It has been a busy time in the financial services space, with the regulatory landscape continuing to evolve as we move through 2025. In this insight article from the Finance and Capital Markets Department, the key themes that we are considering are the EU Green Bond Standard, EMIR 3.0 and ESG ratings.
EU Green Bond Standard
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 EuGBS is open to any issuer of green bonds, including issuers located outside of the European Union.
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"). For those sectors not yet covered by the EU Taxonomy and for certain very specific activities there is 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.
- 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"). 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.
- 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.
- 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.
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 this and confirmed that responsibility for these elements sits with the Primary Markets team in the Capital Markets and Funds Directorate of the CBI.
Adoption of EuGBS
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.
Matheson Insights:
EU Green Bond Standard - Applicable Now
LMA Publish Model Provisions for Green Loans
CSRD: The European Commission Proposes Significant Deregulation
CSRD & the Omnibus Package – Impact on SPVs
Matheson LinkedIn Post:
‘Financing Outlook for 2025’ webinar – 27 February 2025
If you would like to view a recording of this webinar, please reach out to your usual Matheson contact.
EMIR 3.0
On 14 February 2024, following negotiation and political agreement with the European Parliament, the Council of the EU released the provisionally agreed text of EMIR 3.0. These amendments to EMIR (contained in Regulation (EU) 2024/2987, “EMIR 3.0”) were published in the Official Journal of the EU on 4 December 2024 and have been in force since 24 December 2024.
Transaction Reporting
There is an existing and continuing requirement in EMIR on transaction parties to report the details of all OTC and exchange-traded derivative contracts that they conclude, modify or terminate to a trade repository by the end of the next working day. Since the coming into force of EMIR in 2012, the CBI has issued a number of guidance statements and recommendations in relation to EMIR. For example, in its third Securities and Markets Risk Outlook Report published on 2 March 2023 the CBI stressed that it expects derivatives users to "have appropriate oversight of data reporting from Board level down (including where data reporting is outsourced)". In particular, the CBI expects formalised policies and procedures to be in place to ensure compliance. On 28 November 2023, the CBI issued a fine against a fund for breaches of the transaction reporting rules under EMIR following an enforcement action pursuant to the European Union (European Markets Infrastructure) Regulations 2014, as amended - you can read more about this here.
EMIR 3.0 contains new requirements in relation to data quality and penalties for transaction reporting. Derivatives users are required to put in place appropriate procedures and arrangements to ensure the quality of data reported. ESMA is mandated to draft guidelines to specify these procedures and arrangements. In addition to existing penalty requirements under EMIR, national competent authorities (such as the CBI) are obliged to impose administrative or periodic penalty payments on entities whose reports repeatedly contain manifest errors. The periodic penalties will be set at an amount up to 1% of average daily turnover for the proceeding business year per day of breach. While many national competent authorities (including the CBI) have reserved the right to issue fines for EMIR transaction reporting breaches, this is the first time a quantifiable financial penalty for breach of transaction reporting requirements is enshrined in the primary legislation. ESMA is mandated to draft Regulatory Technical Standards specifying what constitutes specific manifest errors for this purpose.
Clearing
One of the central objectives of EMIR 3.0 is to encourage clearing in the EU and improve the attractiveness of EU authorised CCPs. Furthermore, EMIR 3.0 aims to strengthen EU strategic autonomy and safeguard financial stability by requiring clearing members and clients to hold directly or indirectly an active account at EU authorised CCPs. The active account obligation will apply to OTC interest rate derivatives denominated in euro and / or Polish zloty and short term interest rate derivatives denominated in euro (together, “SSI Derivatives”). Financial counterparties (“FCs”) subject to the clearing obligation (“FC+s”) and non-financial counterparties (“NFCs”) subject to the clearing obligation (“NFC+s”) who exceed a threshold of €3 billion when all SSI Derivatives are aggregated at group level are obliged to hold at least one active account for SSI Derivatives in an EU authorised CCP. This obligation must be fulfilled by in-scope counterparties within six months of the entry into force of EMIR 3.0. These entities must also clear a 'representative' number of trades in such active accounts if they exceed a threshold of an outstanding notional clearing volume of €6 billion when all their SSI Derivatives are aggregated at group level. Further details of these requirements are being developed by ESMA. It is important to note that these obligations do not directly impact most buy-side derivatives users as they are not FC+s or NFC+s.
Other Changes to EMIR
EMIR 3.0 also contains a number of other amendments to the EMIR framework. Amongst other matters, these include giving NFCs who become subject to mandatory margin requirements, including requirements to post variation margin and initial margin, a 4-month implementation period to set up the relevant arrangements to meet these obligations. During this period any new derivatives entered into will be exempt from the mandatory margin requirements.
Matheson Insights:
A New Direction: First Central Bank Enforcement against a Fund under EMIR
Significant Changes in Reporting Rules for Derivatives Users
ESG Ratings Regulation
The ESG Ratings Regulation ( Regulation (EU) 2024/3005, the “ESG Ratings Regulation”) was published in the Official Journal of the European Union on 12 December 2024 and will apply from 2 July 2026. As sustainable investing gains prominence globally, environmental, social and governance (“ESG”) ratings play an increasingly central role in the sustainable finance ecosystem. The ESG Ratings Regulation aims to increase transparency and confidence in sustainability-related information by introducing a mandatory framework for providers of ESG ratings. Until now, ESG rating activities were not subject to any EU-wide regulation, creating discrepancies in methodologies and risks of greenwashing.
Key Definitions
From 2 July 2026, the ESG Ratings Regulation will apply to ESG ratings issued by ESG rating providers operating in the EU.
ESG ratings are defined widely as an opinion, score or combination of both regarding a rated item’s profile or characteristics with regard to environmental, social and human rights or governance factors, exposure to risks, or the impact on environmental, social and human rights or governance factors based on both an established methodology and a defined ranking system of rating categories, irrespective of whether such ESG rating is explicitly labelled as an “ESG rating”, “ESG opinion” or “ESG score”. The list of ESG ratings that are explicitly out of scope has been expanded substantially since the originally proposed exemptions due to input from relevant stakeholders, and includes private ESG ratings as well as certain types of EU Taxonomy disclosures.
An “ESG rating provider” is any legal person whose activities include the issuance, and the publication or distribution of, ESG ratings on a professional basis.
The concept of “operating in the Union” covers either (i) issuing and publishing ratings on the provider’s website or through other means or (ii) issuing and distributing ratings through subscription or other contractual relationships to certain entities, such as regulated financial undertakings in the EU, entities within the scope of the EU Accounting Directive or EU Transparency Directive, and certain EU bodies or public authorities in an EU member state. Providers established outside the EU will only be within scope where they engage in the activities referenced in (ii) above.
Authorisation and Supervision
Any legal person that wishes to operate as an ESG rating provider in the EU must obtain authorisation from ESMA if it is established in the EU. Once authorised, there are various governance, transparency, conflict of interest and methodology requirements that will apply.
Third-country ESG rating providers who wish to operate in the EU typically must (i) be authorised and supervised in that third country and (ii) benefit from an equivalence opinion in respect of that jurisdiction by ESMA. A non-EU entity will need to make a notification to ESMA and will be included on a specific ESMA register. There are also other routes to market for small non-EU ESG rating providers in the absence of an equivalence decision, involving the establishment of a legal representative in the EU and separately where an authorised EU ESG rating provider endorses the ratings of a third-country ESG rating provider in the same group.
To balance the regulatory burden on small ESG rating providers, the ESG Ratings Regulation introduces a lighter temporary regime for small ESG rating providers who meet the criteria of a small undertaking under the EU Accounting Directive. The lighter regime is optional and small ESG rating providers who opt in will only be subject to specific organisational and transparency requirements. The regime for small ESG rating providers is temporary and those who choose to opt in will be subject to the full ESG Ratings Regulation after three years.
Getting Ready
ESMA has significant powers of supervision in relation to compliance with the ESG Ratings Regulation, such as the power to carry out on-site inspections, withdraw or suspend the relevant provider’s authorisation, and issue public notices or impose fines. It is therefore incumbent on in-scope providers in Ireland and elsewhere to assess the likely impact of the ESG Ratings Regulation, including whether their current governance, transparency and methodology processes and procedures need to be updated.
Matheson Insights:
ESG Ratings - A Significant Development
Sustainability – Linked Loans Financing Bonds – Guidelines Published
For further information on the above, please contact John Adams, a partner in the Finance and Capital Markets Department 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.