On Tuesday 7 September, the European Commission adopted a ‘Green Bond framework’ which has been subject to an independent evaluation.
This step is a prelude to a green bond issue of up to €250 billion, or 30% of the total issue of the EU’s economic recovery plan, ‘Next Generation EU’.
The Green Bond framework guarantees investors that the funds raised will be allocated to green projects and that the Commission will report on the environmental impact of these projects.
Now that this framework has been adopted, the Commission will soon proceed with the first Green Bond issue, in October, market conditions permitting.
EU Commissioner in charge of Budget and Administration, Johannes Hahn said that the EU will issue up to €250 billion in green bonds by the end of 2026 and “become the largest issuer of green bonds in the world”.
Adjudications. As announced earlier this year, the Commission has also reviewed its plan for funding the recovery in 2021 and confirmed its intention to issue a total of around €80 billion of long-term bonds this year, to be topped up by tens of billions of euros of short-term EU-Bills.
The EU-Bills will be offered exclusively via auctions, with its auctioning programme due to start on 15 September. The Commission will generally organise two auctions per month for EU-Bills, on the first and third Wednesday of each month. The auction programme will also be used for bonds, in parallel with syndications. According to its issuance calendar published today, the Commission will generally organise one auction and one syndication per month for bonds.
The Green Bond framework follows the Green Bond Principles defined by the International Capital Market Association (ICMA), which provide a market standard for green bonds. In line with standard practice, the framework has been assessed by a ‘second party opinion’ provider, Vigeo Eiris, a subsidiary of Moody’s ESG Solutions, which considers that the framework is in line with the ICMA principles for green bonds, is consistent with the EU’s overall Environmental, Social and Governance (ESG) strategy and will make a strong contribution to sustainability.
The framework has been aligned, as far as possible, with the EU standard for European green bonds.
The EU Green Bond standard proposal was tabled by the Commission in July 2021 (see EUROPE 12756/14) with a subsequent co-decision process in the European Parliament and Council, which will be followed by an implementation period prior to entry into force.
The alignment of the framework with the EU green bond standard is reflected, for example, in the fact that a portion of the eligible investments under the Recovery and Resilience Facility (RRF) – the main instrument to drive Europe’s recovery - have integrated the EU taxonomy technical screening criteria.
The proceeds of the Next Generation EU Green Bonds will fund the climate share of the RRF. Each Member State is required to spend at least 37% of its national recovery and resilience plan - the roadmap for spending RRF funds - on climate-friendly investments and reforms, but many plan to do more than is required. “Many national plans go well beyond this and even allocate up to 60% to measures that support climate objectives (e.g. Luxembourg, Germany or Austria)”, Hahn said.
Under the RRF rules, Member States will have to inform the Commission about their green spending.
The Commission will use this information to show investors how the proceeds of green bonds have been used to finance the green transition.
The reports will be organised around nine categories, defined in the Next Generation EU Green Bonds framework, with clean energy, energy efficiency and clean transport taking the largest share.
Nuclear-related energy projects will be excluded from the Recovery and Resilience Facility (RRF), Commissioner Hahn recalled, in response to a question from the press. However, some gas-related investments will remain eligible for support, subject to conditions, such as district heating networks, the EU Commissioner for Budget said.
Link to the framework in question: https://bit.ly/3jRpy2k
Link to the second party opinion: https://bit.ly/2VkrIhB (Original version in French by Lionel Changeur)