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The Association for Financial Markets in Europe (AFME) has today published a position paper in the context of the negotiations on the establishment of an EU Green Bond Standard (GBS).
Oliver Moullin, Managing Director for Sustainable Finance, said “AFME strongly supports the establishment of a voluntary EU Green Bond Standard which facilitates the further growth of the market and is an important source of financing for the transition to Net Zero.”
“AFME supports the proposals to provide investors with transparency, comparability and confidence in the credibility of the bond’s environmental credentials. In order to meet these objectives, it is important that the new EU GBS label is seen as a credible standard and also attractive to issuers and investors. Our recommendations to further this goal include maintaining the voluntary nature of the standard, providing for GBS designation to apply to maturity, maintaining the scope of environmental sustainability, and avoiding creating different standards for different types of issuer.”
AFME makes the following recommendations to support the establishment of an effective and successful label for EU Green Bonds:
It is important to maintain the voluntary nature of the EU GBS standard to avoid constraining the growth of the market while more investable projects become available. The EU GBS was envisaged and designed as a voluntary standard to support the growth in issuance and to develop deep and liquid green bond markets in the EU. Making the GBS mandatory would be likely to overly constrain issuance in the EU, given the limited availability of taxonomy-aligned investments, in particular in the short term.
Green Bonds should maintain their designation until maturity following a change to the Taxonomy criteria. For investors, the certainty that bonds keep their label for the entire term is a necessary condition to build investment portfolios.
EU GBS should remain focused on environmental sustainability. Its distinguishing feature is the link with the EU Taxonomy Regulation, a dynamic and science-based classification system for environmentally sustainable economic activities. It is therefore important that the scope of the standard remains environmental sustainability. The GBS is also not the appropriate regulation to establish requirements for companies to develop transition plans, which is best dealt with through regulation on sustainability disclosures.
Creating different requirements across issuers and issuances should be avoided. Whether or not any flexibility regarding Taxonomy-alignment is provided, the criteria should be the same for all issuers, without distinctions being made between sovereign and private issuers. A differential treatment would threaten the proposal’s harmonisation objectives, adding complexity for issuers and confusion for investors.