RI's recent EU Sustainable Finance Action Plan update webinar series can be listened to in playback on the RI webinar page
Aila Aho, Rapporteur, EU Green Bond Standard on the TEG and Executive Adviser, Sustainability at Nordea answers your webinar questions following the presentation on the EU Green Bond Standard:
Q. Does the green bond standard (GBS) imply alignment with a specific scenario in terms of GHG emissions? Or is the logic of the GBS to prevent, reduce and/or compensate environmental damage ?
A. The logic is that the assets financed with the bond should have substantial contribution to at least one of the six environmental objectives defined in the EU taxonomy. The first two objectives, climate change mitigation and adaptation, have been been defined with performance criteria as proposed in the taxonomy report by TEG. The climate change mitigation criteria are aligned with the target to limit the global warming to below 2 degrees i.e. the Paris Agreement. The taxonomy also states that no significant harm should be done to any of the other objectives, so it tries to capture most key environmental aspects and also refers to that minimum social safeguards should be complied with.
Q. Considering the EU taxonomy is not final, nor will it be for a couple of years – what taxonomy can issuers adhere to fulfil the 2.1. GBS requirement. Can another taxonomy be used until the EU taxonomy is finished?
A. The issuers should anyhow have to state how the projects meet the requirements under the EU taxonomy framework i.e. that the assets (a) contribute substantially to at least one of the Environmental Objectives (b) do not significantly harm any of the other objectives and (c) comply with the minimum social safeguards. The legislative proposal does give further guidance on the objectives and the verifier would have to agree with the issuers view.
Q. In case of voluntary registration, what will be the impact for the counterparties in case of disclosure not being accurate/latest information regarding the allocation, etc?
A. We are currently working on the interim registration scheme and plan to publish a draft proposal by the end of the year. The idea is to create criteria that the verifiers voluntary adhere to when performing their work. Like today, the verifiers reports are based on the information provided by the issuer and verified to the extent as specified in the verifiers statement. The third parties will make their own assessment on what weight they put on the verification.
Q. Is the EU GBS poised to grow into a global standard, especially in the light of existing ones like the ICMA GBP and CBI's CBS. Also, how would regional guidance like those in India and China would be viewed?
A. The standard may be adhered to by issuers and investors also outside the EU by meeting the requirements. To what extent it may inspire regional guidance remains to be seen.
Q. When do you expect the non-binding act for the EU GBS to be put in place?
A. The Commission will decide on the action and timing for the creation of the EU GBS. In the TEG GBS working group we are working to have a proposal for the design of the key elements, such as the market based registration scheme, available by the end of this year. It would be natural to have an understanding on the political agreement on the taxonomy in place as well.
Q. The TEG is reviewing the Do No Significant Harm (DNSH) Criteria related to the green bond market. Can you discuss what exactly is being reviewed and why?
A. We are working on a user guide for the EU GBS and in this context the usability of the DNSH is also considered. TEG is also reviewing the overall feedback received through the outreach.
Q. Do you think independent assurance will be needed in the future when reporting about green bonds ?
A. In the June EU GBS report we proposed that the Green Bond Framework and the allocation reports should be verified by an accredited verifier.
Q. Will audit firms be needed to assure green bonds for the markets ?
A. The verification may be performed by various parties, including audit firms.
Q. Is there any news on when the EU GBS will be formalised by the Commission?
A. See above answer
Q. What is the different between EcoLabelling and the Green Bond Standard?
A. Ecolabels may be created for various kinds of products, including financial. The TEG proposed that potential green bond ecolabels would be based on the EU GBS.
Q. There is no legislative proposal on green bond standard. How is TEG's work with green bond standard related to the European Banking Authority (EBA) guidelines on loan issuance and monitoring and the section about green lending?
A. TEG and EBA have their own roles and workstreams. In practice, green loans refinanced by an EU GBS aligned bond would likely follow both the standard and the EBA guidance for the relevant parts.