EU green bond proposals raise bar for green emissions

2021 sets new records for issuance of sustainable bonds by financial institutions. Regulatory changes remain a key driver of this growth. The climate delegated act published in June provided issuers and investors with clarification on the first technical selection criteria accompanying the EU taxonomy regulation. In addition, the publication of the draft regulation on European green bonds in July made more concrete the ideas of the European Commission on the voluntary standard for high quality green bonds. We believe the green bond standard will become the most important standard for investors who buy green bonds. The regulation will likely shift the preference of issuers and investors towards EU green bonds with maturities of no more than eight years. Since bank covered bonds generally have a longer maturity than unsecured bank bonds, we can particularly see this segment saving the shorter maturity bands for green issues.

Green supply explodes as regulators fill some voids

The issuance of sustainable bonds by companies in the financial sector has accelerated rapidly this year. Zooming in on bank bond products alone, we find that 17% of covered bonds printed from January to September were issued in a sustainable format. This share stands at 26% for senior unsecured bail-in instruments, while 34% of senior unsecured senior issues had a dedicated sustainable use of the proceeds in the first nine months of this year. The issue of the T2 bank was even made up for 37% of the sustainable offer.

Fig 1 Issuance of sustainable financial bonds by type of bond

Durable bonds in EUR issued by the financial sector (size ≥ € 250m) Source: ING

With a total of 50 billion euros at the end of September, the supply of sustainable bank bonds already exceeds 20 billion euros compared to the impression of the full year in 2020. Green issues are comfortably taking the lead this year. year, representing 72% of the sustainable total. printing of bank bonds, up from 68% last year. In our view, the final clarity achieved in June of this year on the technical selection criteria for the climate change mitigation and climate change adaptation goals of the EU taxonomy removed a significant obstacle “from wait and see ”to the green issuance.1 These technical selection criteria and the No material prejudice considerations give issuers precise indications as to the extent to which activities funded by their green bonds can in fact be announced as environmentally sustainable as of January 1, 2022.


Long-term bonds in EUR covered and unhedged issued by banks (size ≥ € 250 million) Source: ING

In addition, on July 6, 2021, the European Commission published its draft proposals on European Green Bonds, giving issuers an overview of the criteria they would need to meet in order to be able to use the voluntary ‘EU Green Bond’ designation ( EuGB). While the EU’s green bond regulation has yet to be approved by the European Parliament and the Council, some green bond issuers may already start reviewing the proposed criteria.

The European green bond regulation has three main objectives:

  • Improve capacity investors identify and trust high quality green bonds.

  • Facilitate the issuance high-quality green bonds by clarifying the definitions of green economic activities and reducing the reputational risk for issuers in sectors in transition.

  • Standardize the practice of external examination and improve confidence in external evaluators by introducing a voluntary registration and monitoring regime.

Issuers wishing to use the designation EUGBS (European green bond standard) must meet at least (1) the bond requirements and (2) the transparency and external review requirements set by the draft legislation (see Annexes 1 and 2). Compliance with the Taxonomy Regulation and its delegated acts is the most important requirement in bond regulation, which provides an additional incentive for issuers to ensure full taxonomy alignment of their green bonds. This, however, will continue to come with challenges.

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