The European Green Bond Standard (EU-GBS)

01. General Requirements

The EU GBS ensures that bond issuances are labelled and aligned with the EU’s environmental and climate objectives. Sustainable investments involve integrating environmental and social considerations into investments decisions which will benefit investors and society more broadly. A significant part of this effort will have to be financed by the private sector.

To operate this green transition, sufficient, clear, reliable, and comparable data is essential to effectively channel capital into sustainable investments and assets. 

The EU Taxonomy is a cornerstone of the EU sustainable framework as well as an important market transparency tool that helps direct investments towards sustainable economic activities. Bonds as debt instruments are mainly used to raise capital for general purposes based on an issuer’s risk profile represented by its credit rating and the remuneration offered as interest paid. Traditionally, investors focus on these criteria rather than on the use of proceeds. Green Bonds represent a natural source of financing for issuers who have a financing or refinancing requirement for green projects. By focusing on the use of proceeds, the EU GBS ensures that any such financing occurs in a manner that is directly linked to the issuer’s sustainability objectives.  

Proceeds from Green Bonds have to finance or refinance economic activities that:

(a) contribute substantially to at least one of the six taxonomy environmental objectives including: 

(i) climate change mitigation; 

(ii) climate change adaptation; 

(iii) the sustainable use and protection of water and marine resources; 

(iv) the transition to a circular economy; 

(v) pollution prevention and control; and 

(vi) the protection and restoration of biodiversity and ecosystems; 

(b) do not significantly harm any of the other objectives (DNSH); 

(c) comply with minimum safeguards⁷; and

(d) where technical screening criteria have been developed, financed projects or activities shall meet these criteria, allowing however for specific cases where these may not be directly applicable.

The proceeds of European Green Bonds shall be only and fully allocated according to the EU Taxonomy  requirements⁸ to the following, or a combination thereof fixed assets that are not financial assets, capital expenditures, operating expenditures incurred more recently than three years prior to the issuance of the bonds or financial assets⁹ provided those assets were created no later than five years after the issuance of the bonds or assets and expenditures of households and the sectors concerned are already covered by the EU Taxonomy and technical screening criteria have been developed in this respect. For those sectors not yet covered by the EU Taxonomy and for certain very specific activities there will be a flexibility pocket of 15% (a portion of the proceeds amounting to maximum 15% of the total issuance can be not EU taxonomy-aligned).

Issuers may allocate proceeds from a portfolio of one or more outstanding Green Bonds to a portfolio of financial assets in which case, they shall demonstrate in the allocation reports that the total value of financial assets in their portfolio exceeds the total value of their portfolio of outstanding Green Bonds.

_{⁷ As defined in Article 18 of the European Taxonomy regulation}

_{⁸ Article 6 of the Green Bond Regulation}

_{⁹  Article 4 of the Green Bond Regulation}

02. Reporting requirements

Green Bond Factsheet

Prior to issuing Green Bonds, the Green Bond Factsheet (as set out in Annex I of the Green Bond regulation) must be completed. The latter consists of a framework of core components Green Bonds must comply with thereby enhancing transparency, integrity, consistency and comparability of these bonds. 

The Green Bond Factsheet provides information on how the bonds are expected to contribute to the issuer’s broader environmental strategy, the extent to which the proceeds are expected to contribute to the issuer’s EU Taxonomy-aligned assets, turnover, capital expenditure and operating expenditure and the associated environmental impacts. 

It also states in-detail the intended allocation of the bonds proceeds, the estimate of the issuance costs that are deducted from the proceeds, the estimated time until full allocation of the proceeds and the form and content of the reporting.

A pre-issuance review of the Green Bond Factsheet with a positive opinion by an external reviewer is mandatory¹⁰. 

Allocation Report

The Allocation Report must demonstrate how the proceeds of Green Bonds have been allocated to the EU Taxonomy various economic activities (EU Taxonomy aligned, specific EU Taxonomy aligned or not aligned), providing investors with transparent and reliable information. 

A Green Bond Allocation Report may relate to one or several issuances of Green Bonds and shall be drawn up annually at the end of each year until full allocation of the proceeds. 

Where the use of proceeds relate to economic activities that will meet the taxonomy requirements in the future, the issuer shall publish a capital expenditure plan (CapEx Plan)¹¹. The CapEx plan shall specify a deadline by which all the capital and operating expenditures funded by the European green bond shall be taxonomy-aligned, and which shall be set before the European green bond reaches maturity.

The Allocation Report shall contain, where applicable, information on the progress made in the implementation of the CapEx Plan. Issuers shall publish an explanation in the annual Allocation Report if there is a delay or departure that significantly impacts the implementation of the CapEx Plan.

The post-issuance review by an external reviewer shall contain an assessment of whether the issuer has complied with the intended use of proceeds as set out in the Green Bond Factsheet and the EU GBS¹².

Issuers shall ensure that the external reviewer has at least 90 days to review an allocation report. The post-issuance review by an external reviewer must be made public within 270 days following the end of the year to which the allocation report refers¹³. 

The issuer shall obtain an assessment from an external reviewer about the taxonomy-alignment of capital and operating expenditures that are included in that CapEx plan and funded by the proceeds of that European green bond. The assessment shall be provided by the external reviewer within 60 days.

Impact Report 

The Impact Report discloses the alignment of the bonds' environmental impact associated with the activities funded by the proceeds of the bonds issued.

The Impact Report must be published at least once during the lifetime of the bond after the full allocation of the proceeds (as set out in Annex III of the Green Bond Regulation)¹⁴. A single impact report may cover several issuances of bonds¹⁵.

An external review of the impact report may be obtained but is not mandatory.

The external review of the Impact Report contains an assessment of whether the bond issuance aligns with the broader environmental strategy of the issuer, an assessment of the indicated environmental impact of the bond proceeds and compliance with the EU GBS.

_{¹⁰  Article 8 §3 of the Green Bond Regulation.}

_{¹¹  Article 6 of the Green Bond Regulation.}

_{¹²  Article 9 §3 of the Green Bond Regulation.}

_{¹³   Article 9 §6 of the Green Bond Regulation.}

_{¹⁴  Article 10 §1 of the Green Bond Regulation.}

_{¹⁵  Article 10 §2 of the Green Bond Regulation.}