EC has welcomed the publication, by the Technical Expert Group on Sustainable Finance, of a report on the classification of green economic activities—or taxonomy—and a usability guide for the Green Bond Standard in EU. The report on taxonomy contains recommendations on the design of the "green list" in EU, including guidance on how companies and financial institutions can use it. The usability guide on the EU Green Bond Standard aims to support potential issuers, verifiers, and investors of EU Green Bonds and offers views on the practical application of the EU Green Bond Standard. EC will use an upcoming public consultation on sustainable finance to explore a possible initiative for an EU Green Bond Standard.
Sustainable Finance Taxonomy
The Taxonomy Regulation, agreed at the political level in December 2019, creates a legal basis for the EU Taxonomy. The Taxonomy Regulation sets out the framework and environmental objectives for the Taxonomy as well as new legal obligations for financial market participants, large companies, EU, and member states. The Taxonomy Regulation will be supplemented by delegated acts that contain detailed technical screening criteria for determining when an economic activity can be considered sustainable and, hence, can be considered Taxonomy-aligned. EC established a Technical Expert Group on Sustainable Finance, which was tasked with developing recommendations on a range of topics, including what the Taxonomy technical screening criteria should be for the objectives of climate change mitigation and adaptation. This report sets out the final recommendations of the expert group to EC.
EC will use this report as a basis to develop rules setting out the classification of green activities for climate change mitigation and climate change adaptation. EC will adopt the classifications for climate change mitigation and climate change adaptation in the form of Delegated Acts by the end of 2020, as set out in the Taxonomy Regulation. This report and its Technical Annex contain:
- Recommendations relating to the overarching design of the Taxonomy
- Guidance on how users of the Taxonomy can develop Taxonomy disclosures
- A summary of the economic activities covered by the technical screening criteria
- A full list of revised or additional technical screening criteria for economic activities that can substantially contribute to climate change mitigation or adaptation, along with methodological statements to support the recommendations (in the Technical Annex)
Usability Guide on EU Green Bond Standard.
The Technical Expert Group on Sustainable Finance has been tasked with developing recommendations for an EU Green Bond Standard, in addition to the recommendations for an EU classification system or Taxonomy on Sustainable Finance, methodologies for EU climate benchmarks and disclosures for benchmarks, guidance to improve corporate disclosure of climate-related information. The EU Green Bond Standard Usability Guide offers recommendations from the expert group, with its views on the practical application of the EU Green Bond Standard, as it was described by the expert group's EU Green Bond Standard report. This Guide aims to support potential issuers, verifiers, and investors of EU Green Bonds. It provides guidance reflecting the latest changes in the draft model of the EU Green Bond Standard. The expert group proposes that the use of EU Green Bond Standard remains voluntary. Issuers of green bonds that do not want to use the term "EU Green Bond" and prefer opting for other market practices are not obliged to follow the following four proposed components of the EU Green Bond Standard:
- The alignment of the use-of-proceeds with the EU Taxonomy
- The content of a Green Bond Framework to be produced by the issuer
- The required Allocation and Impact Reporting
- The requirements for external verification by an approved verifier
Going forward, EC will hold a public consultation on sustainable finance to explore a possible initiative for an EU Green Bond Standard. EC is planning to hold a public consultation for three months from mid-March. This will form the basis for the Renewed Sustainable Finance Strategy that will be presented in the third quarter of 2020, as announced in the European Green Deal. Part of the consultation will be dedicated to a possible legislative initiative on an EU Green Bond Standard. The draft model of the EU Green Bond Standard, developed by the expert group, will form the basis of the consultation. After evaluation of the feedback and an internal impact assessment, EC will publish its decision on whether a legislative approach will be pursued and what form the final EU Green Bond Standard should have. Green bond market participants are encouraged to participate in the consultation.
- Report on Taxonomy (PDF)
- Technical Annex (PDF)
- Usability Guide (PDF)
- Overview of Technical Expert Group
Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, Green Bond Standard, Taxonomy, Disclosures, Climate Change Risk, ESG, 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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