Unlocking Sustainability: Navigating the European Green Bond Standard's Key Requirements

What to expect from the European Green Bond Standard

On 23 October, the European Council adopted the European Green Bond legislation, eight months after the EU reached a political agreement on the standard in February. The regulation will be signed and published in the EU’s Official Journal and will enter into force 20 days after publication in the Official Journal. The European green bond regulation should then apply 12 months after entry into force, so likely from November to December 2024 onwards. This means that towards the end of next year, issuers can officially start marketing bonds as European Green Bonds.  

 

The European Green Bond Standard – the requirements in a nutshell
The proceeds of bonds marketed as European Green Bonds should be allocated before the maturity of the bond conforms to the requirements from the EU Taxonomy.

Issuers may apply a portfolio approach. They can allocate the proceeds of multiple green bonds to a portfolio of taxonomy-aligned assets. When the bond proceeds are allocated to financial assets such as loans, the loans should in principle not be created later than five years after issuance of the European green bond, unless the portfolio approach is used.

The European green bond regulation provides for a so-called flexibility pocket. Up to 15% of the proceeds can be allocated to economic activities that comply with the EU taxonomy apart from the technical screening criteria, for instance because these criteria have not entered into force yet. The activities funded should still contribute substantially to one of the taxonomy’s environmental objectives. The relevant generic ‘do no significant harm’ provisions should also be met.

Importantly, if the technical screening criteria are amended before the maturity of the European green bond, the bond will keep its European green bond status if the proceeds were allocated based upon the old technical screening criteria. Only the unallocated proceeds and proceeds covered by a CapEx plan assuring their forthcoming taxonomy alignment will have to be allocated to conform to the new technical screening criteria within seven years. When a portfolio approach is applied, the assets not meeting the amended technical screening criteria can stay part of the green portfolio for seven years at most.

The European green bond regulation also subjects issuers of European green bonds to stricter transparency requirements by requiring the publication of a (pre-issuance) green bond factsheet and a (post-issuance) allocation and impact reports. To facilitate comparability, public disclosure templates will be established for other environmentally sustainable bonds and sustainability-linked bonds, including on the taxonomy alignment. For this purpose, the European Commission will establish guidelines for voluntary pre-issuance disclosure and a delegated act for periodic disclosures, in line with the European green bond factsheet and allocation report.