Publications

On Thursday, October 5, 2023, the European Parliament officially adopted the European Green Bond Regulation (EuGB Regulation), which will become law following formal approval by the European Council and subsequent publication in the EU Journal. The EuGB Regulation will start to apply one year after its entry into force (20 days following publication) and have direct effect on EU Member States. 

Under the EuGB Regulation, issuers (financial or non-financial undertakings, as well as sovereigns and quasi-sovereigns) that choose to use the “European green bond” or “EuGB” designation when marketing a bond offering in the EU will need to comply with various requirements. Notably:

• The EuGB designation may only be used by issuers that publish a prospectus, with the exception of bonds that do not require a prospectus under the EU Prospectus Regulation.
  

• At least 85% of the net proceeds of a green bond marketed in the EU (EuGB) must be allocated to environmentally sustainable economic activities as set out in the EU Taxonomy Regulation (Taxonomy Regulation), or to economic activities that contribute to the transformation of activities to become environmentally sustainable within a short time period from issuance (though 15% of proceeds may be allocated to activities that are not yet Taxonomy-eligible provided they satisfy safeguards set forth in the Taxonomy Regulation, i.e. the “flexibility pocket”).
  

• Issuers will need to comply with prescriptive, pre- and post-issuance disclosure requirements about the EuGBs they issue using standardized templates included in annexes to the EuGB Regulation.
  

• External validation of certain disclosures by independent EU/third-country external reviewers registered with, supervised by and accountable to the European Securities Market Authority (ESMA) will be required.

The stated goals of the EuGB Regulation are to: (i) improve the transparency, comparability and integrity of the European green bond market, minimizing greenwashing and helping investors assess and direct capital towards sustainable businesses and technologies; and (ii) give issuers greater certainty that the bonds they issue will be suitable to investors. In so doing, the EuGB Regulation is expected to help scale and elevate the environmental ambitions of the European sustainable finance market and support the EU’s goal of climate neutrality.

Issuers and investors familiar with the ICMA 2021 Green Bond Principles (GBP)—a voluntary framework that has achieved the status of nearly universally accepted principles—will notice significant convergence between the two standards. However, the EuGB Regulation sets out certain prescriptive requirements that differentiate it from market-based green bond instruments. While the GBP will remain available, over time market forces may encourage issuers to leverage the EuGB Regulation requirements, even if not required.