The EU Green Bond (EU GBS) Regulation has been adopted by the European Parliament (here) and by the EU Council (earlier today, here).

The key provisions of the Regulation are summarised in our June 2023 briefing here.

NEXT STEPS

We expect the Regulation to be published in the Official Journal at the end of Q4 2023 (or very early in Q1 2024). It will apply 12 months + 20 days later.

The Regulation will be directly effective in Ireland. Domestic Irish regulations will be needed regarding administrative penalties and other appropriate administrative measures for breaches of the Regulation. There will be a transitional period to facilitate the provision of services by external reviewers (ERs) while ESMA is putting its registration and supervision framework in place (that period will run for 18 months from the date that that Regulation applies).

KEY DELIVERABLES

The Regulation sets out several deliverables for ESMA. These, together with its final report on greenwashing, are key elements of its 2024 Work Programme. The bulk of the ESMA deliverables relate to its new responsibility for the registration and ongoing supervision of ERs.

By 12 months after the Regulation enters into force, the Commission must prepare:

• Guidelines with templates for voluntary pre-issuance disclosures for issuers of bonds marketed as environmentally sustainable, and sustainability-linked bonds.
• Commission Delegated Act on the content, methodologies and presentation of post-issuance disclosures of bonds marketed as environmentally sustainable, and sustainability-linked bonds.
• Commission Delegated Act on procedures for ESMA to impose fines or periodic penalty payments.
• Commission Delegated Act on the fees ESMA will charge ERs.

By 12 months after the Regulation enters into force, ESMA must submit the following to the Commission:

• Draft regulatory technical standards (RTS) on assessments of the senior management and board members of ERs, and others involved in their assessment activities, and draft implementing technical standards (ITS) on how that information is to be provided.
• Draft RTS with criteria for assessing the sound and prudential management of ERs, and the management of conflicts of interest.
• Draft RTS on assessing the appropriateness of the knowledge, experience and training of analysts and employees of ERs and of others involved in their assessment activities.
• Draft RTS on outsourcing by ERs.

By 24 months after the Regulation enters into force, ESMA must submit the following to the Commission:

• Draft ITS on notifications by ERs of material changes to registration information to ESMA.
• Draft RTS on criteria for assessing the systems, resources and procedures of ERs.
• Draft RTS regarding ERs compliance functions.
• Draft RTS on ERs administrative and accounting procedures, their internal control mechanisms and their control and safeguard arrangements.
• Draft RTS on assessing whether the information used by ERs is of sufficient quality and whether sources are reliable.
• RTS on applications for recognition of third country ERs.

ESMA may decide to prepare draft RTS and related ITS on cooperation and information exchange between competent authorities.

Various reports are required to assess how the EU GBS is functioning, including:

• 3 years’ time: Whether sustainability-linked bonds should be regulated (Commission).
• 5 years’ time: How the Regulation is working (Commission) including an evaluation of the flexibility pocket – the EU Council noted that the “use and the need for this flexibility pocket will be re-evaluated as Europe’s transition towards climate neutrality progresses and with the increasing number of attractive and green investment opportunities that are expected to become available in the coming years.”
• 5 years’ time: Whether to extend the EU GBS designation to synthetic securitisations (EBA).

We’ll continue to publish insights as ESMA and the market prepare for the impact of the new Regulation.