29 September 2021

Insurance Europe: Insurers welcome EC proposal for EU Green Bond Standard and suggest refinements to ensure its uptake

Insurance Europe has published its response to a consultation by the EC on its proposal for an EU Green Bond Standard (EUGBS). 

The insurance industry strongly welcomes the EC’s proposal for an EUGBS as a framework to facilitate capital flows to green investments, in line with the objectives of the European Green Deal. 

As Europe’s largest institutional investor, the industry supports measures to stimulate the development of the green bond market. In particular, the industry appreciates that the EUGBS:

• Can help enhance the availability of attractive sustainable assets — The framework will allow investors to invest in EU green bonds with confidence, on the basis of reliable, comparable and standardised information. 
• Facilitates sovereign issuance of green bonds — This is important for funding the EU’s transition to a zero-carbon economy.
• Is based on market standards — This makes the EUGBS a potential global standard for green bonds in the future. This would help create a level playing field for European investors. 
• Is voluntary — It therefore does not prevent the use of other sustainability bond standards. This avoids potential negative effects on the fast-growing and international green bond market.

There are, however, some improvements that can be made to ensure the uptake of the EUGBS:

• Grandfathering — The EUGB designation is not maintained for the entire term of the bond through to maturity, which results in lower investor interest. The regulation should therefore make it clear that outstanding EU green bonds, regardless of subsequent changes to the screening criteria of the EU taxonomy, remain EU green bonds. 
• Use of proceeds for transition — For EU green bonds to support more new green projects and help achieve the objectives of the European Green Deal, it is vital that European green bonds allow the financing of transitional projects. For this to happen, the EU Taxonomy must be developed to fully embed the transitional aspect. 
• Accreditation — Monopolistic market structures increase issuance costs and could act as barriers to issuing green bonds. The accreditation criteria and supervision for EUGBS reviewers should therefore not result in situations in which ESG agencies hold market- and price-setting powers, such as in the credit rating agency market.
  

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