EUROPEAN COMMISSION Strasbourg, 6.7.2021 COM(2021) 391 final 2021/0191(COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European green bonds (Text with EEA relevance) {SEC(2021) 390 final} - {SWD(2021) 181 final} - {SWD(2021) 182 final}



EXPLANATORY MEMORANDUM 1.CONTEXT OF THE PROPOSAL •Reasons for and objectives of the proposal This proposal is part of the broader European Commission agenda on sustainable finance. It lays the foundation for a common framework of rules regarding the use of the designation ‘European green bond’ or ‘EuGB’ for bonds that pursue environmentally sustainable objectives within the meaning of Regulation (EU) 2020/852 (Taxonomy Regulation). It also sets up a system for registering and supervising companies that act as external reviewers for green bonds aligned with this framework. It will facilitate further developing the market for high quality green bonds, thereby contributing to the Capital Markets Union, while minimising disruption to existing green bond markets and reducing the risk of greenwashing. The designation ‘European green bond’ shall be available to all issuers, whether within or outside the Union, that meet the requirements of this proposal. This legislative proposal aims to better exploit the potential of the single market and the Capital Markets Union to contribute to meeting the Union’s climate and environmental objectives in accordance with Article 2(1)c of the 2016 Paris Agreement on climate change, and the European Green Deal. The European Green Deal made clear that significant investment is required across all sectors of the economy to transition to a climate-neutral economy and reach the Union’s environmental sustainability objectives. In the 2021-2030 period, the achievement of the Union’s current 2030 climate and energy targets will require energy system investments (excluding transport) of EUR 336 billion per annum (in constant prices of 2015), equivalent to 2.3% of GDP. A substantial part of these financial flows will have to come from the private sector. Closing this investment gap means significantly redirecting private capital flows towards more environmentally sustainable investments and requires comprehensively rethinking the European financial framework. In particular, the European Green Deal underlined that it should be made easier for investors and companies to identify environmentally sustainable investments and ensure that they are credible. This could be done via clear labels for retail investment products and by developing a European green bond standard that facilitates environmentally sustainable investment in the most convenient way. Despite vigorous market growth, issuance of green bonds remains at a fraction of overall bond issuance, representing about 4 % of overall corporate bond issuance in 2020. Further growth in the market for high quality green bonds will be a source of significant green investment, thereby helping to meet the investment gap of the European Green Deal. To this end, the European Green Deal Investment Plan of 14 January 2020 announced the establishment of a green bond standard. In its December 2020 conclusions on climate change, the European Council stressed the importance of developing common, global standards for green finance and invited the European Commission to put forward a legislative proposal for a green bond standard by June 2021. Finally, in its work programme for 2021, the Commission highlighted “an economy that works for people” as a priority and stressed the importance of continuing progress on sustainable financing, notably by proposing to establish an EU green bond standard. Because of the widespread use of proprietary market frameworks for green bonds, and despite the fact that some of these frameworks are commonly accepted as setting a standard, it can be costly and difficult for investors to determine the positive environmental impact of bond-based investments and compare different green bonds on the market. For issuers, the lack of common definitions of environmentally sustainable economic activities creates uncertainty about which economic activities can be considered to be legitimately green. In such conditions, issuers may face reputational risks from potential accusations of greenwashing, especially in transitional sectors. In addition, the fragmentation of practices in the area of external review can create additional costs for them. These obstacles may affect the profitability of projects with substantial climate and environmental impact, thereby reducing the supply of such investment opportunities and impeding the achievement of the Union’s environmental goals. This proposal aims to address these obstacles by setting a standard for high-quality green bonds. This should: (1) improve the ability of investors to identify and trust high quality green bonds, (2) facilitate the issuance of these high quality green bonds by clarifying definitions of green economic activities and reducing potential reputational risks for issuers in transitional sectors, and (3) standardise the practice of external review and improve trust in external reviewers by introducing a voluntary registration and supervision regime. This proposal for a European Green Bond is anchored to the Taxonomy Regulation. The Taxonomy Regulation sets out a classification of economic activities as environmentally sustainable, including as one of the defining criteria the full compliance with minimum social safeguards. This framework can be used as a benchmark to classify whether an economic activity and, by extension, related assets or projects are green. According to Article 4 of the Taxonomy Regulation, the Union must apply the criteria of the Taxonomy when setting out any standards for environmentally sustainable corporate bonds. Hence, for the purposes of European green bonds, the Commission proposes that the Taxonomy Regulation, and – as they are developed - its Delegated Acts, should define what counts as ‘green’. This proposal provides a framework for all green bond issuers, including those from the public and private sector, and including financial and non-financial undertakings. The framework is also intended to be usable for issuers of covered bonds as well as securitisations, the securities of which are issued by a special purpose vehicle. The link with the Taxonomy Regulation allows the proceeds from European green bonds to be used for a broad range of economic activities that provide a substantial contribution to environmental sustainability objectives. Building on current market best practices for green bonds, this proposal presents many potential uses, such as a bank issuing a European green bond to finance green mortgages, a steel manufacturer issuing a European green bond to finance a new lower emitting production technology, or a sovereign issuing a European green bond to finance a subsidy scheme for renewable energy installation, to name a few. This proposal builds on market best practices, as well as feedback and recommendations received from a High-Level Expert Group on Sustainable Finance. The Group’s report, published on 31 January 2018 recommended the introduction of an official EU Green Bond Standard, as it was referred to then. As a follow-up, the Commission committed to developing an EU Green Bond Standard in its Action plan for financing sustainable growth adopted on 8 March 2018. It tasked the Technical Expert Group (TEG) on Sustainable Finance, consisting of market participants from different sectors, with drawing up recommendations for an EU Green Bond Standard. The TEG did so in its final report in June 2019, which was followed up by a usability guide for a draft standard in March 2020. Finally, the Commission gathered further insights and input on green bonds in its public consultation on the renewed sustainable finance strategy (open April-July 2020) and its targeted consultation on the EU Green Bond Standard (open June-October 2020). •Consistency with existing policy provisions in the policy area This proposal introduces a set of rules that issuers of green bonds must follow in order to call a bond a ‘European green bond’ or ‘EuGB’. It builds on existing market best practices and puts in place additional requirements based on relevant legislation already in place. These requirements are consistent with the objectives of existing policy provisions in the policy area, and in particular the Taxonomy Regulation. This proposal requires issuers of a European green bond to ensure that the proceeds of the bond are allocated to assets and expenditure in full compliance with the requirements of the Taxonomy Regulation, in order to ensure that the bond itself is fully environmentally sustainable. This proposal is also consistent with other sustainable finance initiatives, including the Commission proposal for a Corporate Sustainability Reporting Directive, which will promote the reporting of sustainability-related information by all large corporations and most corporations listed on regulated markets, which therefore also concerns many bond-issuers. This proposal is also consistent with the Capital Markets Union, which aims to improve the ability of the Union’s capital markets to mobilise and channel investments, which can help to fund the green transition. •Consistency with other Union policies This proposal complies with the overarching policy goals of the European Green Deal. The European Green Deal is the Union’s response to the climate and environment-related challenges that define this generation. It aims to transform the Union into a modern, resource-efficient and competitive economy with no net emissions of greenhouse gases by 2050. Moreover, providing a trusted regulated environment that supports the issuance and creation of European green bonds will have a prominent role in promoting the international role of the euro, and help to achieve the goal of developing Union financial markets into a new ‘green finance’ hub, thereby further supporting EU green investments. The Commission could provide technical support to Member States under Regulation (EU) 2021/240 to promote European green bonds at national level. 2.LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY

•Legal basis This proposal falls within the area of shared competence in accordance with Article 4(2)(a) of the Treaty on the Functioning of the European Union (TFEU) and is based on Article 114 TFEU, which confers the competence to lay down appropriate provisions that have as their objective the establishment and functioning of the internal market. Article 114 TFEU allows the Union to take measures not only to eliminate existing obstacles to the exercise of the fundamental freedoms, but also to prevent the likely emergence of such obstacles in the future. This also includes those obstacles that make it difficult for market participants, such as issuers of green bonds or investors, to take full advantage of the benefits of the internal market. The current market for green bonds is entirely based around market-defined standards and practices, with assurance to investors provided by companies acting as external reviewers. These existing standards set out high-level process-based guidelines or recommendations, but the underlying definitions of green projects are insufficiently standardised, rigorous, and comprehensive. This prevents investors from easily identifying bonds whose proceeds are aligned with or are contributing to environmental objectives, including notably the target of limiting the increase in the global average temperature to well below 2℃ and pursuing efforts to limit this to 1.5℃ above pre-industrial levels, as set out in the Paris Agreement. This situation also limits the ability of issuers to make use of environmentally sustainable bonds to transition their activities towards more environmentally sustainable business models. In addition, currently used market-based standards do not adequately ensure transparency and accountability of external reviewers, and there is no ongoing supervision of companies acting as external reviewers. Consequently, investors have further difficulties in identifying, trusting, and comparing environmentally sustainable bonds. Different practices therefore co-exist across the Union, which makes it costly for investors to identify genuine green bonds and at the same time prevents the market for green bonds from growing according to its potential. So far, no Member State has yet legislated to establish an official green bond standard at national level. However, national labelling schemes already set out various requirements for environmentally sustainable financial products, which in some cases may result in requirements on bonds, for example in the case of requirements on bond funds. When comparing sovereign green bonds issued by EU Member States, there are already examples where divergent definitions of environmentally sustainable activities have been applied across Member States. Furthermore, in light of the continued growth of the green bond market and its role in funding the type of fixed investments needed to reach the goals of the Paris Agreement, it is likely that some Member States will consider creating standards or establishing guidelines at national level. Such national initiatives would likely seek to address the same problems that the proposed EuGB initiative aims to address, but the results may diverge across Member States. It is therefore likely that disparities between national laws would emerge, and these would obstruct the free movement of capital, undermine a European level playing field, and act against the objectives of the Capital Markets Union. Therefore, there is a clear need for a harmonised green bond standard to be applied across the Union by both public and private green bond issuers. The adoption of this Regulation would aim to ensure such harmonised requirements. Article 114 TFEU is therefore the appropriate legal basis. •Subsidiarity (for non-exclusive competence) This proposal complies with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union (TEU), according to which Union action may only take place if the envisaged aims cannot be achieved by Member States alone. The green bond market is inherently international, with participants trading bonds across national borders. Issuers of and investors in financial products require common metrics and definitions to determine which projects and activities are environmentally sustainable, and compare them with each other. Given this situation, national legislative action to tackle the failures identified in the green bond market would have the potential effect of fragmenting the European market for green bonds. Furthermore, the market for external reviewers of green bonds is a cross-border market. In order to preserve a level playing field for the actors providing these services, a centralised registration and supervisory regime for external reviewers of European green bonds is needed at European level, coordinated by the European Securities and Markets Authority (ESMA). Therefore, such an initiative cannot be limited to the territory of a single Member State, and coordinated action at Union level is needed. Only an intervention at Union level can define consistent and standardised requirements for European green bonds to improve the functioning of the Single Market and prevent market distortion. Finally, given the many interactions between the European green bonds proposal and other relevant Union-level legislation, such as the Taxonomy Regulation, a Union instrument appears to be more suitable to address the current situation. For the reasons given above, uniformity and legal certainty of the exercise of the Treaty freedoms can be better ensured by action at Union level. •Proportionality This proposal complies with the principle of proportionality as set out in Article 5 TEU. The proposed measures are necessary to achieve the objectives, and also the most suitable. Putting in place a harmonised voluntary standard for a green bond at Union level will set the benchmark for high-quality green bonds on European and possibly global markets, without imposing the use of the standard on current market participants. By allowing the removal of certain impediments to the proper functioning of the market for high quality green bonds, this Regulation could help to direct capital flows to environmentally sustainable projects and facilitate cross-border green investments. Given the risk that inaction will lead to market fragmentation and investor confusion, this proposal will provide for legal clarity, transparency and comparability of European green bonds across the Union. The stakeholder feedback and impact assessment for this proposal both identified the main problem drivers to be the lack of a consistent definition of what are environmentally sustainable ways to use of proceeds green bonds, and the lack of ongoing supervision of external reviewers. This proposal goes no further than what is necessary to address and remedy each of these issues, namely by: (1) creating a voluntary standard for green bonds requiring that the use of proceeds is in alignment with the requirements of the Taxonomy Regulation, and (2) requiring issuers of European green bonds to obtain a pre- and post- issuance review from an external reviewer registered and supervised in line with the requirements of this Regulation. State auditors or other public entities mandated by sovereign issuers are not subject to the registration and supervision requirements of this Regulation, as they are statutory entities with responsibility for oversight over public spending and typically have legally guaranteed independence. •Choice of the instrument

This proposal aims to put in place a common set of requirements for a harmonised standard for European green bonds, which will further simplify environmentally sustainable investments and support a coordinated way of improving the functioning of the single market. A directly applicable Regulation is necessary to achieve these policy objectives and is the best way to deliver maximum harmonisation while avoiding divergences related to uneven implementation. 3.RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS •Ex-post evaluations/fitness checks of existing legislation There is currently no EU-level legal regime for green bonds. •Stakeholder consultations The Commission launched an open public consultation on the renewed sustainable finance strategy on 8 April 2020, which was open for 16 weeks. This consultation included over 100 questions, including several on standards and labels for financial products as well as on the EU Green Bond Standard, as it was known then. The Commission received over 600 replies to this consultation from a wide range of stakeholders. A feedback statement with an overview of the contributions received has been published on the Commission’s website. As part of the process, the Commission also launched a targeted consultation on 12 June 2020 to seek further input from stakeholders on the EU GBS. This consultation was open for 16 weeks and closed on 2 October 2020 after receiving 167 responses. The replies have been published online. The consultation document consisted of 19 questions in total and focused on two main topics, namely on the EU GBS and on social bonds and COVID-19. Contributions were received from a wide range of stakeholders, including company/business organisations, business associations, consumer organisations, NGOs and public authorities. Geographically, replies were received from 20 Member States, 2 other European countries and 2 non-European countries. •Collection and use of expertise The Commission carried out structured in-depth interviews with 11 selected stakeholders from different sectors and Member States in May and June 2020. In addition, between 2 December and 23 December 2020, the Commission carried out a short consultation of national debt management officers through the Council’s Economic and Financial Committee (EFC) subgroup on European sovereign debt markets (ESDM) green bonds working group, using a targeted questionnaire. The questionnaire was also circulated to the Member States Expert Group on sustainable finance (MSEG), and respondents were asked to coordinate their responses per Member State. 17 Member States provided feedback. The Commission also held regular calls with the European Securities Markets Authority (ESMA) for its opinion and advice, including regarding a potential registration and supervision regime for external reviewers at Union level. The Commission’s Joint Research Centre prepared several academic papers, working papers, and reports regarding green bonds: (1) “Green bonds and companies’ environmental performance: a feasibility study”; (2) “Green bonds and use of proceeds reporting: what do we know from market data providers?”; (3) “The pricing of green bonds. Are financial institutions special?”; (4) “Green Bonds as a tool against climate change”. The European green bonds initiative has been discussed at regular meetings of the Member State Expert Group on sustainable finance since 2019: Member States were updated on a regular basis and took part in discussion s on specific issues, such as the link to the Taxonomy Regulation and the format and the nature of a potential European green bonds initiative. •Impact assessment The impact assessment considered a range of policy options across three key policy dimensions, in addition to the baseline situation where no Union action is taken: (1)On the scope of application of the standard for green bond issuers, the options considered were (1) a voluntary approach whereby green bond issuers would be free to choose whether or not to align with the future European green bonds initiative and (2) a mandatory approach whereby all green bonds issued in the EU or by an EU-based issuer would have to make use of the future European green bonds initiative. (2)Concerning the regulatory treatment of external reviewers of European green bonds, the options considered were (1) tasking ESMA with authorising external reviewers of European green bonds, with limited supervisory oversight and requirements, and (2) tasking ESMA with authorising and supervising external reviewers of the EU GBS under a more stringent framework. (3)On the potential flexibility afforded to sovereign issuers who wish to issue European green bonds, compared to non-sovereign issuers, the options considered were (1) no flexibility, (2) flexibility with regards to bond-related requirements but not the application and implementation of the Taxonomy Regulation, and (3) flexibility with regards to bond-related requirements and with regards to the Taxonomy Regulation. Results from two online consultations on this subject showed that a large majority of stakeholders supported the concept for an EU Green Bond Standard, as it was known then, as proposed by the Technical Expert Group for sustainable finance, including the requirement for a voluntary standard. Only a very small minority expressed support for a mandatory standard. A large majority of respondents expressed their support for a regulatory regime for external reviewers under ESMA’s supervision, with many asking for a proportionate regime. This indicates that most stakeholders would mostly favour the option of a lighter or more targeted supervisory regime.

Current and potential sovereign green bond issuers in the Union were consulted on potential flexibility for sovereign issuers, and were evenly divided on the question of whether or not to have flexibility with regards to the Taxonomy Regulation. However, there was strong support for maintaining a consistent approach with regards to sovereign and corporate issuers. Based on an analysis of the various options and feedback received from stakeholders, the impact assessment identified as preferred option that: (1)the European green bond initiative is established as a voluntary standard aligned with market best practice and the Taxonomy Regulation, (2)ESMA is tasked with authorising external reviewers of European green bonds with limited supervisory requirements, and (3)sovereign issuers are afforded some flexibility in relation to the enforcement of European green bonds, but not with regards to their application and interpretation of the Taxonomy Regulation. The preferred option builds on market best practices in the field of reporting and external review, and on the alignment with the Taxonomy Regulation. These elements would position the European green bond initiative as the foremost standard in terms of transparency and environmental credibility, in line with the objective of developing and supporting the market for higher quality green bonds. The proposed voluntary standard in conjunction with a light supervisory approach would ensure that the Union’s objectives are achieved in the most cost-efficient and effective way. A voluntary standard would appeal to issuers of high quality green bonds, many of whom expressed support for the European green bond initiative, as it would allow them to communicate more clearly with investors and others about their environmental credentials and commitments. At the same time, it would help avoid disruptive impacts on existing green bond markets, which can continue to operate freely. This would facilitate the creation of a competitive market environment that would allow investor demand rather than regulatory requirements to drive future issuances. A lighter, targeted supervisory approach to external reviewers would increase transparency for issuers and investors of external review procedures, improve harmonisation of certain aspects of the various approaches and address issues related to conflicts of interest, without discouraging existing providers from registering under the regime and acting as reviewers for European green bonds. By implementing the option of limited flexibility for sovereigns, Member States would be able to issue European green bonds on a level playing field with corporations, while still benefiting from some flexibility that takes into account their institutional specificities. Just as for other users, the decision to align with the requirements of the European green bond initiative would be voluntary for sovereigns to apply. Overall, the standard would provide clear advantages in terms of trust, which may translate into pricing advantages in the bond and provide a new incentive for issuers to use it. Likewise, issuers may want to demonstrate a stronger green commitment by issuing under the standard. Investors would be provided with a green bond segment that ensures a high degree of market integrity, transparency and comparability, and provides a common definition of green, thereby increasing comparability and trust. The initiative would provide investors with more choice and would benefit especially the most committed green investors, who value a stricter green definition. Institutional investors could clearly set themselves apart from the rest of the market by focusing their bond investments on European green bonds. External reviewers may incur additional costs if they want to comply with the standard. In addition to supervisory fees, which should be kept to a minimum for the time being, reviewers would have to incur some direct compliance and legal advisory costs as well as organisational costs in order to be authorised by ESMA. Issuers would still be able to issue green bonds under different market standards. The costs of using the standard are mainly costs that may be passed on from external reviewers as well as costs relating to applying the taxonomy. However, costs related to applying the taxonomy would be already incurred under other initiatives (e.g. the Non-Financial Reporting Directive 2014/95/EU), meaning that parts of these costs would be offset. The initiative provides a clear definition of ‘environmental sustainability’ and facilitates the identification of high-quality green bonds in the market. The increase in transparency should improve market efficiency and drive more investments into higher-quality green projects and assets, especially in conjunction with new disclosure requirements stemming from other parts of the wider sustainable finance action-plan. Higher market trust may furthermore lead to pricing advantages, which can promote the financing of taxonomy-aligned assets and projects. These factors should help the European economy to transition to carbon neutral and overall less polluting technologies and production processes more quickly, resulting in positive impacts on both the environment and society in general. •Regulatory fitness and simplification This proposal was not part of a fitness check. •Fundamental rights This proposal respects fundamental rights and observes the principles recognised in particular by the Charter of the Fundamental Rights of the European Union. 4.BUDGETARY IMPLICATIONS This proposal empowers ESMA to carry out a new function to register and supervise external reviewers providing their services under this Regulation. This will require ESMA to charge fees to external reviewers, which should cover all administrative costs incurred by ESMA for its activities in relation to registration and supervision of an external reviewer.

Based on an estimation of 0.2 full-time equivalents per entity and a total of three external reviewers seeking registration in the first four year-period, the requirement would only be for 0.6 full-time equivalents to carry out registration and ongoing supervision. However, there should be strong potential synergies with ESMA’s existing responsibilities resulting from the review of the operations of the European Supervisory Authorities (ESAs) for which ESMA was provided with additional staff and budgetary resources. In addition, in the context of the planning of the draft Union budget for 2022, all agencies have been encouraged to realise reasonable annual efficiency gains of between 1% and 2%. As such, it is envisaged that no additional resources would be required specifically for this proposal. 5.OTHER ELEMENTS •Implementation plans and monitoring, evaluation and reporting arrangements When evaluating this initiative, the Commission will take the sources and indicators mentioned below into account and rely on a public consultation and discussions with ESMA and competent authorities. The evaluation shall be conducted according to the Commission's better regulation Guidelines. Indicators: (1)total amount issued, total amount outstanding, total volume, and prices of bonds making use of the designation ‘European green bond’, and of bonds earmarked as ‘green’ (but not necessarily making use of the designation ‘European green bond’) issued per annum and outstanding [EU and globally]; (2)data on liquidity in the markets for bonds making use of the designation ‘European green bonds’, bonds earmarked as ‘green’, and other bonds outstanding (as a benchmark i.e. from the same/similar issuers); (3)number of external reviewers registered under the present Regulation; (4)data on regulatory fees paid by these external reviewers; (5)complaints and/or supervisory reports concerning compliance with this Regulation. Sources: (1)ESMA database of registered external reviewers, (2)ESMA database of regulatory fees and charges, (3)ESMA database of notifications and complaints, (4)external databases related to the bond market, (5)direct and consultative input from stakeholders. IT development and procurement choices will be subject to pre-approval by the European Commission Information Technology and Cybersecurity Board. •Detailed explanation of the specific provisions of the proposal Title I, by means of Article 1, lays down the subject matter of the Regulation, namely uniform requirements for issuers of bonds that voluntarily wish to use the designation ‘European green bond’ or ‘EuGB’ (European green bonds) for their environmentally sustainable bonds made available to investors in the Union, and the establishment of a registration system and supervisory framework for external reviewers of European green bonds. Article 2 sets out the definitions for the purposes of this Regulation.

Title II of the Regulation sets out the conditions for the use of the designation ‘European green bond’ or ‘EuGB’. Chapter 1 covers the bond-related requirements. Article 3 limits the use of the designation ‘European green bond’ or ‘EuGB’ to issuers of bonds that comply with the requirements of this Title, until maturity of the bond. The framework is intended to be usable by any bond issuer, including issuers of covered bonds as well as securitisations, the securities of which are issued by a special purpose vehicle. Furthermore, the framework is intended to be usable by issuers both within and outside the Union, when making bonds available to Union investors. Article 4 lays down that issuers must allocate the proceeds only to financing eligible fixed assets, eligible expenditures or eligible financial assets, or a combination thereof. The article maintains that bond issuers are not allowed to deduct costs from the collected proceeds for the purposes of this allocation. It also allows sovereign issuers to allocate bond proceeds to certain other types of expenditure, in addition to those mentioned in Article 4(1). Article 5 determines to which categories eligible financial assets must belong for the purposes of this Regulation, and what types of assets and expenditure such financial assets should finance. Article 6 requires that all use of bond proceeds shall relate to economic activities that meet the requirements for environmentally sustainable economic activities set out in Article 3 of Regulation (EU) 2020/852, namely (1) making a substantial contribution to one or more of the environmental objectives set out in Article 9 of that Regulation, (2) not significantly harming any of those environmental objectives, (3) being carried out in compliance with the minimum safeguards laid down in Article 18 of that Regulation, and (4) complying with the technical screening criteria established by the Commission in accordance with Articles 10(3), 11(3), 12(2), 13(2), 14(2), and 15(2) of that Regulation. In view of the expected technological advancements in the field of environmental sustainability, delegated acts adopted in accordance with Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 laying down the technical screening criteria are likely to be reviewed and amended over time. This is why Article 7 sets out which taxonomy requirements referred to in Articles 4 to 6 have to be used by issuers. For the purposes of this chapter, it should be noted that the use of the designation ‘European green bond’ or ‘EuGB’ is without prejudice to the requirements of Regulation (EU) No 575/2013 of the European Parliament and of the Council, Regulation (EU) No 806/2014 of the European Parliament and of the Council, Regulation (EU) 2017/1129 of the European Parliament and of the Council, Regulation (EU) 2019/2033 of the European Parliament and the Council, Directive 2013/36/EU of the European Parliament and of the Council, Directive 2014/59/EU of the European Parliament and of the Council, and of Directive (EU) 2019/2034 of the European Parliament and the Council. Moreover, no provision in this Regulation should be interpreted as restricting the issuer’s ability to use the bonds to cover losses resulting from other activities, assets or parts of the entity. Neither should any provision in this Regulation be interpreted as restricting the power to write down or convert relevant capital instruments or liabilities of an institution pursuant to Directive 2014/59/EU, or upon the occurrence of a trigger event in accordance with Regulation (EU) No 575/2013 or Regulation (EU) 2019/2033 as applicable. For the purposes of this chapter, it should also be noted that the requirement to allocate the proceeds of European green bonds to the financing of eligible assets or expenditures should not prohibit the issuer of such bonds from using fixed or financial assets as a security for the bond, nor should it prohibit such issuers from linking the return paid to holders of the bond to the performance of the project financed by the bond. Chapter II sets out the transparency and external review requirements for European green bonds. Article 8 clarifies that the bond may only be offered to the public in the Union after prior publication of the European green bond factsheet, drawn up in accordance with Annex I, on the issuer’s website together with the pre-issuance review of the European green bond factsheet by an external reviewer. Article 9 imposes an obligation upon the issuer to draw up European green bond annual allocation reports yearly, in accordance with Annex II, until the full allocation of the proceeds of the bond, and publish them no later than three months following the end of the reference year. The issuer is also required to obtain post-issuance review by an external reviewer of the first allocation report following full allocation of bond proceeds. Article 10 sets out the requirement for the issuer to draw up an impact report in accordance with Annex III after the full allocation of the proceeds at least once during the lifetime of the bond. Issuers that are sovereigns may, in accordance with Article 11, also obtain pre- and post-issuance reviews from a state auditor or any other public entity that is mandated by the sovereign to assess alignment with this Regulation. Article 12 sets out requirements for those European green bonds for which a prospectus must be issued. Article 13 sets out obligations for issuers to maintain on their websites until the maturity of the bonds all the documents drawn up by the issuer subject to Articles 8 to 12, including respective pre-issuance and post-issuance reviews. This Article also introduces requirements regarding the use of languages and requires the notification of certain documents drawn up in accordance with this Regulation to ESMA. Title III of the Regulation sets out the conditions for taking up activities as external reviewers for European green bonds. This title does not apply to state auditors and other public entities mandated by sovereign issuers to assess compliance with the Regulation. Chapter I introduces the conditions for taking up activities as external reviewers. This includes the requirement to be registered and to meet the conditions for registration on an ongoing basis. Article 15 envisages RTS and ITS mandates to further specify certain criteria for the registration of external reviewers and certain standard forms, templates and procedures. Once registered, an external reviewer may conduct its activities throughout the entire territory of the Union. An external reviewer has to apply for registration from ESMA. An external reviewer has to notify ESMA in case of material changes to the conditions for its initial registration before such changes are implemented. ESMA has a possibility to refuse to register an external reviewer under Article 15 and to withdraw its registration under certain conditions under Article 51. Article 59 introduces a requirement for ESMA to maintain a database on its website with all registered external reviewers, including those that are temporarily prohibited from pursuing activities under this Regulation and whose registration was withdrawn. Chapter II sets out requirements regarding the organization, processes and documents concerning governance for external reviewers. It sets out the general principles in Article 18 by requiring the external reviewer to employ appropriate systems, resources and procedures and by requiring the external reviewer to monitor and evaluate at least annually the adequacy and effectiveness of its systems, internal control mechanisms and arrangements and take appropriate measures to address any deficiencies. Articles 19 to 28 lay down in more detail the requirements regarding the senior management; analysts, employees and other persons directly involved in assessment activities; compliance function; internal policies and procedures; assessment methodologies and used information; errors in assessment methodologies or in their application; outsourcing; record-keeping requirements; avoidance of conflicts of interest; and the provision of other services. Articles 18 to 23, and 25 lay down RTS mandates to further specify the criteria necessary to assess the organizational requirements, processes and documents concerning governance of external reviewers. Chapter III sets out requirements regarding pre-issuance and post-issuance reviews. Article 29 makes it clear that neither a pre-issuance review nor a post-issuance review may refer to ESMA or any competent authority in such a way that could indicate or suggest endorsement or approval by ESMA or any competent authority of the relevant document or any assessment activities of the external reviewer. Article 30 establishes requirements for the information external reviewers shall make available free of charge on their websites, which includes all pre-and post-issuance reviews under this Regulation.

Chapter IV establishes rules on the provision of services by third-country external reviewers. Title IV lays down, in its Chapter I, the powers of national competent authorities to supervise bond issuers to ensure that Articles 8 to 13 of this Regulation are applied. It also includes several provisions that specify the administrative sanctions and other administrative measures that competent authorities may impose as well as rules on the publication and reporting to ESMA of those sanctions. In its Chapter II, this title sets out ESMA’s powers with regard to the supervision of external reviewers. These include the power to request information by simple request or by decision, the power to conduct general investigations as well as the power to conduct on-site inspections. The chapter also sets out the conditions under which ESMA may exercise its supervisory powers. Several provisions specify the supervisory measures, fines and periodic penalties ESMA may impose. ESMA is also enabled to charge registration and supervisory fees. Title V on Delegated Acts confers on the Commission the power to adopt delegated acts subject to the conditions laid down in Article 60. Title VI on final provisions sets out a transitional provision for external reviewers in the first 30 months following the entry into application of this Regulation. 2021/0191 (COD) Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European green bonds (Text with EEA relevance) THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof, Having regard to the proposal from the European Commission, After transmission of the draft legislative act to the national parliaments, Having regard to the opinion of the European Central Bank, Having regard to the opinion of the European Economic and Social Committee, Acting in accordance with the ordinary legislative procedure, Whereas: (1)The transition to a low-carbon, more sustainable, resource-efficient, circular and fair economy is key to ensuring the long-term competitiveness of the economy of the Union and the well-being of its peoples. In 2016, the Union concluded the Paris Agreement. Article 2(1), point (c), of the Paris Agreement sets out the objective of strengthening the response to climate change by, among other means, making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. (2)The European Green Deal Investment Plan of 14 January 2020 envisages the establishment of a standard for environmentally sustainable bonds to further increase investment opportunities and facilitate the identification of environmentally sustainable investments through a clear label. In its December 2020 conclusions, the European Council invited the Commission to put forward a legislative proposal for a green bond standard.

(3)Environmentally sustainable bonds are one of the main instruments for financing investments related to low-carbon technologies, energy and resource efficiency as well as sustainable transport infrastructure and research infrastructure. Financial or non-financial undertakings or sovereigns can issue such bonds. Various existing initiatives for environmentally sustainable bonds do not ensure common definitions of environmentally sustainable economic activities. This prevents investors from easily identifying bonds the proceeds of which are aligned with, or are contributing to environmental objectives as laid down in the Paris Agreement. (4)Diverging rules on the disclosure of information, on the transparency and accountability of external reviewers reviewing environmentally sustainable bonds, and on the eligibility criteria for eligible environmentally sustainable projects, impede the ability of investors to identify, trust, and compare environmentally sustainable bonds, and the ability of issuers to use environmentally sustainable bonds to transition their activities towards more environmentally sustainable business models. (5)In ensuring alignment with the objectives of the Paris agreement, and given the existing divergences and absence of common rules, it is likely that Member States will adopt diverging measures and approaches, which will have a direct negative impact on, and create obstacles to, the proper functioning of the internal market, and be detrimental to issuers of environmentally sustainable bonds. The parallel development of market practices based on commercially driven priorities that produce divergent results causes market fragmentation and risks further exacerbating inefficiencies in the functioning of the internal market. Divergent standards and market practices make it difficult to compare different bonds, create uneven market conditions for issuers, cause additional barriers within the internal market, and risk distorting investment decisions. (6)The lack of harmonised rules for the procedures used by external reviewers to review environmentally sustainable bonds and the diverging definitions of environmentally sustainable activities make it increasingly difficult for investors to effectively compare bonds across the internal market with respect to their environmental objectives. The market for environmentally sustainable bonds is inherently international, with market participants trading bonds and making use of external review services from third party providers across borders. Action at Union level could reduce the risk of fragmentation of the internal market for environmentally sustainable bonds and bond-related external review services, and ensure the application of Regulation (EU) 2020/852 of the European Parliament and of the Council in the market for such bonds. (7)A uniform set of specific requirements should therefore be laid down for bonds issued by financial or non-financial undertakings or sovereigns that voluntarily wish to use the designation ‘European green bond’ or ‘EuGB’ for such bonds. Specifying quality requirements for European green bonds in the form of a Regulation should ensure that there are uniform conditions for the issuance of such bonds by preventing diverging national requirements that could result from a transposition of a Directive, and should also ensure that those conditions are directly applicable to issuers of such bonds. Issuers that voluntarily use the designation ‘European green bond’ or ‘EuGB’ should follow the same rules across the Union, to increase market efficiency by reducing discrepancies and thereby also reducing the costs of assessing those bonds for investors. (8)In accordance with Article 4 of Regulation (EU) 2020/852, and in order to provide investors with clear, quantitative, detailed and common definitions, the requirements set out in Article 3 of that Regulation should be used to determine whether an economic activity qualifies as environmentally sustainable. Proceeds of bonds that use the designation ‘European green bond’ or ‘EuGB’ should exclusively be used to fund economic activities that either are environmentally sustainable and are thus aligned with the environmental objectives set out in Article 9 of Regulation (EU) 2020/852, or contribute to the transformation of activities to become environmentally sustainable. Those bonds can however be used both to finance such environmentally sustainable activities directly through the financing of assets and expenditures that relate to economic activities that meet the requirements set out in Article 3 of Regulation (EU) 2020/852, or indirectly through financial assets that finance economic activities that meet those requirements. It is therefore necessary to specify the categories of expenditures and assets that can be financed with the proceeds of bonds that use the designation ‘European green bond’ or ‘EuGB’. (9)The proceeds of European green bonds should be used to finance economic activities that have a lasting positive impact on the environment. Such lasting positive impact can be attained in several ways. Since fixed assets are long-term assets, a first way is to use the proceeds of such European green bonds to finance fixed tangible or fixed intangible assets that are not financial assets, provided that those fixed assets relate to economic activities that meet the requirements for environmentally sustainable economic activities set out in Article 3 of Regulation (EU) 2020/852 (‘taxonomy requirements’). Since financial assets can be used to finance economic activities with a lasting positive impact on the environment, a second way is to use those proceeds to finance financial assets, provided that the proceeds from those financial assets are allocated to economic activities that meet the taxonomy requirements. Since the assets of households can also have a long-term positive impact on the environment, those financial assets should also include the assets of households. Since capital expenditure and selected operating expenditure can be used to acquire, upgrade, or maintain fixed assets, a third way is to use the proceeds of such bonds to finance capital and operating expenditures that relate to economic activities that meet the taxonomy requirements or that will meet those requirements within a reasonably short period from the issuance of the bond concerned, which can be extended however where duly justified by the specific features of the economic activities and investments concerned. For the reasons outlined above, the capital and operating expenditures should also include the expenditures of households. (10)Sovereigns are frequent issuers of environmentally sustainable bonds and should therefore also be allowed to issue ‘European green bonds’, provided that the proceeds of such bonds are used to finance either assets or expenditure that meet the taxonomy, or assets or expenditure that will meet those requirements within a reasonably short period from the issuance of the bond concerned, which can be extended however where duly justified by the specific features of the economic activities and investments concerned. (11)Article 4 of Regulation (EU) 2020/852 requires Member States and the Union to apply the criteria set out in Article 3 of that Regulation to determine whether an economic activity qualifies as environmentally sustainable for the purposes of any measure setting out requirements for financial market participants or issuers in respect of financial products or corporate bonds that are made available as environmentally sustainable. It is therefore logical that the technical screening criteria referred to in Article 3, point (d), of Regulation (EU) 2020/852 should determine which fixed assets, expenditures and financial assets can be financed by the proceeds of European green bonds. In view of the expected technological progress in the field of environmental sustainability, the delegated acts adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 are likely to be reviewed and amended over time. Regardless of such changes, in order to provide legal certainty to issuers and investors and prevent amendments to the technical screening criteria from having a negative impact on the price of European green bonds that have already been issued, issuers should be able to apply the technical screening criteria applicable at the moment the European green bond was issued when allocating the proceeds of such bonds to eligible fixed assets or expenditures, until maturity of the bond. To ensure legal certainty for European green bonds whose proceeds are allocated to financial assets, it is necessary to clarify that the underlying economic activities funded by those financial assets should comply with the technical screening criteria applicable at the moment the financial assets were created. Where the relevant delegated acts are amended, the issuer should allocate proceeds by applying the amended delegated acts within five years. (12)The time needed to transform an asset to align the economic activity to which it relates with the taxonomy requirements should reasonably not exceed five years, except in certain circumstances where it may take up to ten years. For that reason, eligible capital expenditure should relate to economic activities that meet or will meet the taxonomy requirements within five years from the issuance of the bond, unless a longer period of up to ten years is justified by the specific features of the economic activities and investments concerned. (13)Investors should be provided with all information necessary to evaluate the environmental impact of European green bonds, and to compare such bonds with each other. For that purpose, specific and standardised disclosure requirements need to be set out which provide transparency about how the issuer intends to allocate the bond proceeds to eligible fixed assets, expenditures and financial assets and how those proceeds have actually been allocated. Such transparency can best be achieved by means of European green bond factsheets and annual allocation reports. To strengthen the comparability of European green bonds and to facilitate the localisation of relevant information, it is necessary to lay down templates for the disclosure of such information. (14)Investors should benefit from cost-effective access to reliable information about the European green bonds. Issuers of European Green Bonds should therefore contract external reviewers to provide a pre-issuance review of the European green bond factsheet, and post-issuance reviews of European green bond annual allocation reports. (15)Issuers of European green bonds should abide by their commitments to investors and allocate the proceeds of their bonds within a reasonably short time after issuance. At the same time, issuers should not be penalised for allocating bond proceeds to economic activities that do not yet meet the taxonomy requirements, but will do so within the five year period (or extended ten year period). Issuers should in any case allocate all proceeds of their European green bonds before the maturity of each bond. (16)Unlike issuers that are financial or non-financial undertakings, issuers that are sovereigns can use the proceeds of European green bonds to indirectly finance economic activities that are aligned with the taxonomy requirements through the use of programmes of tax expenditures or programmes of transfers, including subsidies. In such cases, sovereigns ensure that economic activities funded by such programmes comply with the terms and conditions of those programmes. For that reason, when providing pre- and post-issuance reviews of European green bonds issued by sovereigns and the proceeds of which are allocated to tax expenditures or subsidies in accordance with terms and conditions that are aligned with taxonomy requirements, external reviewers should not be required to assess the taxonomy-alignment of each economic activity funded by such programmes. Where that is the case, it should be sufficient for external reviewers to assess the alignment of the terms and conditions of the funding programmes concerned with the taxonomy requirements. (17)Certain financial undertakings that have a portfolio of European green bonds may not be able to identify, for each European green bond, the distinct financial assets to which the proceeds of said bond have been allocated. This is due to a mismatch between, on the one hand, the time to maturity and the volume of funding of those bonds, and on the other hand the time to maturity and volume of the financial assets on the balance sheet of the financial undertaking. Financial undertakings should in such cases be required to disclose the allocation of the aggregate proceeds of their portfolio of European green bonds to a portfolio of environmentally sustainable financial assets on the undertaking’s balance sheet. Those financial undertakings should then demonstrate in annual allocation reports that the related environmentally sustainable financial assets complied with the taxonomy requirements at the time they were created. In order to ensure that all proceeds of European green bonds are allocated to environmentally sustainable economic activities, the financial undertakings should also demonstrate that the amount of those environmentally sustainable financial assets exceeds or equals the amount of European green bonds that have not yet matured. To ensure that the information provided remains complete and up to date, an external reviewer should review the annual allocation reports each year. That external reviewer should in particular focus on those financial assets that were not on the issuer’s balance sheet in the previous year’s allocation report. (18)To improve transparency, issuers should also disclose the environmental impact of their bonds by means of the publication of impact reports, which should be published at least once during the lifetime of the bond. In order to provide investors with all information relevant to assess the environmental impact of European green bonds, impact reports should clearly specify the metrics, methodologies and assumptions applied in the assessment of the environmental impacts. To strengthen the comparability of European green bonds and to facilitate the localisation of relevant information, it is necessary to lay down templates for the disclosure of such information. (19)State auditors, or any other public entity that is mandated by a sovereign to assess whether the proceeds of the European green bonds are indeed allocated to eligible fixed assets, expenditures and financial assets, are statutory entities with responsibility for and expertise in the oversight over public spending, and typically have legally guaranteed independence. Sovereigns that issue European green bonds should therefore be allowed to make use of such state auditors or entities for the purposes of the external review of bonds issued by such sovereigns. Such state auditors or entities should not be registered or supervised according to this Regulation. (20)To ensure the efficiency of the market for European green bonds, issuers should publish on their websites details about the European green bonds they issue. To ensure the reliability of information and investor confidence, they shall also publish the pre-issuance review as well as any post-issuance reviews. (21)To improve transparency on how external reviewers reach their conclusions, to ensure that external reviewers have adequate qualifications, professional experience, and independence, and to reduce the risk of potential conflicts of interests, and thus to ensure adequate investor protection, issuers of European green bonds should only make use of external reviewers, including from third-countries, that have been registered and are subject to ongoing supervision by the European Securities and Markets Authority (ESMA). (22)To strengthen transparency towards investors on how the alignment of bond proceeds with the taxonomy requirements is assessed, external reviewers should disclose to users of pre-issuance reviews and post-issuance reviews the methodologies and key assumptions they use in their external review activities in sufficient detail, whilst taking due account of the protection of proprietary data and intellectual property.

(23)External reviewers should have in place arrangements for their own sound corporate governance to ensure that their pre- and post-issuance reviews are independent, objective and of good quality. The senior management of external reviewers should therefore have sufficient expertise in financial services and environmental matters and ensure that a sufficient number of employees with the necessary knowledge and experience perform the external review. For the same reason, the compliance function should be able to report its findings to either a supervisory organ or an administrative organ. (24)To ensure the independence of external reviewers, external reviewers should avoid situations of conflict of interest and manage those conflicts adequately when they are unavoidable. External reviewers should therefore disclose conflicts of interest in a timely manner. They should also keep records of all significant threats to their independence, to that of their employees and to that of other persons involved in the external review process. They should also keep records of the safeguards applied to mitigate those threats. (25)It is necessary to avoid divergent applications of this Regulation by national competent authorities. At the same time, it is necessary to lower transaction and operational costs of external reviewers, to strengthen investor confidence and to increase legal certainty. It is therefore appropriate to give ESMA general competence for the registration and ongoing supervision of registered external reviewers in the Union. Entrusting ESMA with the exclusive responsibility for those matters should ensure a level playing field in terms of registration requirements and on-going supervision and eliminate the risk of regulatory arbitrage across Member States. At the same time, such exclusive responsibility should optimise the allocation of supervisory resources at Union level, thus making ESMA the centre of expertise and enhancing the efficiency of supervision. (26)ESMA should be able to require all information necessary to carry out its supervisory tasks effectively. It should therefore be able to demand such information from external reviewers, persons involved in external review activities, reviewed entities and related third parties, third parties to whom the external reviewers have outsourced operational functions and persons otherwise closely and substantially related or connected to external reviewers or external review activities. (27)To enable ESMA to perform its supervisory tasks, and in particular to compel external reviewers to put an end to an infringement, to supply complete and correct information or to comply with an investigation or an on-site inspection, ESMA should be able to impose penalties or periodic penalty payments. (28)Issuers of European green bonds may seek access to the services of third country external reviewers. It is therefore necessary to lay down a third-country regime for external reviewers on the basis of an equivalence assessment, recognition or endorsement under which third country external reviewers may provide external review services. (29)In order to facilitate access for third country external reviewers in the absence of an equivalence decision, it is necessary to lay down a process for the recognition by ESMA of external reviewers located in a third country. (30)In order to facilitate the provision of services by third-country external reviewers to issuers of European green bonds, an endorsement regime should be laid down, allowing, under certain conditions, registered external reviewers located in the Union to endorse services provided by a third country external reviewer. An external reviewer that has endorsed services provided by a third country external reviewer should be fully responsible for such endorsed services and for ensuring that such third country external reviewer complies with the requirements laid down in this Regulation. (31)In accordance with Article 290 TFEU, power should be delegated to the Commission to specify the procedure for the exercise of the power to impose fines or periodic penalty payments, including provisions on rights of defence, temporal provisions, the collection of fines or periodic penalty payments, and detailed rules on the limitation periods for the imposition and enforcement of penalties and the type of fees, the matters for which fees are due, the amount of the fees, and the manner in which those fees are to be paid. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making. In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council should receive all documents at the same time as Member States’ experts, and their experts should systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts. (32)As a body with highly specialised expertise, it would be efficient and appropriate to entrust ESMA with the development of draft regulatory and implementing technical standards that do not involve policy choices for submission to the Commission. (33)ESMA should be mandated to develop draft regulatory technical standards to further specify the criteria on which it can assess an application for registration by an external reviewer and the provision of information by that external reviewer to determine its level of compliance with the requirements of this Regulation. (34)In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council. (35)ESMA should be mandated to develop draft implementing technical standards to specify the standard forms, templates and procedures for the provision of the information for the registration of external reviewers. The Commission should be empowered to adopt those implementing technical standards by means of an implementing act pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council. (36)In order to encourage external reviewers to provide their services to the issuers of European green bonds as of the entry into application of this Regulation, this Regulation sets out a transitional regime for the first 30 months following the entry into force of this Regulation. (37)The objectives of this Regulation are twofold. On the one hand, it aims to ensure that uniform requirements apply to the use of the designation of ‘European green bond’ or ‘EuGB’. On the other hand, it aims to establish a simple registration system and supervisory framework for external reviewers by entrusting a single supervisory authority with the registration and supervision of external reviewers in the Union. Both aims should facilitate capital raising for projects that pursue environmentally sustainable objectives. Since those objectives cannot be sufficiently achieved by the Member States but can be better achieved at Union level, the Union may adopt measures in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives, HAVE ADOPTED THIS REGULATION: Title I

Subject matter and definitions Article 1

Subject matter This Regulation lays down uniform requirements for issuers of bonds that wish to use the designation ‘European green bond’ or ‘EuGB’ for their environmentally sustainable bonds made available to investors in the Union, and establishes a registration system and supervisory framework for external reviewers of European green bonds. Article 2

Definitions

For the purposes of this Regulation, the following definitions apply: (1)‘issuer’ means any legal entity that issues bonds; (2)‘financial undertaking’ means an AIFM as defined in Article 4(1), point (b), of Directive 2011/61/EU of the European Parliament and of the Council, a UCITS management company as defined in Article 2, point (10), of Regulation (EU) 2019/2088 of the European Parliament and of the Council, a credit institution as defined in Article 4(1), point (1), of Regulation (EU) No 575/2013 of the European Parliament and of the Council, an investment firm as defined in Article 4(1), point (2) of Regulation (EU) No 575/2013, an insurance undertaking as defined in Article 13, point (1), of Directive 2009/138/EC of the European Parliament and of the Council or a reinsurance undertaking as defined in Article 13, point (4), of Directive 2009/138/EC; (3)‘sovereign’ means any of the following: (a)Euratom, the Union and any of their agencies; (b)any State, including a government department, an agency, or a special purpose vehicle of such State; (c)in the case of a federal State, a member of the federation; (d)a regional or municipal entity; (e)a collective undertaking of several States in the form of an organisation or a special purpose vehicle; (f)a company of private law fully owned by one or more of the entities referred to in points (a) to (e); (4)‘taxonomy requirements means the requirements set out in Article 3 of Regulation (EU) 2020/852; (5)‘regulated market’ means a regulated market as defined in Article 4(1), point (21), of Directive 2014/65/EU of the European Parliament and of the Council. Title II

Conditions for the use of the designation ‘European green bond’ or ‘EuGB’ Chapter I

Bond-related requirements Article 3

Designation The designation ‘European green bond’ or ‘EuGB’ shall only be used for bonds that comply with the requirements set out in this Title until their maturity. Article 4

Use of the proceeds of European green bonds 1.Before maturity of the bond, the proceeds of European green bonds shall be exclusively and fully allocated, without deducting costs, to the following, or a combination thereof: (a)fixed assets, including those of households, that are not financial assets; (b)capital expenditures, including those of households;

(c)operating expenditures that were incurred more recently than three years prior to the issuance of the European green bond; (d)financial assets as referred to in Article 5. For the purposes of this paragraph, capital expenditures shall mean either additions to fixed tangible and fixed intangible assets during the financial year considered before depreciation, amortisation and any re-measurements, including the additions resulting from revaluations and impairments for the financial year concerned, and excluding fair value or any additions to fixed tangible and fixed intangible assets resulting from business combinations. For the purposes of this paragraph, operating expenditures shall mean direct non-capitalised costs which relate to research and development, education and training, building renovation measures, short-term lease, maintenance and repair, and any other direct expenditures relating to the day-to-day servicing of fixed tangible or fixed intangible assets of property, plant and equipment that are necessary to ensure the continued and effective functioning of such assets. 2.By way of derogation from paragraph 1, a sovereign may also allocate the proceeds of European green bonds it has issued to the following, or any combination thereof: (a)fixed assets referred to in point 7.22 of Annex A to Regulation (EU) No 549/2013 of the European Parliament and of the Council; (b)non-produced non-financial assets referred to in point 7.24 of Annex A to Regulation (EU) No 549/2013; (c)tax relief referred to in point 20.167 of Annex A to Regulation (EU) No 549/2013 that was granted more recently than three years prior to the issuance of the European green bond; (d)subsidies referred to in point 4.30 of Annex A to Regulation (EU) No 549/2013 that were transferred more recently than three years prior to the issuance of the European green bond; (e)capital expenditures referred to in point 20.104 of Annex A to Regulation (EU) No 549/2013. 3.A European green bond may be refinanced by issuing a new European green bond. Article 5

Financial assets 1.Financial assets as referred to in Article 4(1), point (d), shall mean any of the following assets, or any combination thereof: (a)debt; (b)equity. 2.The proceeds of the financial assets referred to in paragraph 1 shall only be allocated to fixed assets that are not financial assets as referred to in Article 4(1), point (a), capital expenditures as referred to in Article 4(1), point (b), or operating expenditures as referred to in Article 4(1), point (c). 3.By way of derogation from paragraph 2, the proceeds of the financial asset referred to in paragraph 1 may be allocated to other financial assets provided that the proceeds from those financial assets are allocated according to paragraph 2. Article 6

Taxonomy-alignment of use of proceeds 1.The use of proceeds referred to in Article 4 shall relate to economic activities that meet the taxonomy requirements, or that will meet the taxonomy requirements within a defined period of time as set out in a taxonomy-alignment plan. The taxonomy-alignment plan referred to in the first subparagraph shall describe the actions and expenditures that are necessary for an economic activity to meet the taxonomy requirements within the specified period of time.

The period referred to in the first and second subparagraph shall not exceed five years from bond issuance, unless a longer period of up to ten years is justified by the specific features of the economic activities concerned as documented in a taxonomy-alignment plan. 2.Where proceeds from a European green bond are allocated by means of financial assets either to capital expenditures as referred to in Article 4(1), point (b), or to operating expenditures as referred to in Article 4(1), point (c), the defined period of time referred to in paragraph 1, first subparagraph, shall start from the moment of the creation of the financial asset. Article 7

Application of the taxonomy requirements 1.Issuers shall allocate bond proceeds to the uses set out in Article 4(1) points (a), (b) and (c), Article 4(2), or the equity referred to in Article 5(1), point (b) by applying the delegated acts adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 applicable at the point in time when the bond was issued. Where the delegated acts adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 are amended following the issuance of the bond, the issuer shall allocate bond proceeds to the uses referred to in the first subparagraph by applying the amended delegated acts within five years after their entry into application. 2.When allocating bond proceeds to the debt referred to in Article 5(1), point (a), issuers shall apply the delegated acts adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 applicable at the point in time when the debt was created. Where, at the time of the creation of the debt referred to in the first subparagraph, no delegated acts adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 were in force, issuers shall apply the first delegated acts that were adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852. Where the delegated acts adopted pursuant to Articles 10(3), 11(3), 12(2), 13(2), 14(2) or 15(2) of Regulation (EU) 2020/852 are amended following the creation of the debt referred to in the first subparagraph, the issuer shall allocate bond proceeds to the debt referred to in the first subparagraph by applying the amended delegated acts within five years after their entry into application. Chapter II

Transparency and external review requirements Article 8

European green bond factsheet and pre-issuance review of the European green bond factsheet 1.Prior to issuing a European green bond, issuers shall: (a)complete the European green bond factsheet laid down in Annex I; (b)ensure that the completed European green factsheet has been subject to a pre-issuance review with a positive opinion by an external reviewer. 2.A European green bond factsheet may relate to one or several European green bond issuances. 3.The pre-issuance review of the factsheet referred to in paragraph 1, point (b) shall contain all of the following: (a)an assessment of whether the completed green bond factsheet complies with Articles 4 to 7 of this Regulation and Annex I to this Regulation; (b)the elements set out in Annex IV. Article 9

Allocation reports and post-issuance review of allocation reports 1.Every year and until the full allocation of the proceeds of the European green bond concerned, issuers of European green bonds shall draw up a European green bond allocation report by using the template laid down in Annex II, demonstrating that the proceeds of any European green bonds concerned from their issuance date and until the end of the year the report refers to have been allocated in accordance with Articles 4 to 7. 2.A European green bond allocation report may relate to one or several issuances of European green bonds.

3.Issuers of European green bonds shall obtain a post-issuance review by an external reviewer of the allocation report drawn up after the full allocation of the proceeds of the European green bond in accordance with Articles 4 to 7. 4.Where, following the publication of the allocation report in accordance with Article 13(1), point (c), the allocation of proceeds is corrected, issuers of the European green bonds concerned shall amend the allocation report and obtain a post-issuance review by an external reviewer of that amended allocation report. 5.By way of derogation from paragraph 3, every allocation report from issuers that are financial undertakings that allocate proceeds from a portfolio of several European green bonds to a portfolio of financial assets as referred to in Article 5 shall be subject to a post-issuance review by an external reviewer. The external reviewer shall pay particular attention to those financial assets that were not included in any previously published allocation report. 6.Issuers of European green bonds shall provide the allocation reports referred to in paragraph 3, 4, and 5 to an external reviewer within 30 days following the end of the year to which the allocation reports refer. The post-issuance review must be made public within 90 days following the receipt of the allocation report. 7.The post-issuance review referred to in paragraphs 3, 4, and 5 shall contain all of the following: (a)an assessment of whether the issuer has allocated the proceeds of the bond in compliance with Articles 4 to 7 based on the information provided to the external reviewer; (b)an assessment of whether the issuer has complied with the intended use of proceeds set out in the green bond factsheet based on the information provided to the external reviewer; (c)the elements set out in Annex IV. 8.Where bond proceeds are allocated to tax relief as referred to in Article 4(2), point (c) or subsidies as referred to in Article 4(2), point (d), the post-issuance review shall only assess compliance with Articles 4 to 7 of the terms and conditions under which those expenditures or transfers have been disbursed. Article 10

European green bond impact report 1.Issuers of European green bonds shall, after the full allocation of the proceeds of such bonds and at least once during the lifetime of the bond, draw up a European green bond impact report on the environmental impact of the use of the bond proceeds by using the template laid down in Annex III. 2.A single impact report may cover several issuances of European green bonds. Article 11

Sovereigns as issuer An issuer that is a sovereign may obtain pre-issuance and post-issuance reviews from an external reviewer, or from a state auditor or any other public entity that is mandated by the sovereign to assess compliance with this Regulation. Article 12

Prospectus for European green bonds 1.Where a prospectus is to be published pursuant to Regulation (EU) 2017/1129, that prospectus shall clearly state, where required to provide information on the use of proceeds, that the European green bond is issued in accordance with this Regulation. 2.For the purposes of Article 19(1), point (c), of Regulation (EU) 2017/1129, ‘regulated information’ shall include the information contained in the European green bond factsheet referred to in Article 8(1), point (a) of this Regulation. Article 13

Publication on the issuer’s website and notification to ESMA and national competent authorities 1.Issuers of European green bonds shall publish on their website, in a distinct section titled ‘European green bonds’ and make available free of charge until at least the maturity of the bonds concerned, all of the following: (a)the completed European green bond factsheet referred to in Article 8, before the issuance of the bond;

(b)the pre-issuance review related to the European green bond factsheet referred to in Article 8, before the issuance of the bond; (c)the European green bond annual allocation reports referred to in Article 9, every year until the full allocation of the proceeds of the European green bond concerned, no later than three months following the end of the year it refers to; (d)the post-issuance reviews of the European green bond allocation reports referred to in Article 9; (e)the European green bond impact report referred to in Article 10. 2.The information contained in the documents referred to in paragraph 1, points (a), (c) and (e), shall be provided in the following language or languages: (a)where the European green bonds are offered to the public or are listed on a market in only one Member State, in a language accepted by the competent authority, as referred to in Article 36 of this Regulation, of that Member State; (b)where the European green bonds are offered to the public or are listed on a market in two or more Member States, either in a language accepted by the competent authority, as referred to in Article 37 of this Regulation, of each Member State, or in a language customary in the sphere of international finance, at the choice of the issuer. 3.By way of derogation from paragraph 2, where a prospectus for the European green bond is to be published in accordance with Regulation (EU) 2017/1129, the information contained in the documents referred to in paragraph 1, points (a), (c) and (e), shall be provided in the language or languages of that prospectus. 4.Issuers of European green bonds shall notify the National Competent Authority referred to in Article 36 of the publication of all the documents referred to in paragraph 1 without undue delay. 5.Issuers of European green bonds shall notify ESMA of the publication of all the documents referred to in paragraph 1 within 30 days. Title III

External reviewers for European Green Bonds Chapter I

Conditions for taking up activities as external reviewer for European green bonds Article 14

Registration 1.External reviewers for European green bonds shall, before taking up their activities, register with ESMA. 2.External reviewers registered with ESMA shall meet the conditions for registration laid down in Article 15(2) at all times. 3.State auditors and other public entities mandated by sovereign issuers to assess compliance with this Regulation shall not be subject to Title III and Title IV of this Regulation. Article 15

Application for registration as an external reviewer for European Green Bonds 1.An application for registration as an external reviewer for European green bonds shall contain all of the following information: (a)the full name of the applicant, the address of the registered office within the Union, the applicant’s website and, where available, the legal entity identifier (LEI); (b)the name and contact details of a contact person;

(c)the legal status of the applicant; (d)the ownership structure of the applicant; (e)the identity of the members of the senior management of the applicant and their level of qualification, experience and training; (f)the number of the analysts, employees and other persons directly involved in assessment activities, and their level of experience and training working for the applicant and their level of experience and training; (g)a description of the procedures and methodologies implemented by the applicant to issue pre-issuance reviews as referred to in Article 8 and post-issuance reviews as referred to in Article 9; (h)the policies or procedures implemented by the applicant to identify, manage and disclose any conflicts of interests as referred to in Article 27; (i)where applicable, documents and information related to any existing or planned outsourcing arrangements for activities of the external reviewer covered by this Regulation, including information on entities assuming outsourcing functions; (j)where applicable, information about other activities carried out by the applicant. 2.ESMA shall only register an applicant as an external reviewer where all of the following conditions are met: (a)the senior management of the applicant: (i)is of sufficiently good repute; (ii)is sufficiently skilled to ensure that the applicant can perform the tasks required of external reviewers pursuant to this Regulation; (iii)has sufficient professional qualifications; (iv)is experienced in quality assurance, quality control, the performance of pre- and post-issuance reviews and financial services; (b)the number of analysts, employees and other persons directly involved in assessment activities, and their level of experience and training, are sufficient to perform the tasks required from external reviewers pursuant to this Regulation; (c)the internal arrangements implemented to ensure compliance with the requirements of Chapter II of this Section are appropriate and effective. 3.ESMA shall assess whether the application is complete within 20 working days after its receipt. Where the application is not complete, ESMA shall notify the applicant thereof and set a deadline by which the applicant is to provide additional information. Where the application is complete, ESMA shall notify the applicant thereof. 4.ESMA shall register or refuse to register an applicant within 45 working days after receipt of the complete application.

ESMA may extend the period referred to in the first subparagraph by 15 working days where the applicant intends to use outsourcing to perform its activities as an external reviewer. ESMA shall notify in writing an applicant of his or her registration as an external reviewer, or of its refusal to register an applicant. The decision to register or the refusal to register shall provide reasons and take effect on the fifth working day following its adoption. 5.ESMA shall develop draft regulatory technical standards specifying the criteria referred to in paragraph 2, points (a) and (b). ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. 6.ESMA shall develop draft implementing technical standards to specify the standard forms, templates and procedures for the provision of the information referred to in paragraph 1. When developing the draft implementing technical standards, ESMA shall take into account digital means of registration. ESMA shall submit those draft implementing technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1095/2010. Article 16

Material changes relevant for the registration 1.An external reviewer shall notify ESMA of any material changes in the information provided in accordance with Article 15(1) or in the facts concerning the information referred to in Article 15(1) before such changes are implemented ESMA shall analyse those material changes. Where ESMA objects to such material changes, it shall inform the external reviewer within two months of the notification of those changes and shall state the reasons for the objection. The changes referred to in the first subparagraph may only be implemented provided that ESMA does not object to those changes within that period. 2.ESMA shall develop draft implementing technical standards to specify the standard forms, templates and procedures for the provision of the information referred to in paragraph 1. When developing the draft implementing technical standards ESMA shall take into digital means of registration. ESMA shall submit those draft implementing technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is conferred on the Commission to adopt the implementing technical standards referred to in the first subparagraph of this paragraph in accordance with Article 15 of Regulation (EU) No 1095/2010. Article 17

Language regime An external reviewer shall submit the application for registration referred to in Article 15 in any of the official languages of the institutions of the Union. The provisions of Regulation No 1 of 15 April 1958 determining the languages to be used by the European Economic Community shall apply mutatis mutandis to any other communication between ESMA and the external reviewers and their staff. Chapter II

Organisational requirements, processes and documents concerning governance Article 18

General principles

1.External reviewers shall employ appropriate systems, resources and procedures to comply with their obligations under this Regulation. 2.External reviewers shall monitor and evaluate the adequacy and effectiveness of their systems, resources and procedures established in accordance with this Regulation at least annually and take appropriate measures to address any deficiencies. 3.ESMA shall develop draft regulatory technical standards specifying the criteria to assess the appropriateness, adequacy, and effectiveness of the systems, resources, mechanisms, and procedures of external reviewers referred to in paragraphs 1 and 2. ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. Article 19

Senior management 1.The senior management of the external reviewer shall ensure all of the following: (a)the sound and prudent management of the external reviewer; (b)the independence of assessment activities; (c)that conflicts of interest are properly identified, managed and disclosed; (d)that the external reviewer complies with the requirements of this Regulation at all times. 2.ESMA shall develop draft regulatory technical standards specifying the criteria to assess the sound and prudent management of the external reviewer referred to in paragraph 1, point (a). ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. Article 20

Analysts and employees of external reviewers, and other persons directly involved in the assessment activities of external reviewers 1.External reviewers shall ensure that their analysts and employees, and any other natural person whose services are placed at their disposal or under their control and who are directly involved in assessment activities, have the necessary knowledge and experience for the duties assigned. 2.External reviewers shall ensure that the persons referred to in paragraph 1 are not allowed to initiate or participate in negotiations regarding fees or payments with any assessed entity, related third party or any person directly or indirectly linked to the assessed entity by control. 3.ESMA shall develop draft regulatory technical standards specifying the criteria to assess the appropriateness of the knowledge and experience of the persons referred to in paragraph 1. ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Article 21

Compliance function 1.External reviewers shall establish and maintain a permanent and effective compliance function for the activities performed under this Regulation. 2.External reviewers shall ensure that the compliance function: (a)has the means to discharge its responsibilities properly and independently; (b)has the necessary resources and expertise and access to all relevant information; (c)does not monitor or assess its own activities; (d)is not compensated in relation to the business performance of the external reviewer. 3.The findings of the compliance function shall be made available to either a supervisory organ or, where applicable, an administrative organ of the external reviewer. 4.ESMA shall develop draft regulatory technical standards specifying the criteria to assess whether the compliance function has the means to discharge its responsibilities properly and independently as referred to in paragraph 2, point (a), and the criteria to assess whether the compliance function has the necessary resources and expertise and has access to all relevant information as referred to in paragraph 2, point (b). ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. Article 22

Internal policies and procedures 1.External reviewers shall adopt and implement internal due diligence policies and procedures that ensure their business interests do not impair the independence or accuracy of the assessment activities. 2.External reviewers shall adopt and implement sound administrative and accounting procedures, internal control mechanisms, and effective control and safeguard arrangements for information processing systems. 3.ESMA shall develop draft regulatory technical standards specifying the criteria to assess the sound administrative and accounting procedures, internal control mechanisms, and effective control and safeguard arrangements for information processing systems referred to in paragraph 2. ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. Article 23

Assessment methodologies and information used for the pre-issuance or post-issuance reviews 1.External reviewers shall adopt and implement measures to ensure that their pre-issuance reviews as referred to in Article 8 and their post-issuance reviews as referred to in Article 9 are based on a thorough analysis of all the information that is available to them and that, according to their methodologies, is relevant to their analysis. 2.External reviewers shall use information of sufficient quality and from reliable sources when providing pre-issuance or post-issuance reviews.

3.ESMA shall develop draft regulatory technical standards specifying the criteria to assess whether the information referred to in paragraph 2 is of sufficient quality and whether the sources referred to in paragraph 2 are reliable. ESMA shall submit those draft regulatory technical standards to the Commission by [PO: Please insert date 12 months after the date of entry into force]. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph of this paragraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010. Article 24

Errors in assessment methodologies or in their application 1.External reviewers that become aware of errors in their assessment methodologies or in their application that have a material impact on a pre-issuance review as referred to in Article 8 or a post-issuance review as referred to in Article 9 shall immediately notify and explain those errors to ESMA and the issuers of the affected European green bonds. 2.External reviewers shall publish the errors referred to in paragraph 1 on their websites, together with, where relevant, a revised pre-issuance or post-issuance review. The revised documents shall state the reasons for the changes. Article 25

Outsourcing 1.External reviewers that outsource their assessment activities to third party service providers shall ensure that any such third party service provider has the ability and the capacity to perform those assessment activities reliably and professionally. Those external reviewers shall also ensure that the outsourcing does not materially impair the quality of their internal control and the ability of ESMA to supervise the compliance of those external reviewers with this Regulation. 2.External reviewers shall not outsource their compliance function. 3.External reviewers shall notify ESMA about those of its assessment activities which are to be outsourced, including a specification of the level of human and technical resources needed to carry out each of those activities. 4.External reviewers that outsource assessment activities shall ensure that such outsourcing does not reduce or impair their ability to perform their