Green Bonds: Regulation (EU) 2023/2631 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds

On November 30, 2023, new Regulation (EU) 2023/2631 as regards the specifications of a green bond standard has been published in the Official Journal (OJ) of the EU. The new regulation specifically sets out the criteria or standards that issuers of bonds must meet if they intend to label their bonds as European Green Bonds (EuGBs). It also establishes a registration and supervisory system for external reviewers of EuGBs and provides optional disclosure templates for issuer of bonds designated as „environmentally sustainable“ and „sustainability-linked“ as defined in the regulation. The aim of the regulation is to introduce an EU standard for the issuance of EuGB, thereby enhancing transparency and comparability on and among European Green Bonds and preventing greenwashing of bond issuers. The key provisions of the new regulation are briefly summarized below. It may be worth noting that the standard applies to both listed and unlisted bonds.
(1) Allocation of proceeds: Issuers seeking to label their bonds EuGBs need to allocate the proceeds of the bond issue to projects that are aligned with the EU taxonomy. However, to provide flexibility to issuers when investing in activities e.g. for which no technical screening criteria may exist yet or that may not be directly covered in the taxonomy, the new regulation stipulates that 15% of the proceeds can be allocated in any „other activities“ as described in the document (a detailed description of what is considered „permissible“ in this context is outlined in Article 5).
(2) Disclosure of cap-ex plans: Firms seeking to issue EuGBs need to publish a Capital Expenditure (CapEx) plan outlining how they intend to use their capital funds for specific projects or investments over the defined period. This is to ensure that the funds raised from these bonds are allocated to projects and expenditures aligned with environmental sustainability criteria as outlined in the EU Taxonomy Regulation. The CapEx plan must be assessed by an independent external reviewer.
(3) Further disclosure obligations: Issuers must complete a European Green Bond factsheet as set out in Annex I which must also be „positively assessed“ by an external reviewer. Issuing firms must also generate a „European Green Bond allocation report“ every 12 months until all funds have been allocated from the issue or until completion of the CapEx plan. The report should provide information on the progress in the CapEx plan and should detail any significant delays in this context. Once all proceeds have been allocated, the report(s) must be reviewed by an independent external reviewer to ensure that all funds have been allocated in alignment with the EU taxonomy.
(4) Availability of information: Issuers must publish and provide free access to the following documents on their websites until at least 12 months after an EuGB matures:
– Completed European Green Bond factsheet before bond issuance;
– Pre-issuance review related to the EuGB factsheet;
– Link to the prospectus website (if applicable);
– CapEx plans;
– EUGB allocation reports after they are drawn up;
– Post-issuance reviews of the allocation reports; and
– European Green Bond impact report.
(5) Registration and supervisory system for external reviewers: The EuGB Regulation introduces a framework for the supervision of external reviewers responsible for evaluating the „green“ status of European green bonds. These independent entities will play a crucial role in assessing whether EUGBs meet the requirements for taxonomy alignment. Therefore, they will have to register with ESMA and adhere to stringent compliance, governance, conflicts of interest, and assessment requirements. Also, external reviewers are obliged to provide certain information, including all pre- and post-issuance reviews, on their websites at no cost.
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As these are only the key provisions included in the new EuGB regulation, please refer to the original legal document for more detailed, comprehensive information. It may be worth noting, that the regulation prohibits EU competent authorities to approve a prospectus for a EuGBs where such prospectus was established in a non-cooperative tax jurisdiction or a high-risk country listed in the Annex to Delegated Regulation (EU) 2016/1675.