EU moves to introduce accreditation for green bond assessments

The European Securities and Markets Authority (ESMA) should head up an accreditation scheme for EU Green Bond verifiers, the Technical Expert Group on sustainable finance (TEG) has recommended in a report published today (June 18). The recommendation follows an initial paper laying out the proposals for an EU Green Bond Standard (EU-GBS), which was published in March and that RI summarised here.
Following a consultation, the updated report – largely unchanged except for an impact assessment and a template for a Green Bond Framework (GBF) – was published as part of a wider, highly anticipated set of reports from the TEG. It said legislation needed to set up an ESMA-led body could take around two years to pass.
An interim registration scheme should be convened, according to the report, to allow verifiers to start issuing verifications in line with the EU-GBS “in order to respond to expected market demand in the short term”. The earliest the voluntary, market-based interim scheme is expected to take form is next year.
The recommendation was made by the green bonds working group – one of the four TEG ‘sub-groups’ – which has been mandated to provide the Commission with information on whether an EU Green Bond Standard would be a useful tool to develop, what its potential impact could be, and how it could be structured and implemented. The Commission will draw on the expert recommendations to determine which parts they take into account and how. While use of the Standard by issuers or investors would be voluntary, for bonds to be called “EU Green Bonds” they would need to be verified by an accredited verifier and comply with the EU-GBS, for example in falling within a wider green bond framework, and being accompanied by reporting on allocation and impact.
Existing green bonds could be accredited as EU Green Bonds provided they receive accreditation and meet the proposed EU specifications.
Transition activities which contribute to the greening of sectors will be eligible under the Standard, in line with changes made to the EU’s green taxonomy, also in its review stages. What counts as green under the Standard hinges on the taxonomy, the EU’s flagship classification system that identifiesbusiness activities consistent with a carbon neutral economy by 2050. Aila Aho, Rapporteur for the Green Bond Standard working group and Executive Adviser, Sustainability at Nordea, said real estate was an example of where transition activities could qualify as green under the taxonomy: “In real estate, constant improvements are required, so the qualifying criteria now will be tightened as we get closer to 2050.” The proposals chime with calls last week by French insurer, Axa, for transition bonds. Aho said the moves were partly an attempt to help smaller institutional investors enter the green bond market as buyers. She said: “It gives a good base for smaller institutional investors and asset managers to evaluate the different credentials of issuances. They’ll have a ‘safe mode’ they can use in their own operations.” Aho refuted market concerns that the GBS could restrict the growth of the market, saying it could increase issuance on the corporate side. “There could be issuers worried that if their perception of green is not accepted by the market they could be accused of greenwashing, but if they fulfil the criteria of the taxonomy it’s safe for them to issue.” There have been complaints from investors about a lack of corporate green bond issuance beyond banks. Today’s report was the first update on the GBS since the sub-group released its interim report presenting a draft EU GBS for public feedback at the beginning of March. More than 100 organisations provided feedback on the report, which today’s report said was “generally positive”. Aho said there was “strong feedback” around the issue of the perceived lack of green assets in the real economy, leading to this being added as a “barrier” to the growth of green bonds.
Also, on the back of the consultation feedback, the new report deleted an earlier recommendation for credit enhancement by partial public guarantees schemes. Members of the EU Green Bond Standard Working Group include Tanguy Claquin representing the European Association of Corporate Banks (EACB), ICMA’s Nicolas Pfaff, Luxembourg Stock Exchange’s Flavia Micilotta, WWF’s Jochen Krimphoff, and from the European Investment Bank: Eila Kreivi, Aldo Romani, Dominika Rosolowska and Jean-Luc Filippini. The group is not proposing that the Commission legislate on green bonds for at least three years, to enable monitoring of the standard within the market. Even if eventually made legislative, the Standard could remain voluntary.