EU unveils green bond framework as it prepares for first issuance in October

VE chosen to provide second party opinion on the framework, which is not fully aligned with the EU’s proposed green bond standard

The EU today unveiled its green bond framework ahead of its planned raise of up to €250bn in green bonds to support a green recovery from the coronavirus pandemic.

The green bonds, the first of which is planned for October, form part of the €800bn Recovery and Resilience Fund, which will raise money on the bond market to provide loans to EU member states to aid in their Covid recovery. The European Commission has said that at least 30% of the funds will be raised through the issuance of green bonds, with the planned sums making the EU the largest green bond issuer in the world. 

The funds raised by the Recovery and Resilience Fund will be dispersed to member states to finance their Covid recovery, with member states required to allocate a minimum of 37% to “climate-relevant investments and reforms”. A total of nine categories of expenditure are eligible under the framework, with energy efficiency, clean transport and clean energy slated to receive the most funding. 

VE was chosen to provide a second party opinion on the framework, and confirmed that it was fully aligned with ICMA’s Green Bond Principles. It rated the framework’s contribution to sustainability as ‘robust’ – the second highest rating.

While the framework is not fully aligned with the EU’s proposed green bond standard, Commissioner in Charge of Budget and Administration Johannes Hahn said that the EU had “tried to anticipate and align [the framework] as much as possible” with the proposed standard. However, issuing green bonds is “something [the EU has] to do now, while the green bond standard is something which will come into force in one or two years”, he continued. In March, RI reported that the EU was not planning to apply the green bond standard to its own deals, a move that Climate Bonds Initiative CEO Sean Kidney described as “madness”.

One senior EU official said that there were “a series of investments in the green bond framework that are simply not covered by the taxonomy”. The official gave the example of green training, which is not currently covered by the taxonomy, and said that there was also “a portfolio of investments that figure in some plans which are not sufficiently detailed for us to ascertain at the level of the underlying projects one by one whether they meet the criteria of the taxonomy, whereas it’s clear from the programme that they will make a major contribution to green investments […] they would not be eligible under the green bond standard”.

Meanwhile, member states will not be able to spend the money on nuclear energy, Commissioner in Charge of Budget and Administration Johannes Hahn said. 

The EU has committed to annual impact reporting, and member state expenditures must respect the Do No Significant Harm principle as outlined in the EU taxonomy, meaning activities financed cannot be harmful to any of the taxonomy’s six objectives. Member states in receipt of green bond funds must report their allocation back to the EU, which will produce an allocation report annually. 

The EU has already raised €75bn from its social bond programme, with one €17bn deal taking the record for largest bond in European history and a further €25bn of issuance planned. The proceeds from the bonds are being used to provide loans to member states for short-time work schemes and other measures which preserve employment and support incomes.

September is likely to be a big month for sovereign green bond issuances. The most hotly anticipated deal will be the UK’s long-awaited inaugural green gilt, maturing in 2033, with Colombia also due to make its market debut. Spain today raised €5bn for its debut 20-year green bond, which saw demand of €38.5bn, while Germany is due to go to market with a new 10-year green bond tomorrow.