ESMA published a response to the targeted consultation of EC on the establishment of the green bond standard, or GBS, in EU. ESMA welcomes the EC consultation, which builds on the European Green Deal and supports the EC ambition to strengthen the European policy framework to enhance the resilience of the financial sector to environmental, social, and governance (ESG) risks. ESMA highlights that success of the green bond standard will be determined by whether it is seen as a reliable indicator of investment in sustainable economic activities. A higher level of adherence to the standard will result in improved comparability as well as deeper, and possibly more liquid, secondary markets for these types of issuances. This will, in turn, permit investors to make better informed investment decisions and encourage further issuances of green bonds.
Building on its response to the EC consultation on the Renewed Sustainable Finance Strategy in July 2020, where specific points in relation to the green bond standard framework were raised, ESMA highlights the following key messages:
- The success of the green bond standard in EU will, to a large extent, be determined by whether it is seen as a reliable indicator of investment in sustainable economic activities. To ensure reliability and alignment with the Taxonomy, the green bond standard will require external reviewers conducting rigorous assessments of the green bond framework of an issuer.
- The best way to ensure high-quality assessments is to introduce a formal EU registration and supervision regime of these external reviewers. This will ensure that the entities conducting such assessments have adequate resources, are using robust methodologies, and have measures in place to protect against conflicts of interest.
- It is important to ensure that the final regime will not result in market concentration of external reviewers, which may disadvantage issuers, especially SMEs, as well as smaller external reviewers, while still ensuring that the market develops in a properly regulated and supervised way at EU level.
- It supports the development of a social EU Taxonomy as a prerequisite for reliable standards for social bonds.
ESMA concludes its response by reiterating its support for the work of EC, as EC finalizes the proposals, and reinforces its readiness to provide further views on the future green bond standard framework, as needed.
Keywords: Europe, EU, Banking, Securities, Green Bond Standard, ESG, Climate Change Risk, Sustainable Finance Strategy, Green Taxonomy, EC, ESMA
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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