ICMA: EU Taxonomy Regulation Article 8 and unintended negative consequences for the development of the green bond market
29 October 2021
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
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