Poland introduces its own green bonds framework

Polish Parliament is currently debating the act on amendments of certain acts in connection with ensuring the financial market development and investors protection on that market (Polish: ustawa o zmianie niektórych ustaw w związku z zapewnieniem rozwoju rynku finansowego oraz ochrony inwestorów na tym rynku) which, inter alia, introduces new type of bonds in the form of the transformational bonds (Polish: obligacje transformacyjne) linked to EU Taxonomy Regulation.

The draft legislation implements recommendations of the Capital Market Development Strategy (Polish: Strategia Rozwoju Rynku Kapitałowego), developed in cooperation with the European Bank for Reconstruction and Development (EBRD) and approved by the Polish Government in 2019, which stressed the need to establish the so-called development bonds which would allow the creation of an additional source of financing regional and national infrastructure. In this context, the transformational bonds should be perceived as aimed, in particular, to help finance of the energy sector transition to meet EU Green Deal obligations. It should be noted that, according to many experts, Poland may need up to PLN 1,6 trillion (approximately EUR 600 billion) for such a transition where only PLN 600 billion (approximately EUR 135 billion) should be spent by 2030.

EU Taxonomy-related purpose of the issue

The transformational bonds are the bonds whereby the proceeds are allocated to finance new ‘environmentally sustainable investment’ within the meaning of Article 2(1) of Taxonomy Regulation (i.e. an investment in one or several economic activities that qualify as environmentally sustainable under Article 3 of Taxonomy Regulation).

Before being presented in the Parliament, the initial draft legislation proposed by the Ministry of Finance in November 2022 has been linking the purpose of the transformational bonds’ issue more generically with “new investments which serve boosting of the country’s sustainable development”. However, due to the postulates of banking sector, the purpose of the issue has been ultimately aligned with EU Taxonomy, similarity to the proposed European Green Bond Regulation. This is to allow banks to include the transformational bonds in the Green Asset Ratio (as required under Article 8(1) of the Taxonomy Regulation) and, therefore, making it more attractive investments for the banks.

Otherconstitutive terms and conditions

The proposed regulation provides also for certain other constitutive terms and conditions governing the issue of the transformational bonds, i.e.:

• Deadline for the use of proceeds: 95% of proceeds shall be used on the environmentally sustainable investment (within the meaning of Taxonomy Regulation) within 36 months from the date of issue,
• Total value of the issue: the total value of the issuance, as stipulated in the issuer’s resolution on the transformational bonds’ issuance, should not be lower than PLN 20,000,000 (or an equivalent in other currency, calculated with the use of an average exchange rate published by the National Bank of Poland, as per the decision of the issue agent),
• Nominal value: the nominal value of one transformational bond should be at least PLN 1,000 (or an equivalent in other currency, calculated with the use of an average exchange rate published by the National Bank of Poland),
• Maturity: the maturity date for the buyout of the transformational bonds shall not be shorter than 5 years from the date of issue.

Mandatory offer to the public and admission to trading on a regulated market

In addition to the above terms and conditions, the proposed regulation requires that the issuance of the transformational bonds should be made by way of an offer of securities to the public, pursuant to the provisions laid down in Prospectus Regulation and/or respective Polish law on public offers.

The issuer is also required to submit the application for admission of the transformational bonds to trading on a regulated market or multilateral trading facility (MTF) within 1 months following the date of issue, as well as, to:

• before initiating the issue:
• enter into an agreement with a bank on the representation of bondholders before the issuer (the so-called representation agreement), as well as
• obtain a credit rating at investment grade from the rating agency.
• before submitting the application for admission of the bonds to trading on a regulated market or an MTF – enter into an agreement with a market maker.

Potential fiscal incentives related to the transformational bonds

Although it is not yet foreseen in the proposed legislation, the said Capital Market Development Strategy provides that a specific tax exemption from the income tax should be proposed with respect to the issuance of the transformational bonds (as the development bonds).

According to the statements of the Ministry of Finance’s representatives in the media, no fiscal incentives are being anticipated for the investors investing into such transformational bonds, in particular with respect to the capital gains tax (known in Poland as the so-called Belka tax, after Marek Belka who introduced it in 2002 as the Minister of Finance). Nevertheless, the said Capital Market Development Strategy envisage future analyses whether repo transactions, where the transformational bonds are the underlying instrument, should be exempt from tax on certain financial institutions (known in Poland as the so-called banking tax, which was introduced in 2016 and which is based on a surplus of bank’s assets of more than PLN 4 billion, reduced by own funds and the treasury bonds) in order to accelerate investments into such bonds by banks and financial institutions.

Next steps

The proposed regulation is now being discussed and processed by the lower house of the Polish Parliament (Sejm). It will be later brought also to the discussion in the upper house (Senat) and, afterwards, to the approval of the President. If enacted and approved, the proposed legislation will enter into force within 30 days following the publication in the official Journal of Laws of Poland (Polish: Dziennik Ustaw).

The proposed act together with the explanatory memorandum are available here (in Polish only).