The European Green Deal of 11 December 2019 underlined the need for long-term signals to direct financial and capital flows to green investments. It announced that the Commission will present a renewed sustainable finance strategy in the third quarter of 2020, focusing on a number of actions, including making it easier for investors to identify sustainable investments and ensuring that they are credible. The European Green Deal Investment Plan of 14 January 2020 announced that the Commission will establish an EU Green Bond Standard (GBS).
Green bonds play an increasingly important role in financing assets needed for the low-carbon transition. However, there is no uniform green bond standard within the EU. Establishing such a standard was a recommendation in the final report of the Commission’s High-Level Expert Group on sustainable finance. It was then included as an action in the 2018 Commission action plan on financing sustainable growth. And finally it was assessed by the Commission’s Technical Expert Group on Sustainable Finance (TEG), which provided detailed input on this subject in its recommendation for an EU GBS in June 2019 and provided further usability guidance and an updated recommendation in its March 2020 report.
Commission next steps on EU Green Bond Standard
Building on the work of the TEG (see details of its recommendations below), the Commission launched an inception impact assessment and a call for feedback to explore the possibility of a legislative initiative for an EU Green Bond Standard. However, the ultimate decision on how and in what legal form to take forward the EU GBS, will be made on the basis of the outcome of the targeted consultation on the EU GBS, and will be taken in the context of the Renewed Sustainable Finance Strategy.
TEG Recommendations for an EU Green Bond Standard
On 18 June 2019, the TEG published its report on EU Green Bond Standard, accompanied by a two-pager summarising its key recommendations. The report proposes that the Commission creates a voluntary EU Green Bond Standard to enhance the effectiveness, transparency, comparability and credibility of the green bond market and to encourage the market participants to issue and invest in EU green bonds. The proposal builds on best market practices.
This report builds on the interim report that was published on 6 March 2019. More than 100 organisations provided feedback on the interim report and the feedback received was generally positive. A large majority of the respondents supported the creation of a voluntary EU GBS. The TEG has carefully studied the detailed feedback received from participating stakeholders and has created an improved version of the EU GBS.
Building on the recommendations of the June 2019 report, the TEG published on 9 March 2020 their usability guide for the EU Green Bond Standard. This guide offers market actors guidance on the use of the proposed standard and the set-up of a market-based registration scheme for external verifiers. The usability guide contains an updated proposal for a green bond standard (annex 1).
In order to respond to the most frequently asked questions by stakeholders about the TEG’s final report and the Commission’s next steps, a joint document with frequently asked questions has been published by the Commission and the TEG.
The European Commission is exploring the possibility of a legislative initiative for an EU Green Bond Standard in the context of the public consultation on the renewed sustainable finance strategy, taking place from 6 April to 15 July 2020, and the targeted consultation on the establishment of an EU Green Bond Standard, that builds and consults on the work of the TEG, and is running for an extended period of 16 weeks between 12 June and 2 October 2020.
Based on the outcome of these two consultations, as well as ongoing bilateral stakeholder dialogues, the Commission will take a decision in Q4 2020 on how to take the Green Bond Standard forward.
The TEG mandate has been extended until September of this year, during which time it will function in an advisory capacity.