COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European green bonds
Date: 2021-07-06
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU investment, Eurobond, bond, climate change policy, economic activity, economic instrument for the environment, financial legislation, green economy, sustainable development

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   EUROPEAN COMMISSION  Strasbourg, 6.7.2021  SWD(2021) 182 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT  Accompanying the document Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on European green bonds      {COM(2021) 391 final} - {SEC(2021) 390 final} - {SWD(2021) 181 final}  
 
 
Executive Summary Sheet 

Impact assessment on a legislative proposal on European green bonds (EuGB) 

A. Need for action 

Why? What is the problem being addressed?  
 (1) Despite the widespread use of market standards for green bonds, it can be costly and difficult for investors to 
determine the positive environmental impact of bond-based investments and compare different green bonds.  
(2)  For  issuers,  the  lack  of  common  definitions  of  green  economic  activities  creates  uncertainty  about  what  is 
considered  to  be  legitimately  green  and  they  may  face  reputational  risks  from  potential  accusations  of 
greenwashing in certain sectors.  
(3) For issuers, the fragmentation of market practices can create additional costs.  

These three problems are linked to (1) a lack of clear and  harmonised definitions of green projects and green 
bonds,  and  (2)  heterogeneity,  a  lack  of  transparency,  and  issues  related  to  perceived  or  actual  conflicts  of 
interests  in  the  external  review  market.  These  problems  accentuate  the  risk  of  future  market  disruption  from 
greenwashing and may lead to insufficient investment being channelled to projects with substantial climate and 
environmental impact, thereby impeding the achievement of the EU’s environmental goals. 

What is this initiative expected to achieve?  
The objective is to better exploit the potential of the single market to contribute to meeting the EU’s  climate and 
environmental  objectives,  by  facilitating  further  development  of  the  market  for  high  quality  green  bonds,  while 
minimising disruption to existing green bond markets. This would be achieved by  establishing a new voluntary 
standard  for  high  quality  green  bonds  that  would  (1)  improve  the  ability  of  investors  to  identify  and  trust  such 
bonds and (2) facilitate the issuance of such bonds by clarifying green definitions, harmonising external review 
practices, and reducing potential reputational risk for issuers. 

What is the value added of action at the EU level?  
The  green  bond  market  is  inherently  international,  with  participants  trading  and  making  use  of  external  review 
services across borders. Action at EU-level avoids the risk of fragmenting the European market for green bonds 
and related external review services, while supporting a level playing field for actors in these markets. There are 
many interactions with other relevant EU-level legislation, such as the Taxonomy Regulation.  

B. Solutions 

What  legislative  and  non-legislative  policy  options  have  been  considered?  Is  there  a  preferred 
choice or not?  
The impact assessment considers a range of options across three policy dimensions, compared to the baseline:  
1)  Scope of application of the standard for green bond issuers: (1) a voluntary approach whereby green bond 
issuers would be free to choose (or not) to align with the standard or (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 standard. 
2)  Regulatory treatment of external reviewers of EuGB-aligned green bonds: (1) tasking ESMA with authorising 
external reviewers of the  EuGB,  with  limited supervisory oversight and requirements, and (2) similar to (1) 
but under a more stringent framework. 

3)  Potential  flexibility  afforded  to  sovereign  issuers  who  wish  to  make  use  of  the  EuGB,  compared  to  non-
sovereign issuers: (1) no flexibility, (2) flexibility with regards to bond-related requirements, or (3) Flexibility 
with regards to bond-related requirements and with regards to the EU Taxonomy Regulation.  

the EuGB is established as a voluntary standard aligned with market best practice and the EU Taxonomy,  

Based on the analysis of the various options, it is recommended that: 
1. 
2.  ESMA is tasked with authorising external reviewers of the EuGB, with limited supervisory requirements, and 
3.  sovereign issuers are afforded flexibility with regards to bond-related requirements, but not with regards to 

the EU Taxonomy Regulation.  

Who supports which option?  
The  impact  assessment  is  supported  by  feedback  from  two  online  consultations  on  this  subject  completed  in 
2020 (the targeted consultation on the EU Green Bond Standard (167 responses) and the public consultation on 
the Renewed Sustainable Finance Strategy (RSFS) (648 responses)): 
-  A  large  majority  of  stakeholders  supported  the  concept  for  a  voluntary  EU  Green  Bond  Standard  as 

proposed by the Technical Expert Group for Sustainable Finance. 

-  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,  which  indicates  that  most  stakeholders 

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would mostly favour the option of a lighter or more targeted supervisory regime.  

-  Sovereign green bond issuers in the EU were evenly divided on the question of flexibility with regards to the 

Taxonomy, but strongly supported maintaining consistency between sovereign and corporate issuers. 

C. Impacts of the preferred option 

What are the benefits of the preferred option?  
The  preferred  option  builds  on  market  best  practices  in  the  field  of  reporting  and  external  review  and  on  the 
alignment  with  the  EU  Taxonomy.  This  would  position  the  EuGB  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 objectives are achieved in the most cost-efficient and effective manner. 

A voluntary standard would appeal to issuers of high quality green bonds, many of whom expressed support for 
the EuGB, as it would allow them to communicate more clearly to investors and others about their environmental 
credentials  and  commitments.  At  the  same  time,  it  would  avoid  disruptive  impacts  on  existing  green  bond 
markets, which could continue to operate freely.  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 acting as reviewers for the EuGB. 

Overall, the standard would provide clear advantages in terms of trust, which may translate into cost-offsetting 
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  using  the  standard.  Investors  would  be  provided  with  a  green 
bond  segment  that  ensures  a  high  degree  of  market  integrity,  transparency  and  comparability.  The  initiative 
would provide increased choice to investors.  

What are the costs of the preferred option?  
The initiative would require limited investments both by ESMA as well as external reviewers that decide to opt-in. 
ESMA may incur one-off costs and minimal ongoing costs in the form of additional labour resources, training, as 
well as IT setup costs. External reviewers may  incur  additional costs if they  want to comply  with the standard. 
Supervisory fees should be kept to a minimum for the time being given the limited market size. Reviewers would 
have  to  incur  some  direct  compliance  and  legal  advisory  costs  as  well  as  organisational  costs  in  order  to  be 
authorised  by  ESMA.  The  standard  would  be  fully  voluntary  for  issuers.  Potential  costs  of  using  the  standard 
arise  mainly  due  to  costs  that  may  be  passed  on  from  external  reviewers  as  well  as  costs  relating  to  the 
application  of  the  taxonomy.  However,  costs  related  to  the  application  of  the  taxonomy  would  be  incurred 
already under other initiatives (e.g. the Corporate Sustainability Reporting Directive), and therefore partly offset. 

How will businesses, SMEs and micro-enterprises be affected?  
The use of the standard would be voluntary for SME issuers. The EuGB furthermore aims to limit cost increases 
over  other  market  standards,  including  for  potential  SME  issuers.  Depending  on  issuance  size  and  frequency, 
these costs may still be larger in relative size for SME issuers compared to larger issuers. The framework aims 
to  attract  also  smaller  external  reviewers  by  limiting  the  extent  of  regulatory  requirements  and  required 
organisational  changes.  Larger  reviewers  may  however  enjoy  cost  advantages  over  smaller  market  players, 
largely  due  to  their  (already)  regulated  status  under  other  regulatory  frameworks.  Ultimately,  the  implied  cost 
increases are small and should not impede on smaller reviewers’ competitive position.  

Will there be significant impacts on national budgets and administrations?  
The legislation would apply directly and require limited implementation by national administrations. The preferred 
option for a supervisory regime administered by ESMA would also have minimal impact on national budgets.  

Will there be other significant impacts?  
The initiative 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. These factors should help the European economy to transition to carbon neutral and overall 
lower polluting technologies and production processes more quickly. 

D. Follow up 

When will the policy be reviewed?   
It is recommended to review the policy after an adequate period of time after its entry into application. 

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