01 October 2021

ESBG: Proposal for a Regulation on European green bonds

The European Commission adopted its proposal for a EUGBS in July 2021 and later launched a public consultation. In this context, ESBG has recently finalised a position paper that indicated some of the mainconcerns with the adopted proposal.

Establishing a European green bond standard (‘EUGBS’) was an action in the Commission’s 2018
action plan on financing sustainable growth and is part of the European Green Deal.

TAXONOMY ALIGNMENT
Non-specialised corporate financing of firms with a Taxonomy-aligned corporate goal seem to be
excluded from the proposed EUGBS although covered by the Taxonomy. All corporate financing to
companies aligned with the taxonomy's objectives should be considered eligible, even if the funds are
not allocated to a taxonomy-aligned activity or project.

APPLICABILITY
All issuers, whether financial institutions, companies, or public agencies, should be treated equally.
We do not agree with sovereigns’ flexibility and the preferential treatment of external reviewers.

ORGANISATIONAL REQUIREMENTS
The number of organizational requirements in the proposal exceeds the purpose of the Regulation.
We are concerned that smaller reviewers may be unable to meet all requirements that may lead to
monopoly of a few larger organisations.

USE OF PROCEEDS
Achieving 100% taxonomy compliance for the use of proceeds allocation will be too difficult especially
as technical screening criteria for the remaining four taxonomy objectives are still under development.

GRANDFATHERING
The label is not fully grandfathered for the whole maturity of the bond, and issuers are given 5 years
to amend the use of proceeds allocation based on the updated Taxonomy technical screening criteria.
This could create uncertainty for both issuers and investors, and could lead to mistrust of the label and
a reluctance to invest in transitional activities, which are more susceptible to taxonomy changes.

COSTS OF ISSUANCE
Prohibiting the costs of issuing a green bond to be covered by the proceeds of the issuance would
add unnecessary complexity by requiring the search for alternative sources of funding, and lower the
appeal of EUGBS. It would also have accounting implications and raise questions about whether such
a cost is an allowable expense for determining the issuer's tax liability.

GREEN BOND FACTSHEET
The proposed green bond factsheet requires the disclosure of many details prior to issuance, which
may limit issuers' ability to tap the market with flexibility. Also, further guidance on the process and
the timing is needed.

ESMA’S SUPERVISORY POWERS
The supervisory powers of ESMA, including administrative sanctions and inspection rights, go
beyond the scope of the Regulation.
READ THE FULL POSITION PAPER

ESBG

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