Regulation on European green bonds adopted by European Parliament and Council of the EU

On 5 October 2023, the European Parliament announced its adoption of the text for a Regulation on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds (the “EU GBS”). The Council of the EU adopted the Regulation on 23 October 2023.  

The Regulation introduces a voluntary label for issuers of green use of proceeds bonds where proceeds are fully allocated to economic activities aligned with the EU Taxonomy Regulation (subject to some limited flexibility), the “EuGB label” and also creates an optional disclosure regime for bonds marketed as environmentally sustainable and sustainability-linked bonds.

Issuers choosing to apply the voluntary EuGB label when marketing a green bond will be required to disclose considerable information about how the bond’s proceeds will be allocated in accordance with prescribed templates. This will include information on how the bonds are intended to contribute to funding and implementing transition plans.

Issuers who are not yet able to comply with all of the requirements of the EuGB label, but still wish to signal their green aspirations, will be able to follow the pre-issuance disclosure templates for green use of proceeds bonds or sustainability-linked bonds with environmentally sustainable objectives. Such issuers may also choose to opt-in to ambitious on-going transparency requirements.

The Regulation also establishes a registration system and supervisory framework for external reviewers of European green bonds – these independent entities will be responsible for assessing whether standards are being adhered to. This will be further developed by ESMA.

The EU GBS provides some limited flexibility regarding taxonomy-alignment for issuers using the label. Whilst at least 85% of issue proceeds need to be allocated to economic activities that align with the EU Taxonomy Regulation, in certain specific cases, the remaining 15% can be allocated to other economic activities provided the issuer complies with the requirements set out in the Regulation.

Timing and next steps?

Political agreement on the final text of the EU GBS was reached on 28 February 2023 and fine-tuned on 10 May 2023. The European Parliament formally endorsed the political agreement on 5 October 2023 and endorsement by the Council of the EU followed on 23 October 2023. The adopted law will now be signed, published in the Official Journal of the EU and enter into force on the 20^th day following publication, with the provisions of the Regulation to apply 12 months thereafter.

The EU GBS - which comes with rigorous allocation and transparency requirements - will be the first standard of its kind globally. For more detail on the Regulation, see our earlier blog post and our podcast series.