On 20 May 2022, the European Parliament Economic and Monetary Affairs (ECON) Committee adopted a report on the European Commission’s (Commission) proposal for a regulation of the European Parliament and of the Council on European green bonds (EuGB Regulation).
The EuGB Regulation will introduce a common framework of rules regarding the use of the “European Green Bond” (EuGB) designation for bonds that pursue environmentally sustainable objectives as defined by the Taxonomy Regulation ((EU) 852/2020). It also lays down a system for registering and supervising companies that act as external reviewers for green bonds that are aligned with the EuGB framework. The broader aim of the EuGB Regulation is to facilitate the further development of the European market for green bonds while minimising disruption to existing green bond markets and to reduce the risk of “greenwashing” by setting high standards for the issuance of green bonds.
In the report, the ECON Committee adopted a number of amendments to the original Commission proposal. These include:
- A widening of the scope: whereas the Commission proposal only establishes the European Green Bond label, the ECON Committee report establishes transparency requirements for all bonds that are marketed as environmentally sustainable. These requirements are contained in a new Article 7c. Bonds marketed as environmentally sustainable must also be aligned with the EU sustainable finance taxonomy.
- The ECON Committee introduces a new Article 7b, requiring all issuers of green bonds to have transition plans in place and have processes to identify and limit the principal adverse impacts of the issuer’s activity.
- New measures to ensure that external reviewers of EuGBs have fewer conflicts of interest.
- Supervisory authorities will be able to prevent companies from issuing EuGBs if they fail to follow the requirements under the Regulation.
- If a green bond issuer intends to allocate proceeds of the green bond to nuclear energy or fossil gas related activities, it must include an explicit statement announcing this on the first page of the EuGB Fact sheet.
Following the adoption of the draft report on the EuGB Regulation in the ECON Committee, it will be submitted to the European Parliament plenary. Following plenary adoption, which is expected in June or July 2022, the Parliament will commence trilogue negotiations with the Council, who adopted its own position on the EuGB Regulation on 13 April 2022. Once the European Parliament and the Council agree on a common compromise on the Commission proposal, the EuGB Regulation will need to be formally adopted by both co-legislators. This is expected in Q3 or Q4 2022. Following translation into all official languages and publication in the Official Journal (OJ), which is expected at the end of 2022 or early 2023. The EuGB Regulation will enter into force 20 days following its publication in the OJ. A number of requirements for external reviewers will become applicable 30 months after the entry into force of the Regulation, i.e. in mid-2025.