuGB, issuers:

must invest the proceeds from these bonds in full, before the bond reaches maturity, in sustainable economic activities covered by the European Union’s (EU) taxonomy* legislation (Regulation (EU) 2020/852 – see summary). These include fixed assets, capital and operating expenditures, and assets and expenditure of households (this is known as the gradual approach);
can alternatively allocate the proceeds from these bonds to a portfolio of fixed assets or financial assets in accordance with taxonomy requirements (portfolio approach);
may, under flexibility rules, invest up to 15% in economic activities that meet, but are not officially covered by, the taxonomy requirements.

Transparency

Issuers of green bonds must:

complete the European green bond factsheet (Annex I) and ensure that an external reviewer has approved it before issuing a bond (pre-issuance review);
provide, until the proceeds are fully invested, an allocation report (Annex II) every 12 months on where the funds are being directed;
receive post-issuance reviews from an external reviewer;
draw up and make public an environmental impact report (Annex III) on the use of the funds, at least once during the lifetime of the bond;
publish a prospectus in line with Regulation (EU) 2017/1129 (see summary), using the term European green bond or EuGB throughout (exceptions apply to sovereigns);
make the factsheet, prospectus, various reviews and other information freely available on their website for at least a year after the bond matures.

Securitisation* bonds

The following rules apply:

bonds issued for synthetic securitisation* cannot be termed European green bond or EuGB;
securitised exposures may:
- not be used to finance the exploration, mining, extraction, production, processing, storage, refining, distribution or transport of fossil fuels,
- be used to finance electricity from fossil fuels or the co-generation or production of heating/cooling and power from fossil fuels, provided this meets the ‘no significant harm’ test;
originators of securitisation bonds designated European green bond or EuGB:
- must state the nature of the bond in their prospectus,
- confirm that they are responsible for how the proceeds are used,
- provide additional information on the economic activities being supported.

Optional disclosure templates

The European Commission will publish templates by 21 December 2024 for voluntary pre-issuance and post-issuance disclosures for bonds marketed as environmentally sustainable* or sustainability-linked*.

Oversight

External reviewers must:

be registered with the European Securities and Markets Authority (ESMA);
satisfy practical and professional requirements;
employ appropriate systems, resources and procedures to carry out their work;
ensure that their analysts, employees and other staff have the necessary knowledge, experience and training;
maintain a permanent, independent and effective system of compliance;
implement internal due diligence policies and procedures to prevent conflicts of interest;
ensure that their reviews are based on a thorough analysis of all available and relevant information;
correct any methodological errors and immediately disclose them to ESMA and the issuers of the European green bonds involved;
ensure that third-party service providers, to whom they may outsource some, but not all, activities, can carry out reliable and professional assessments for which external reviewers remain responsible;
keep adequate records;
identify, eliminate, manage and disclose any actual or potential conflicts of interest.

Reviews

External reviewers must:
- not suggest that ESMA or any competent authority endorses their review;
- make their pre- and post-issuance and impact report reviews freely available on their website throughout the bond’s lifetime.
Non-EU external reviewers may provide their services under the regulation, provided that the Commission has issued an equivalence decision and that they are registered with ESMA, which may, with well-founded reasons, withdraw that approval.

Supervision

National competent authorities:

supervise issuers of European green bonds and their use of the common templates;
have extensive supervisory and investigatory powers;
cooperate with each other on investigations, supervision, enforcement and the exchange of information;
regularly communicate relevant information to ESMA.

ESMA:

may request any information it needs from external reviewers;
has the power to carry out on-site inspections, examine records, data, procedures and other material and to interview individuals during investigations;
may temporarily or permanently remove an external reviewer’s rights and impose fines ranging from €20,000 to €200,000, along with occasional penalties;
charges external reviewers fees for their registration, recognition and supervision and any other costs it may incur;
maintains a publicly accessible register of external reviewers on its website;
will draft various regulatory technical standards needed for the implementation of the regulation.

The Commission:

may adopt delegated acts;
will, by 21 December 2026, publish a report on whether there is a need to regulate sustainability-linked bonds;
will, by 21 December 2028, and every 3 years thereafter, submit a report to the European Parliament and the Council of the European Union on the regulation’s implementation.

FROM WHEN DOES THE REGULATION APPLY?

It applies from 21 December 2024.

BACKGROUND

Green bonds are one of the main ways of financing investment in green technology, energy and resource efficiency and sustainable transport and research infrastructure. They help implement the EU’s transition to a climate-neutral, resource-efficient economy.

The regulation fosters consistency and comparability in the green bond market and reduces the risk of greenwashing, for the benefit of both issuers and investors.

For further information, see:

The European green bond standard – Supporting the transition (European Commission).

KEY TERMS

Taxonomy. An investment classification system containing a list of environmentally sustainable economic activities.

Securitisation. The practice of pooling together various types of debt and selling them as bonds to investors.

Synthetic securitisation. The transfer of risk by using credit derivatives or guarantees with exposure remaining with the originator.

Environmentally sustainable. A bond with a commitment that the proceeds go to environmental activities.

Sustainability-linked. A bond with defined environmental sustainability objectives.

MAIN DOCUMENT

Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds (OJ L, 2023/2631, 30.11.2023).

Successive amendments to Regulation (EU) 2023/2631 have been incorporated into the original text. This consolidated version is of documentary value only.