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Europe is leading the charge in sustainable finance, and the EU Green Bond Standard (GBS) is a pivotal development. This blog explores the GBS, its implications for European companies, and the opportunities it presents.
Unveiling Europe’s Green Finance Landscape
In 2023, Europe’s green bond issuance grew 11% and reached a record high of US$341 billion, outperforming the global market. Slovakia, Sweden and Hungary hold the first positions in the rankings regarding green bond issuance by corporate entities and sovereign governments in the EU today. One of the main focus of the upcoming CSE’s European Certified ESG-P Training in June is the investors’ perspective and the funding of green projects.
The recovery in 2023 was mainly driven by a 14% growth in public sector issuance as some prominent increased issuances from the governments of the UK and Italy more than offset a retraction from the European Commission. In private sectors, corporate and financial institutions’ issuance grew at 10% and 8%, respectively, over the same period, despite increased costs of debt.
Regulatory Milestones and New Developments
On 30 November 2023, the Regulation (EU) 2023/2631 of the European Parliament and of the Council on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds (the “European Green Bond Regulation”) has been published on the Official Journal of the European Union. The European Green Bond Regulation came into force 20 days from the day of it being published, on 21 December 2023, and will start applying 12 months from then, on 20 December 2024.
By the time the EUGB becomes applicable, some of companies (including listed companies) will have collected and organized non-financial information to meet the transparency requirements of the Corporate Sustainability Reporting Directive (CSRD), in line with the EU Taxonomy Regulation for 2024, to be published in 2025, potentially aiding them in issuing European Green Bonds.
Enhancing Transparency and Accountability
In December 2023, following the enactment of the EU GBS Regulation, the Commission issued a Draft Commission Notice regarding the interpretation and application of specific legal provisions within the Disclosures Delegated Act under Article 8 of the EU Taxonomy Regulation. This notice pertained to the reporting of Taxonomy-eligible and Taxonomy-aligned economic activities and assets. It encouraged financial entities to voluntarily disclose, separate from their Key Performance Indicators (KPIs), the following:
- Estimations regarding the Taxonomy alignment of their exposures that are presently not included in their KPIs, such as exposures to non-listed Small and Medium-sized Enterprises (SMEs).
- Estimations of Taxonomy alignment concerning their exposures covered by the KPIs, but where these entities lack sufficient data and evidence specific to their exposures to confirm Taxonomy alignment.
- Information related to partial alignment of their exposures with the EU Taxonomy, which signifies meeting certain Taxonomy criteria or providing evidence of such alignment.
Strategic Preparation for Compliance
Scheduled to come into effect on December 20, 2024, the EUGB holds considerable importance for companies, including listed ones, as they prepare to comply with transparency requirements outlined in the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation. This preparation potentially positions them to issue European Green Bonds, thereby contributing to the advancement of sustainable finance.
While the EU GBS presents numerous benefits, challenges remain. Part 2 explores these hurdles and strategies for overcoming them.
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