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Although the guidance in the Taxonomy Final Report and the EU GBS user guide for alignment with the DNSH principle and / or minimum safeguards will be helpful we expect that time will be required for greater market understanding and best practice to emerge for issuers and verifiers including for projects within the EU.
For example, we can see problems for issuers of green bonds financing SME and/or retail clients regarding, e.g. technical requirements for the building sector or general adaptation as well as with respect to data availability, IT systems etc. The need for an individual check of DNSH and minimum safeguards for smaller projects (threshold still tbd), even if minimum safeguards can be checked at company level, would bear high additional costs. Consequently, market conditions might become completely unattractive and therefore hinder further growth for green financings within the SME and retail area as well as further growth of the green bond market as a whole and specifically issues compliant with the EU GBS.
We can also see difficulties for non-European issuers or EU issuers intending to finance projects outside of the EU, if local environmental and social standards and/or regulations significantly diverge from those of the EU. For issuers in other developed markets, there may be sensitivity/reluctance in doing an actual comparison of company or national environmental and social rules with EU regulations through a verifier’s opinion. This may be particularly problematic when comparing regulatory frameworks across jurisdictions. Additionally, in instances where assessing compliance with DNSH criteria requires significant judgment, there may be difficulties in making such representation or relying on the analysis of a verifier to do so.
For developed and emerging markets alike, not all third countries have signed up to the ILO Declaration on Fundamental Principles and Rights at Work, allow freedom of association or recognise collective bargaining. As a result, we think more clarification is needed on how issuers and projects in these jurisdictions may be able to implement procedures that qualify as minimum safeguards.
We therefore recommend that the future Platform engage in an ongoing dialogue with the market on this topic and consider additional guidance as appropriate. We also make concrete suggestions on how to address many of these issues in subsequent answers to related questions in this consultation