Understanding the EU Green

Bond Standard
Caroline Phillips, Sabine Dittrich, Minolee
Shah, Peaches Stanforth
Introduction

Caroline Phillips Sabine Dittrich

Partner, Head of DCM Head of EU Financial Regulation

+44 (0)20 7090 3884 +44 (0)20 7090 4131
caroline.phillips@slaughterandmay.com sabine.dittrich@slaughterandmay.com

Minolee Shah
Peaches Stanforth
Professional Support Counsel
Associate
+44 (0)20 7090 5491
+44 (0)20 7090 3369
minolee.shah@slaughterandmay.com
Peaches.stanforth@slaughterandmay.com
Agenda
1. Introduction
2. Defining the EU Green Bond Standard
3. Key Provisions
a. EU Taxonomy-Alignment
b. Grandfathering and Capex Plans
c. Sovereigns
d. Factsheets and Reporting
e. External Reviewer Regime
f. Optional Disclosure Regime
4. Comparison to ICMA Principles
5. The Future of the Label
6. UK Position

Understanding the EU Green Bond Standard 3

Background and Timeline
The EU Green Bond Standard (the “EU GBS”) – an important step towards implementing the EU Sustainable Finance
Action Plan to support the growth of sustainable finance and direct capital towards sustainable growth.

Aims:
• Increase the financial flows to green investments and assets.
• Enhance transparency, comparability, accountability and credibility of EU Green Bonds.
• Address barriers to green bond market development.

14 Jan 2021 12 Jul 2022 05 Oct 2023 30 Nov 2023

The EU publish their Trialogue negotiations The European The EU GBS was
Green Deal began between EU Parliament adopted published in the
Parliament, Council and the contents of the Official Journal of
Investment Plan
Commission
agreement the EU

2019 2020 2021 2022 2023 2024

28 Feb 2023 23 Oct 2023 21 Dec 2024

06 Jul 2021
06 Mar 2019 Provisional The European Council The EU GBS
The EU Commission
Interim report on presented its proposal agreement adopted the regulation will apply
the EU GBS for a regulation reached, ending
published by TEG establishing an EU trialogue
Green Bond Standard negotiations

Understanding the EU Green Bond Standard 4

Introduction to the EU Green Bond Standard
The first legislative standard for green bonds

Who can use the label? What products are covered? Where does the EU GBS fit in?

The EU GBS is a voluntary gold The EU GBS is for ‘use of proceeds’ A wider ecosystem of other EU
standard available to all issuers inside green bonds. The Regulation also has sustainable finance legislation.
and outside the EU. an additional opt in disclosure regime
for other ESG bonds.

Understanding the EU Green Bond Standard 5

What is the EU Green Bond Standard?
At least 85% of the net proceeds
of an EU Green Bond offering
must be invested in
“environmentally sustainable
activities” aligned with the EU
Taxonomy requirements and
allocated to one or more specific
categories.
Use of Proceeds
Supervision of
External Review
The EU GBS sets out detailed
rules for external reviewers
including registration with and
supervision by the European
Securities Market Authority.
Understanding the EU Green Bond Standard
The EU GBS requires an issuer to
publish a green bond ‘factsheet’
prior to issue as well as comply
with various pre- and post-
issuance reporting requirements. “This Regulation creates a gold
standard that green bonds can
aspire to. It ensures that the
Factsheet and
money raised must go to green
Reporting
activities and that bonds are
vetted by professional and
independent third-party
reviewers. This is a world apart
from current market standards.”
Paul Tang, Rapporteur
External Review
All EU GBS bonds must be checked
by an external reviewer to ensure
compliance with the EU GBS and
that funded projects are aligned
with the EU Taxonomy.
6
Use of Proceeds
One of the hallmarks of the EU GBS is that the proceeds must be invested in economy activities
that are aligned with the EU Taxonomy

The proceeds (from which
issuance costs can be
deducted) need to have been
fully allocated to fixed
assets, capital expenditures,
operating expenditures,
financial assets or assets and
expenditures of households
according to the criteria set
out in Article 3 of the EU
Taxonomy Regulation.
Alternatively, issuers could
allocate proceeds from a
portfolio of one or more
outstanding European green
bonds to a portfolio of fixed
assets or financial assets
(according to the EU
Taxonomy requirements).
Taxonomy Regulation 15% Flexibility pocket: where
compliance requires that the there are no relevant TSC in
activity (to which the force on issue or for
proceeds are applied) must internationally reported
(i) contribute substantially to green finance support.
one or more of the six
environmental objectives, (ii)
comply with the TSC, (iii) do
no significant harm to any of
the other environmental
objectives; and (iv) be
carried out in accordance
with minimum safeguards.

Use of Portfolio Taxonomy Flexibility

Proceeds Approach Compliance Pocket

Understanding the EU Green Bond Standard

Capex Plans

• Issuers can use a Capex plan when capital

expenditures or operating expenditures will
meet the Taxonomy requirements in
the future.
• The Capex plan will need to specify a
deadline by when all expenditures funded by
the European green bond will be Taxonomy
aligned (needs to be before bond matures).
• Capex plan is subject to external review and
further detailed rules.

Understanding the EU Green Bond Standard 8

Grandfathering
What happens when technical screening criteria changes?

The delegated acts adopted as part of
the EU Taxonomy are to be subject to
review and amendment, reflecting the
need for the technical screening
criteria to be dynamic and to allow
for technological and scientific
advances to be reflected.
Issuers are able to apply the technical
screening criteria applicable at issue
when allocating the proceeds to
eligible fixed assets or expenditures.
Unallocated proceeds and proceeds
covered by a Capex plan that have not
yet met the EU Taxonomy
requirements must comply with the
amended technical screening criteria
within seven years.

Understanding the EU Green Bond Standard 9

The EU GBS Factsheet Links to EU Sustainable
Finance Legislation

Article 8 Taxonomy Disclosures

Details of how the bonds proceeds will

Environmental
strategy and rationale contribute to the issuer’s taxonomy-aligned
assets, turnover and CapEx/OpEx

CSRD

Disclosure on how the EU GB proceeds intend

to contribute to the funding and
implementation of transition plans

SFDR

Attractive for investors that report according

to SFDR

Understanding the EU Green Bond Standard 10

Review and Reporting under the EU GBS

BEFORE OR AT ISSUANCE GRADUAL ALLOCATION………………………… FULL ALLOCATION*

PUBLICATION OF GREEN
BOND FACTSHEET
• ANNUAL ALLOCATION REPORTS FINAL ALLOCATION
A pre-issuance external review on the
factsheet is required. REPORT
• Information on allocation of bond
proceeds.
• Progress on implementation of Capex
plan (if applicable).
• Must be prepared annually until full IMPACT REPORT
allocation.
• External review on report required.
• Required after full
allocation of
REPORTS AND proceeds.
FACTSHEET TO BE
* And completion of Capex plan if applicable PUBLICLY AVAILABLE

Understanding the EU Green Bond Standard 11

External Reviewer Regime
The EU GBS establishes a new supervisory regime, providing regulatory oversight over
second party opinion providers and external reviewers for the first time

Mandatory pre-issuance review of factsheet and post-issuance review of allocation reports. Optional post-issuance
Requirement review of impact reports.

The new regime requires reviewers of EU Green Bonds to register with ESMA and meet various organisational and
Regime governance conditions for registration and ongoing supervision.

ESMA is empowered to develop regulatory technical standards specifying a number of detailed requirements relating
ESMA to registration within 24 months of the EU GBS coming into force (draft proposals have now been published).

To allow time for reviewers to adapt to the new regime, the EU GBS allows a limited transition period of 18 months
Transition where reviewers can provide their services as long as they notify ESMA and comply with requirements on a ‘best
efforts’ basis.

The new supervisory regime is likely to be well received given the importance of external reviews to investors and
Market Reaction the need for consistency and transparency across providers.

Understanding the EU Green Bond Standard 12

External Reviewer RTS and Timeline
• In March 2024, ESMA launched a
consultation on Draft RTS relating
to the external reviewer regime.
• Proposals relate to:
o senior management and
analytical resources;
o sound and prudent
management, including
avoidance of conflicts of
interest;
o knowledge and experience of
analysts; and
o the outsourcing of
assessment activities and
procedures for the provision
of registration information.

Understanding the EU Green Bond Standard 13

Links to the EU Prospectus Regulation
• An EU Green Bond issuer will need to prepare an EU Prospectus Regulation (EU PR)
compliant prospectus which is approved by a national competent authority and
published prior to issuance.
• EU PR link will mean the EU GBS is more attractive to issuers with bonds listed on an EU
Regulated Market.
• No specific prospectus disclosure requirements other than:

UoP Capex Plan Factsheet

• Designation of Summary of
‘EuGB’ or ‘European Capex plan Factsheet may be
Green Bond’ label in (if proceeds are incorporated by
prospectus applied to capex or reference
• Use of Proceeds opex)

Understanding the EU Green Bond Standard 14

Optional Disclosure Regime
Disclosure requirements for bonds ‘marketed as environmentally sustainable’
Minimum disclosures pre-issuance
• The voluntary disclosure templates can be
used by issuers even if they do not intend USE OF PROCEEDS GREEN BONDS SUSTAINABILITY-LINKED BONDS
to use the EU GBS label. • Disclosure on transition • Disclosure on transition
plans (where applicable) plans (where applicable)
• Intended to facilitate comparison of green • Article 8 disclosures (where • Article 8 disclosures (where
bonds and sustainability-linked bonds for applicable) applicable)
investors in the wider market as well as • Minimum proportion of • The rationale, level of
address greenwashing concerns. bonds proceeds to be ambition, materiality and
applied to Taxonomy calculation methodology of
Regulation environmentally KPIs
• Regulation provides for pre-issuance and sustainable activities • A description of the bond
post-issuance disclosure templates. structure, including the
coupon adjustment
mechanism
• The full detail is expected to be set by
the Commission in due course.

Understanding the EU Green Bond Standard 15

EU GBS: other notable provisions
Sovereign Provisions (Exemptions)
• Use of Proceeds: sovereign issuers have some additional flexibility such as, financing public assets or expenditures that
meet or will meet the Taxonomy Regulation requirements (Tax relief, subsidies or international support activities).
• Documentation: certain sovereign issuers do not have to produce an EU Prospectus Regulation compliant prospectus.
• External Review: in post-issuance review, sovereign issuers may opt to use state auditors to review the allocation of
bond proceeds (but will still need external reviewers to ascertain whether the economic activities funded through the
bond align with the taxonomy requirements).

Sanctions and Liability

• National competent authorities will have supervisory and investigative powers and EU Prospectus Regulation liability
regime will apply to EU GBS bonds.

Securitisation
• A separate regime for securitisation.

Regulation for SLBs?

• The European Commission must publish a report in relation to the need to regulate SLBs by end of 2026.

Understanding the EU Green Bond Standard 16

Comparisons to ICMA GBP
What has changed?

ICMA Green Bond Principles EU Green Bond Standard

Voluntary Voluntary, market-based principles Voluntary but must comply with all aspects of the EU GBS
Regulation. “Gold standard”

Use of Proceeds Wider scope of eligible green projects (high level) under ICMA GBP Sustainable economic activities defined by the EU Taxonomy
Regulation (subject to 15% flexibility pocket)

Framework/ Framework recommended, no prescribed format Factsheet required, prescribed format and content requirements
Factsheet including detail on transition plans

Reporting Allocation reporting required. Annual report to include list of Allocation report and impact report required with specified content
projects allocated proceeds, amounts and expected impact and format requirements

External Pre-issuance external review recommended, post-issuance Detailed requirements under EU GBS. Subject to new registration
Reviewers tracking/allocation of proceeds by auditor/third party and supervision regime by ESMA
recommended.

Prospectus / No requirement for EU Prospectus Regulation compliant prospectus Must prepare EU Prospectus Regulation compliant prospectus (unless
Listing exempt)

Restrictions N/A Certain jurisdictions are restricted from using the EU GBS on the
grounds of being non-cooperative for tax or being classed as high-
risk.

Understanding the EU Green Bond Standard 17

Future of the Label?
The path ahead for the EU GBS: key challenges and considerations

EU • Concerns around data availability, heavy reliance on EU legislation and criteria (which
Taxonomy
will impact the ability to assess non-EU projects) and a current lack of taxonomy assets.
Usability

• Tougher sanctions under the EU GBS will weigh heavily on the minds of issuers who are
increasingly cognisant of reputational and litigation risks when preparing their ESG bond
Sanctions
prospectuses.

• Issuers will need to consider the additional costs in preparing an EU GBS compliant
Costs prospectus (in line with the EU Prospectus Regulation) and factsheet as well as external
review / reporting costs.

Understanding the EU Green Bond Standard 18

An Update on the UK
UK Taxonomy/ UK Green Bond Standard
• The Green Technical Advisory Group (‘GTAG’) advice is for the UK Government to prioritise delivering
a credible, robust, usable green taxonomy. In August 2023, GTAG recommended that the UK
Government announce plans for a voluntary UK Green Bond Standard.
FCA’s Position
• Published Feedback Statement on ESG Integration in the Capital Markets and
Primary Market Bulletin 41 (June 2022)
• Encourages issuers of ESG-labelled Use of Proceeds debt instruments to consider voluntarily applying
or adopting relevant industry standards, such as the ICMA Principles for green, social, and
sustainability bonds
• Encourages issuers and their advisors to consider verifiers’ and assurance providers’ expertise and
professional standards, and to engage with second party opinion providers and verifiers who adhere to
appropriate standards of professional conduct, such as ICMA’s Guidelines for External Reviewers.

Understanding the EU Green Bond Standard 19

Questions?

Understanding the EU Green Bond Standard 20

@ Slaughter and May, 2024
This material is for general information only and is not intended to provide legal advice.
For further information, please speak to your usual Slaughter and May contact.

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