Background
- Part of the EU Sustainable Finance Programs includes a Green Bond Standard or commonly known as the GBS.
- We expect this to be launched in 2022.
- This is stricter and more prescriptive than existing market principles and standard.
- Will it become the new de-facto standard and be applied to more and more issuances globally inside and outside the EU?
Key Aspects
- Based on the current non-legislative EU Green Bond Standard there are 4 components (see below).
- This builds on existing market practices although is more detailed versus current internationally accepted principles and standards.
- The intention of the GBS is to enhance transparency, accountability, comparability and credibility of the green bond market without disrupting the market.
- The Scope for the GBS includes type of listed or unlisted bond.
- This can also cover instruments issued by a European or international issuers as long as they align with the GBS.
- Alignment to EU Taxonomy for expenses and assets is the crucial element to the GBS.
- Under the draft standard the issuer must publish a Green bond Framework (more prescriptive requirements for this).
- There is also mandatory reporting on use of proceeds (allocation report) and on environmental impact (impact report).
- There must also be mandatory verification of the Green Bond Framework and final allocation report by an external reviewer.
Expected Impacts
- Key Push for verifiers to be regulated
- Pre-Issuance verification mandatory and one final allocation report needed to be verified.
- Clear link to EU Taxonomy which has high standard/thresholds on eligible areas -will this be too high a standard to meet?
- Frameworks will need to be much more detailed and address a lot about the EU Taxonomy and relationship to this.
- More prescriptive on Framework formats and Reporting more detailed and prescribed format ie. assumptions and methodologies to be disclosed)
Technical Aspects to consider – Structuring Transactions:
• Interestingly also no look back for any asset/capex but opex limited to 3 years (more fixability and recognition as opex as a use of proceeds).
• Even mention of specifically related working capital for eligible areas
• Min social standard (ILO) items so means Second Party Opinions will probably need to cover this in detail.
• “Do No Significant Harm” final provisions to other objectives (deeper analysis needed) –more wholistic analysis needed which will make the issuance process more detailed overall.
• More needed to be described on projects etc which might mean some frameworks need to be narrower and less flexible.
• How much will be relevant for Asia?
• Many components link to or imply EU regulations which will be challenging for issuers from outside of the EU to meet.
Please see the key Requirements for Frameworks as per the draft GBS here:
