EC adopted a new sustainable finance strategy, proposed the Regulation on European Green Bond Standard, and adopted the Delegated Act on disclosure of information based on EU Taxonomy Regulation. The new sustainable finance strategy sets out several initiatives to tackle climate change and other environmental challenges while increasing investment in the transition toward a sustainable economy in EU. The proposed European Green Bond Standard is a voluntary standard to help raise the environmental ambitions of the green bond market and the feedback period for this proposal ends on September 06, 2021. Additionally, the recently adopted Delegated Act on information disclosures, which supplements Article 8 of the Taxonomy Regulation, requires financial and non-financial companies to provide information to investors about the environmental performance of their assets and economic activities.
Sustainable finance strategy. The strategy aims to support the financing of the transition to a sustainable economy by proposing action in four areas: transition finance, inclusiveness, resilience and contribution of the financial system, and global ambition. EC will report on the implementation of this strategy by the end of 2023 and will actively support member states in their efforts on sustainable finance. The sustainable finance strategy includes six sets of actions:
- Extend the existing sustainable finance toolbox to facilitate access to transition finance
- Improve inclusiveness of small and medium-size enterprises (SMEs) and consumers, by giving them the right tools and incentives to access transition finance
- Enhance resilience of economic and financial system to sustainability risks
- Increase contribution of the financial sector to sustainability
- Ensure integrity of EU financial system and monitor its orderly transition to sustainability
- Develop international sustainable finance initiatives and standards as well as support EU partner countries
Proposed European Green Bond Standard. This proposal will create a high-quality voluntary standard available to all issuers (private and sovereigns) to help finance sustainable investments. Once it is adopted by co-legislators, the European Green Bond Standard will set a “gold standard” on how companies and public authorities can use green bonds to raise funds on capital markets to finance ambitious investments, while meeting tough sustainability requirements and protecting investors from greenwashing. Issuers of green bonds will have a robust tool at their disposal to show they are funding green projects aligned with the EU Taxonomy. In addition, investors buying the bonds will be able to more easily see that their investments are sustainable, thus reducing the risk of greenwashing. The new European Green Bond Standard will be open to any green bond issuer, including issuers located outside EU. The proposed framework sets out four key requirements:
- Funds raised by such bonds should be fully allocated to projects aligned with the EU Taxonomy.
- There must be full transparency on how bond proceeds are allocated through detailed reporting requirements.
- All EU green bonds must be checked by an external reviewer to ensure compliance with the Regulation and that funded projects are aligned with the Taxonomy. Specific, limited flexibility is foreseen here for sovereign issuers.
- External reviewers providing services to issuers of EU green bonds must be registered with and supervised by ESMA; this will ensure the quality and reliability of their services and reviews to protect investors and ensure market integrity. Specific, limited flexibility is foreseen here for sovereign issuers.
Delegated Act on disclosure of information. The Delegated Act specifies the content, methodology, and presentation of information to be disclosed by large financial and non-financial companies on the share of their business, investments, or lending activities that are aligned with the EU Taxonomy. Non-financial companies will have to disclose the share of their turnover, capital, and operational expenditure associated with environmentally sustainable economic activities as defined in the Taxonomy Regulation and the EU Taxonomy Climate Delegated act, formally adopted on June 04, 2021, as well as any future delegated acts on other environmental objectives. Financial institutions, mainly large banks, asset managers, investment firms, and insurance/reinsurance companies, will have to disclose the share of environmentally sustainable economic activities in the total assets they finance or invest in. The Delegated Act will be transmitted for scrutiny by the European Parliament and the Council for a period of four months, extendable once by two months.
- Press Release
- Adopted Measures and Related Documents
- Overview of Proposal on European Green Bond Regulation
- Q&A on European Green Bond Regulation
Comment Due Date: September 06, 2021 (EU Green Bond Standard)
Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, Climate Change Risk, ESG, Green Bond Standard, Taxonomy Regulation, Green Bonds, Sustainable Finance Strategy, Disclosures, EC
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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