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A coherent and well-specified GBS will enhance clarity, consistency, and comparability in the European market for green bonds, thereby encouraging issuers (both private and public) and investors to channel funds towards Taxonomy-aligned activities. For the GBS to be effective, particularly in the near-term, it’s important to find the right balance between strict criteria to fight greenwashing and enough flexibility to (i) avoid placing barriers to the evolution of market practices and to (ii) encourage the coverage of more sectors of the economy.
EFAMA’s key messages in response to the Commission’s targeted consultation are the following:
• An EU GBS as proposed by the TEG would solve many of the problems and barriers in today’s EU green bond market. It would introduce greater certainty regarding green definitions and the eligibility of certain assets, help allocate effectively economic benefits or other incentives, and avoid greenwashing by clearing doubts about the quality of green bonds.
• Some other issues would remain, such as the difficulties in analysing and comparing issuers’ ESG policies, insufficient coverage of different sectors of the economy, and the fact that operating expenses would not be eligible in most circumstances.
• The requirement to have the (final) allocation report and the Green Bond framework verified is a key feature of the EU GBS and we believe it is essential to ensure transparency and credibility. We do not expect this provision to raise excessive market barriers, nor do we believe that it will carry significant costs for issuers.
• We agree with the proposed content of the documents recommended by the TEG to be part of the Standard (Green Bond Framework, Allocation Report, Impact Report), although we note that, to improve clarity, the description of the projects in the Framework could be aggregated for each type or sector.
• At this stage of market and regulatory developments, there should be some flexibility on what percentage of the use of proceeds should be linked with eligible activities under the EU Taxonomy. The alignment threshold should be subject to materiality consideration and ensure that greenwashing is effectively avoided. At the same time, it is important to ensure full transparency and regular reporting of the percentage alignment to the EU Taxonomy.
• An EU Green Bond should maintain its status for its entire term to maturity. We believe this guarantee is a pre-condition for investors and is necessary for portfolio construction, for reporting, and to fulfil end-investors preferences in specific mandates.
• The development of an EU social taxonomy is a pre-condition to establishing an EU Social Bond Standard. In the near-term, however, we believe that there should be space for market practices to develop, while the Commission’s efforts should be concentrated on the completion of the EU Taxonomy, and it is premature to consider economic benefits linked to social bonds.