The EU Green Bond Regulation (Regulation 2023/2631, as amended the “EU Green Bond Regulation”) was published in the Official Journal of the European Union on 30 November 2023 and has been directly effective in Ireland since 21 December 2024. While the European Green Bond Standard ("EuGBS") provided for in the EU Green Bond Regulation is a voluntary standard, it has the potential to become the leading standard in the international green bond market. It is an ambitious standard which goes well beyond existing guidelines and labels in the international green bond market. The new EuGBS is open to any issuer of green bonds, including issuers located outside of the European Union.
We have previously provided updates and more detailed analysis on the EU Green Bond Regulation as it has progressed through the legislative process: in December 2023, June 2023, March 2023 and July 2021 respectively.
Key Provisions
The key terms of the EU Green Bond Regulation include the following:
- The funds raised by EuGBS bonds must be allocated to projects aligned with the taxonomy outlined in the EU Taxonomy Regulation (the "EU Taxonomy").
- Transparency requirements on how EuGBS bond proceeds are allocated through detailed reporting requirements. There are pre-issuance and post-issuance reporting requirements in this regard.
- All EuGBS bonds must be checked by an external reviewer to ensure compliance with the EU Green Bond Regulation and that funded projects are aligned with the EU Taxonomy.
- External reviewers providing services to issuers of EuGBS bonds will need to be registered with and supervised by the European Securities and Markets Authority ("ESMA"). The European Commission plans to adopt an implementing act on the EU Green Bond Regulation in Q1 2025, specific to external reviewers. This implementing act will set out the standard forms and templates to use, and procedures to follow, when applying to be registered as an external reviewer of EuGBS bonds.
- The issuers of EuGBS bonds must publish a prospectus which has been approved under the EU Prospectus Regulation (save for some limited exceptions).
- The national competent authorities of the home member state designated (in line with the EU Prospectus Regulation) must supervise that issuers comply with their obligations under the new EuGBS.
Flexibility
In order to enhance take up of the EuGBS in the international green bonds market, the EU Green Bond Regulation builds in some important flexibility. We have outlined some examples of that flexibility below.
Under the EuGBS, all proceeds of EuGBS need to be invested in economic activities that are aligned with the EU Taxonomy, provided the sectors concerned are already covered by it. For those sectors not yet covered by the EU Taxonomy and for certain very specific activities there will be a "flexibility pocket" of 15%. Up to 15% of the net proceeds of EuGBS may be allocated to economic activities for which no technical screening criteria under the EU Taxonomy yet exist but which otherwise comply with the EU Taxonomy.
In addition, the EU Green Bond Regulation includes specific provisions for issues by sovereigns, regional / local authorities and EEA supranational issuers or those guaranteed by EEA members states and local authorities – which provisions somewhat mitigate the compliance burden on those entities. For example, EEA member states, local authorities, the European Central Bank and member state central banks and issuers of securities guaranteed by member states and local authorities are exempt from the requirement to prepare a EU Prospectus Regulation compliant prospectus for the purposes of any EuGBS issuance, dovetailing with the existing EU Prospectus Regulation exemption. Consequently, those issuers are not subject to supervision and imposition of sanctions by a national competent authority.
Furthermore, there is an 18-month transition period to 21 June 2026 in which external reviewers can provide services to issuers of EuGBS without being registered, provided that they have notified ESMA of their intention to provide such services.
Moreover, the EU Green Bond Regulation contains a separate optional disclosure regime for issuers of green use of proceeds bonds that are not aligned with the EU Taxonomy and / or sustainability-linked bonds to voluntarily opt-in to a number of the EU Green Bond Regulation’s disclosure requirements. This is sometimes referred to as the 'EuGB lite' regime.
Securitisations
As well as corporate bond issuers, the EU Green Bond Regulation is also relevant to issuers, sponsors and originators of securitisations.
In 2022, both the European Banking Authority and the European Commission expressed the view that, rather than developing a specific framework for sustainable securitisations in the EU, legislators should ensure that the EuGBS is appropriate for use by securitisations. This has been reflected in the final text of the EU Green Bond Regulation which includes provision that certain of the EuGBS requirements apply to the originator, rather than the issuer. This ensures that rather than being limited to including green collateral at the issuer level, a securitisation may benefit from looking at the originator’s role in sourcing green assets and still meet the EuGBS.
However, the final text of the EU Green Bond Regulation also confirms that bonds issued for the purpose of synthetic securitisation shall not be eligible to meet the EuGBS. The European Supervisory Authorities will review and report on possible changes to this exclusion by December 2028, subject to which the European Commission may produce a further report and possibly a legislative proposal.
The EU Green Bond Regulation also contains some exclusions for certain types of securitised exposure and additional specific disclosure requirements for securitisations.
Irish Supervisory Authority
Where Ireland is designated as home Member State pursuant to Article 31 of the EU Prospectus Regulation, the supervisory authority for the EU Green Bond Regulation is the Central Bank of Ireland (the "CBI"). The CBI has launched a dedicated section of its website to reflect same and confirmed that responsibility for these elements sits with Primary Markets in the Securities and Markets Supervision Directorate of the CBI.
Adoption of EuGBS
An unknown here is the likely breadth of adoption of the EuGBS label by issuers, particularly given the stringency of its requirements compared with market-based green bond principles. We anticipate that EU institutions and EU member states will perhaps be the first to use the EuGBS.
It is less clear when and to what extent financial institutions, corporates and issuers of securitisations will adopt the new standard. However, those entities with disclosure obligations under the Corporate Sustainability Reporting Directive may benefit from helpful synergies in terms of being already up the disclosure curve. As well as the requirements of the EU Green Bond Regulation, the adoption of the EuGBS by issuers will be driven by factors such as investor appetite, reputational considerations, the usability of the EU Taxonomy, pricing impacts and the financial costs involved in meeting the new standard.
For further information on the EU Green Bond Regulation, please contact Alan Bunbury, William Foot or your usual Matheson contact.
This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.