29 October 2021

ICMA: EU Taxonomy Regulation Article 8 and unintended negative consequences for the development of the green bond market

ICMA is recommending either the urgent review of the exclusion of green and sustainability bonds of central governments, central banks and supranational issuers from the calculation of the GIR and GAR in the draft Delegated Act supplementing Article 8 of the Taxonomy Regulation.

ICMA has today published commentary on the proposed treatment of green and sustainability bonds issued by central governments, central banks and supranational issuers under the Article 8 of the EU Taxonomy regulation, highlighting unintended negative consequences for the further growth of green and sustainability bond issuance by these issuers and for the development of the overall market.

On 6 July 2021, the European Commission issued a draft Delegated Act supplementing Article 8 of the Taxonomy Regulation. It specifies among other measures, the methodology for calculating the Green Investment Ratio (GIR) and the Green Asset Ratio (GAR) to be reported notably and respectively by asset managers and banks. Central governments, central banks and supranational issuers are excluded from both the numerator and the denominator of these ratios (subject to review by June 2024).

As a result of this exclusion green and sustainability bonds partially or fully aligned with the Taxonomy from sovereigns and supranationals (e.g. past issuance, existing and future Next Generation EU bonds, future issues aligned with the EU Green Bond Standard from Member States) will not be able to contribute to the GIRs and GARs which are to be reported under the new disclosure requirements of the Taxonomy Regulation which come into force as early as January 2022. This could have several potential negative consequences, including: discouraging issuance by sovereigns and supranationals, lowering demand from investors and hindering growth of the market.

ICMA is recommending either the urgent review of the exclusion of green and sustainability bonds of central governments, central banks and supranational issuers from the calculation of the GIR and GAR in the draft Delegated Act supplementing Article 8 of the Taxonomy Regulation. This can be done with reference to the proposed methodology included in the draft RTS on taxonomy-related product disclosures of the ESAs. Alternatively, if the exclusion in the Article 8 DA of central governments, central banks and supranational issuers from the calculation of the GIR and GAR is not changed, we call for a firm commitment to develop and finalise as soon as possible a Taxonomy alignment assessment methodology for sovereign and supranational exposure with a deadline of 30 June 2024.

Access the full ICMA commentary.

ICMA

© ICMA