COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT 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

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 6.7.2021  SWD(2021) 181 final  COMMISSION STAFF WORKING DOCUMENT  IMPACT ASSESSMENT REPORT  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) 182 final}  
 
 
Table of contents 

1. 

INTRODUCTION: POLITICAL, ECONOMIC AND LEGAL CONTEXT ........................................ 5 

1.1.  Political context ................................................................................................. 5 
1.2.  Market context ................................................................................................... 6 
1.3.  Legal context ..................................................................................................... 8 
1.4.  Analytical context ............................................................................................ 10 

2. 

PROBLEM DEFINITION .................................................................................................................. 11 

2.1.  What are the problems? ................................................................................... 11 
2.2.  Consequences .................................................................................................. 14 
2.3.  Wider consequences ........................................................................................ 15 
2.4.  What are the problem drivers? ........................................................................ 16 
2.5.  How will the problem evolve? ........................................................................ 18 

3.  WHY SHOULD THE EU ACT? ........................................................................................................ 19 

3.1.  Legal basis ....................................................................................................... 19 
3.2.  Subsidiarity: Necessity of EU action ............................................................... 20 
3.3.  Subsidiarity: Added value of EU action .......................................................... 20 

4.  OBJECTIVES: WHAT IS TO BE ACHIEVED? ............................................................................... 20 

4.1.  General objectives ........................................................................................... 21 
4.2.  Specific objectives ........................................................................................... 21 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS AND HOW DO THEY COMPARE? .......... 22 

5.1.  What is the baseline from which options are assessed? .................................. 22 
5.2.  Description of the policy options .................................................................... 24 
5.3.  Policy Dimension 1: Scope of application for green bond issuers (and 

core requirements of the EU GBS) .................................................................. 24 

5.4.  Policy dimension 2: Regulatory treatment of external reviewers of EU 

GBS-aligned green bonds ................................................................................ 31 
5.5.  Policy dimension 3: Flexibility for sovereign issuers ..................................... 38 
5.6.  Options discarded at an early stage ................................................................. 45 

6. 

PREFERRED OPTION ...................................................................................................................... 46 

6.1.  Policy dimension 1: scope of application ........................................................ 46 
6.2.  Regulatory treatment of external reviewers of EU GBS-aligned green 

bonds ................................................................................................................ 46 
6.3.  The extent of flexibility for sovereign users of the EU GBS .......................... 47 
6.4.  Alignment with objectives ............................................................................... 48 
6.5.  Analysis of the expected take-up of standard .................................................. 48 

7.  HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? .................................. 53 

ANNEX 1: PROCEDURAL INFORMATION ............................................................................................ 56 

1. 

LEAD DG, DECIDE PLANNING/CWP REFERENCES .................................................................. 56 

2.  ORGANISATION AND TIMING ...................................................................................................... 56 

2 

 
 
 
3. 

4. 

CONSULTATION OF THE RSB....................................................................................................... 57 

EVIDENCE, SOURCES AND QUALITY ......................................................................................... 57 

ANNEX 2: STAKEHOLDER CONSULTATIONS AND SELECTED INTERVIEWS ............................. 60 

1. 

TARGETED CONSULTATION ON THE EU GREEN BOND STANDARD ................................. 60 

2.  ONLINE  CONSULTATION  ON  THE  RENEWED  SUSTAINABLE  FINANCE 

STRATEGY ........................................................................................................................................ 73 

ANNEX 3: WHO IS AFFECTED AND HOW? .......................................................................................... 78 

1. 

2. 

PRACTICAL IMPLICATIONS OF THE INITIATIVE..................................................................... 78 

SUMMARY OF COSTS AND BENEFITS ....................................................................................... 79 

ANNEX 4: MARKET CONTEXT AND CONTROVERSIES .................................................................... 83 

ANNEX 5: MARKET DEVELOPMENTS .................................................................................................. 87 

ANNEX 6: COSTS AND BENEFITS OF ISSUING GREEN BONDS ...................................................... 93 

ANNEX 7: STANDARDS AND DEFINITIONS OF GREEN .................................................................... 99 

ANNEX 8: EU TAXONOMY – COVERAGE AND RELATED DISCLOSURE OBLIGATIONS ........ 108 

1.  WHAT IS THE TAXONOMY? ....................................................................................................... 108 

3.  WHAT DOES THE EU TAXONOMY COVER? ............................................................................ 109 

4. 

5. 

STUDIES ON TAXONOMY ALIGNMENT AND COVERAGE................................................... 110 

CASE  STUDY:  ENERGY 
MANUFACTURING SECTORS ..................................................................................................... 120 

INDUSTRY  AND  HARD-TO-ABATE 

INTENSIVE 

ANNEX 9: EXTERNAL REVIEW ............................................................................................................ 125 

ANNEX 10: SOVEREIGN BONDS .......................................................................................................... 134 

1.  MARKET SITUATION .................................................................................................................... 134 

2. 

3. 

POTENTIAL FLEXIBILITY ........................................................................................................... 136 

SUMMARY  OF  RESPONSES  TO  QUESTIONNAIRE  ON  SOVEREIGN  GREEN 
BONDS ............................................................................................................................................. 138 

4.  ANALYSIS: COMPARISON OF KEY EU SOVEREIGN GREEN BONDS AND THE EU 

GREEN BOND STANDARD .......................................................................................................... 143 

5. 

CASE STUDY: LUXEMBOURG’S SUSTAINABILITY BOND FRAMEWORK ........................ 149 

ANNEX 11: ESG DISCLOSURE OBLIGATIONS .................................................................................. 151 

ANNEX 12: LEGAL BASIS ...................................................................................................................... 156 

1. 

2. 

3. 

LEGAL BASIS ................................................................................................................................. 156 

SUBSIDIARITY: NECESSITY OF EU ACTION ........................................................................... 157 

SUBSIDIARITY: ADDED VALUE OF EU ACTION .................................................................... 159 

ANNEX 13: OPTIONS DISCARDED AT AN EARLY STAGE .............................................................. 162 

ANNEX 14: EU GREEN BOND STANDARD AS RECOMMENDED BY TEG ................................... 167 

ANNEX  15:  PROJECT  GREEN  BONDS  TO  SUPPORT  THE  GREEN  TRANSITION  AND 

THE EU GREEN DEAL ................................................................................................................... 172 

ANNEX  16:  SUMMARY  OF  RESPONSES  TO  STAKEHOLDER  QUESTIONS  ON  SOCIAL 

BONDS ............................................................................................................................................. 174 

3 

 
 
Glossary 

Term or acronym   Meaning or definition  
AUM  
CBI  
CSR  
DG FISMA  

Assets Under Management  
Climate Bonds Initiative  
Corporate Social Responsibility  
Directorate-General  for  Financial  Stability,  Financial  Services  and 
Capital Markets Union  
Do No Significant Harm  
European Investment Bank  
European Supervisory Authorities  
Environmental, Social and Governance  
European Securities and Markets Authority  
EU Green Bond Standard 
Emissions Trading System  
Full-Time Equivalent  
Green Bond Principles  
Greenhouse Gas  
High Level Expert Group [on Sustainable Finance]  
International Capital Markets Association 
Key Information Document  
Key Performance Indicators  
Member States 
Statistical  Classification  of  Economic  Activities  in  the  European 
Community 
National Energy and Climate Plans  
Non-Financial Reporting Directive 
Non-Governmental Organisations  
Organisation for Economic Co-operation and Development  
Pan-European Personal Pension Product  
Principles for Responsible Investment  
Renewed Sustainable Finance Strategy 
Regulatory Technical Standards  
Sustainable Development Goal  
Sustainable Finance Disclosure Regulation 
Second Party Opinion 
Transition Énergétique et Écologique pour le Climat (French Label 
for the Energy and Ecological Transition)  
Technical Expert Group on Sustainable Finance 
Treaty on the Functioning of the European Union  
Technical Screening Criteria 
Undertakings  for 
Securities  

the  Collective  Investment  of  Transferable 

DNSH 
EIB  
ESAs  
ESG  
ESMA  
EU GBS 
ETS  
FTE  
GBP  
GHG  
HLEG  
ICMA 
KID  
KPIs  
MS 
NACE 

NECPs  
NFRD 
NGOs  
OECD  
PEPP  
PRI  
RSFS 
RTS  
SDG  
SFDR 
SPO 
TEEC  

TEG 
TFEU  
TSC 
UCITS  

4 

 
1. 

INTRODUCTION: POLITICAL, ECONOMIC AND LEGAL CONTEXT 

This  impact  assessment  concerns  a  proposed  initiative  to  establish  an  official  EU  standard  for 
green  bonds  based  on  the  EU  Taxonomy  for  sustainable  finance,  and  to  establish  a  regime  for 
registering and supervising companies acting as external reviewers for green bonds aligned with 
this standard.  

1.1. 

Political context  

This initiative is part of the European Commission’s 2021 Work Programme and is one of the 
actions proposed by the European Commission  to implement  the  European Green Deal.1 In 
their  December  2020  Conclusions,  the  European  Council  mentioned  that  “the  EU  should 
promote  the  development  of  common,  global  standards  for  green  finance”,  and  invited  the 
Commission to “put forward a legislative proposal for an EU green bond standard by June 
2021 at the latest.”  

To transition to a climate neutral economy and reach the EU’s environmental sustainability 
objectives,  significant  investment  is  required  across  all  sectors  of  the  economy.  The 
achievement of the EU’s current 2030 climate and energy targets would require in the period 
2021-30 energy system investments (excluding transport) of EUR 336 billion per annum (in 
constant prices of 2015), equivalent to 2.3% of GDP.2 

The bond market can facilitate green transition investments and thereby help reach the EU’s 
environmental  targets.  Bonds  are  already  one  of  the  main  instruments  used  for  financing 
fixed assets in sectors related to energy and resource efficiency. In addition, several industry-
led  initiatives  and  guidance  documents  exist  for  the  purpose  of  issuing  so  called  ‘green 
bonds’.  

This green bond market has seen vigorous growth in the number and volume of green bonds 
issued, both in the EU and globally. Despite this trend, green bonds remain a fraction of the 
overall bond market, representing about 3 to 3.5 % of overall bond issuance in 20193. Further 
growth  in  the  market  for  high  quality  green  bonds  could  be  a  source  of  significant  green 
investment, thereby helping to meet the investment gap of the European Green Deal.  

The EU is a global leader in green bonds, with 48% of the around EUR 253 billion of global 
green  bond  issuances  in  2020  denominated  in  euro4.  Providing  a  trusted  regulated 
environment that supports the issuance and creation of green bonds would also promote the 
international  role  of  the  euro,  and  help  to  achieve  the  goal  of  developing  EU  financial 
markets into a new ‘green finance’ hub.  

1 The European Green Deal (EGD) is the EU’ response to the climate and environment-related challenges that 
are  this  generation’s  defining  task.  It  is  a  new  growth  strategy  that  aims  to  transform  the  EU  into  a  fair  and 
prosperous  society,  with  a  modern,  resource-efficient  and  competitive  economy  where  there  are  no  net 
emissions of greenhouse gases in 2050, where the environment and health of citizens are protected, and where 
economic growth is decoupled from resource use. The EGD Investment Plan of 14 January 2020 announced the 
establishment of an EU Green Bond Standard.  
2  Impact  Assessment  Accompanying  the  Communication  “Stepping  up  Europe’s  2030  climate  ambition 
Investing in a climate-neutral future for the benefit of our people” SWD/2020/176 final 
3  Moody’s:“Green,  social  and  sustainability  bonds  accounted  for  4.5%  of  total  global  bond  issuance  in 
2019”(link), 77% of which was green bonds.  
4 For more information, see  Annex 5 – Market developments 

5 

 
                                                 
The  Commission  committed  to  developing  an  EU  Green  Bond  Standard  (EU  GBS)  in  its 
Action  Plan  Financing  Sustainable  Growth  adopted  in  March  2018.  As  a  first  step,  the 
Commission asked the Technical Expert Group on Sustainable Finance (TEG) to produce a 
report on an EU GBS. The TEG published its interim report in March 2019, followed by  a 
call for feedback period. The final report with a draft EU Green Bond Standard was published 
in June 2019, and the TEG also published a usability guide for the draft standard in March 
2020.  

1.2. 

Market context5  

Green  bonds  are  a  relatively  new  form  of  debt  instrument  that  provide  investors  with 
additional commitments and transparency on the green use of proceeds. In the typical “use of 
proceeds”  model,  issuers  commit  to  spend  the  money  raised  or  an  equivalent  amount  on 
environmentally  sustainable  investments.  This  information  is  usually  contained  in  separate 
stand-alone documents, not within the bond’s prospectus or other legal documentation (bond 
covenants  etc). Under  existing market  practices  and regulations, green bonds are legally no 
different from conventional bonds6.  

The  use  of  proceeds  model  enables  a  wide-range  of  approaches,  including  securitisation 
bonds, revenue bonds, project bonds, covered bonds, and other debt instruments.  

The success of green bonds can be traced back to growing demand for green financial assets 
from investors, especially institutional investors such as insurance companies, pension funds, 
and  investment  funds.  These  assets  allow  them  to  meet  their  self-set  targets  for  the  green 
proportion of their investment portfolios. 

As evidenced by the recent growth of the green bond market, some issuers have been willing 
to  absorb  the  additional  administrative  costs  associated  with  the  greater  transparency  and 
credibility  requirements  for  investors.  For  issuers,  issuing  a  green  bond  offers  a  strategic 
marketing opportunity to showcase their green commitment and ambition to existing or new 
investors,  possibly  as  part  of  the  broader  corporate  or  institutional  green  transition7.  This 
allows  issuers  to  enlarge  and  diversify  their  investor  base,  as  new  dedicated  green  and 
socially responsible investors enter the market and drive demand for these types of bonds.  

Alongside the signalling effect, green bond issuance also provides issuers with an opportunity 
to  improve  their  procedures  for  handling  and  acting  on  sustainability-related  information, 
such as climate-related risks. In this way, issuers may use green bonds as an organisational 
opportunity to boost their adaptability to the changing environmental and regulatory context, 
thereby  improving  their  future  competitiveness  and  profitability  through  a  first-mover 
advantage,  or  allowing  public  organisations  to  better  respond  to  the  demands  of  their 
stakeholders.  

Analysis of the current market for green bonds in the EU and world-wide indicates that the 
market is growing rapidly. In the EU27, the number of green bonds issued has been growing 
by about 47.2%, while the volume has been growing by about 50.9% per year between 2015 
and 2020. This growth is driven by inter alia the following factors:  

5 For more information on the market context, see Annex 4 – Market Context and controversies 
6 A “conventional bond” is here referring to a bond that is neither green, nor explicitly sustainable.   
7 Evidence from a JRC study based on a sample of non-financial companies suggests that green bonds act as a 
credible signal of the issuers’ climate-related engagement. Fatica, S., and Panzica, R. (2021), “Green Bonds as a 
tool against climate change?”, Business Strategy and the Environment, https://doi.org/10.1002/bse.2771 

6 

 
                                                 
- 
- 

- 

Increasing need to finance investments that help to mitigate the risk of climate change  
Increasing demand from institutional investors and their clients to hold green financial assets, 
for example to hedge against the risk of stranded assets and make a positive impact against 
climate change.  
Intensifying  competition  among  financial  market  participants  to  offer  such  green  financial 
products (such as green investment funds) to investors.  

-  An overall legislative and political environment favouring transparency on the sustainability 
of  investments  (including  requirements  for  financial  market  participants  to  disclose  the 
alignment of their investments with the EU Taxonomy Regulation8). 

These  factors  are  all  linked  to  the  growing  awareness  about  the  need  to  tackle  the  risk  of 
climate  change,  and  are  therefore  likely  to  remain  relevant  factors  in  the  long  run.  For  this 
reason, it is reasonable to assume that the green bond market is likely to  continue growing, 
potentially at or close to its current course. Based on projections in annex 5, this would mean 
that  yearly EU green bond issuance in  20239 could  reach EUR 430 billion, spread out  over 
roughly 1350 green bond issuances.   

The development of standards10 

Along  with  the  growth  of  the  green  bond  market,  market  players  have  cooperated  to 
standardise  practices  and  develop  guidelines  for  green  bond  issuance.  Such  so-called 
standards benefit both issuers and investors: 

1.  For issuers, a widely accepted standard conveys investors’ expectations and thus reduces the 
need for specialised advisory services to issue a green bond that would be accepted as green 
by  investors.  It  increases  the  credibility  of  the  issuer’s  sustainability  commitments  and 
mitigates the potential reputational risk of accusations of ‘greenwashing’. 

2.  For investors, it provides increased certainty that their investments are being used to deliver 
real environmental objectives without having to conduct their own extensive due diligence. 

Currently,  the  most  commonly-used  market  standard  is  the  Green  Bond  Principles  (GBPs), 
which  are  process-based  guidelines  maintained  by  the  International  Capital  Market 
Association, or  ICMA. To align with this standard, a green bond’s proceeds should finance 
assets and projects with positive environmental impacts. The standard sets out a clear process 
for the selection of projects and the allocation and tracking of funds, although it lacks a clear 
definition  of  green  economic  activities.  Bond  issuers  should  also  report  on  the  use  of 
proceeds including, if possible, information  on the environmental impact  of the projects.  In 
addition, the GBPs recommend obtaining a third party external review.  

Other standards are also widely used, including the more prescriptive Climate Bond Standard, 
developed  by  the  Climate  Bonds  Initiative  (CBI).  The  CBI  standard  sets  the  same  basic 
requirements as the ICMA standard, which means that any bond compatible with the former 
should  normally  also  be  compatible  with  the  latter.  However,  unlike  the  GBPs,  the  CBI 
includes  a  taxonomy  with  screening  criteria  to  define  green  economic  activities,  and  the 
requirement for green bonds to be certified by approved external reviewers. About a quarter 
of green bonds issued in 2020 were certified according to the CBI standard. Table 1 below 

8 See Annex 11 – ESG Disclosure obligations 
9 2023 is the  likely first  full calendar  year  where  a potential legislative initiative  for an  EU GBS  might be  in 
application. 
10 More details on green bond standards in Annex 7 – Standards and Definitions of green 

7 

 
 
 
 
                                                 
compares ICMA’s Green Bond Principles and CBI’s Climate Bonds Standard.  More details 
are available in annex 7.  

Owner 

Reach 

Environmental 
objectives 

Main requirement on 
use of proceeds 
Definition of green 

Screening criteria 

Green Bond Principles 
International Capital Markets 
Association 
The dominant international 
standard (used by most of the 
international green bond market) 
Climate mitigation and adaptation, 
natural resources, biodiversity, and 
pollution prevention and control. 
100% green 

High level categories for eligible 
projects 
N/A 

External review 
requirements 

Recommended 

Requirements for 
external reviewers 
Allocation reporting 
Impact reporting 

High level guidelines for external 
review 
Not required 
Recommended 

Table 1 - ICMA GBP and CBI standard 

External review11 

Climate Bonds Standard 
Climate Bonds Initiative 

24% of all green bonds issued in 2020 

Low-carbon and climate resilience 

100% aligned with climate bonds Taxonomy 
and certified by external reviewer. 
Climate Bonds Taxonomy covering eight 
sectors. 
Screening criteria available for some sectors, 
including power generation, transport, 
buildings, and other sectors. 
Dedicated certification scheme – certification 
is required both pre-issuance and post-issuance 
(2 years after) 
External reviewers must be pre-approved by 
CBI. High-level requirements.  
Required 
Recommended 

The  development  of  these  new  standards  has  been  accompanied  by  the  growing  use  of 
external  review  to  provide  assurance  to  investors.    It  is  common  market  practice  for  green 
bonds issuers to contract a third party to review the green bond documentation, either prior to 
bond issuance (to check alignment of the bond framework against the respective standard) or 
post-issuance  (to  check  alignment  of  the  projects  funded  by  the  bond  against  eligibility 
criteria). This is recommended under the ICMA GBPs and required under the CBI standard. 
External review is sometimes referred to as “verification”, for example in the TEG’s draft EU 
GBS. 

According to the TEG report, external reviews have become common market practice in the 
EU  green  bond  market.  Research  conducted  by  the  Luxembourg  Stock  Exchange  indicated 
that  more  than  85%  of  issuers  use  some  form  of  pre-issuance  review  and  of  this  grouping, 
98% were in the form of an external review.   

1.3. 

Legal context12 

This section sets out the main relevant legislation. 

Rather than being a self-standing initiative, the EU Green Bond Standard is part of a bigger 
puzzle,  namely  the  EU’s  actions  on  sustainable  finance  as  set  out  by  the  2018  Sustainable 

11 More details in Annex 9 – External review 
12 For more information on disclosure requirements under the Taxonomy Regulation, the NFRD, and the SFDR, 
see annex 11 on ESG disclosure rules 

8 

 
 
 
 
 
                                                 
Finance Action Plan. As that plan is increasingly coming into fruition, with the adoption of 
several initiatives and the development of related Level 2 Delegated Acts advancing rapidly, 
the EU Green Bond Standard would emerge into an environment that is already – to a certain 
extent  -  prepared  for  it.  At  the  same  time,  the  Commission  has  been  working  on  the 
development of the Renewed Sustainable Finance Strategy. 

The main legislative initiative that would impact on an EU GBS initiative is the Taxonomy 
Regulation13,  which  was  adopted  by  co-legislators  in  2020.  It  sets  out  a  classification  of 
economic  activities  as  environmentally  sustainable,  while  complying  with  minimum  social 
safeguards14. This  framework can be used as  a benchmark to classify  whether an economic 
activity and, by extension, assets or projects are green. In turn, it is intended to facilitate the 
assessment  of  the  greenness  of  related  equity  and  debt.  The  Taxonomy  Regulation  mainly 
influences the future EU Green Bond Standard initiative in two ways:  

First,  under  the  Taxonomy  Regulation  article  4,  the  EU  must  apply  the  criteria  of  the 
Taxonomy when setting out any standards for green corporate bonds.15 For this legal reason, 
any  future  EU  Green  Bond  Standard  must  use  the  same  definition  of  environmental 
sustainability  as set  by the Taxonomy Regulation  as far as  corporate issuers are concerned. 
For sovereign issuers, this requirement does not apply the same way.16  

Second,  as  part  of  the  Taxonomy  Regulation’s  Article  8,  financial  and  non-financial 
undertakings falling under the scope of the  Non-Financial Reporting  Directive (NFRD)  17 
will  be  required  to  disclose,  as  of  31  December  2021,  the  extent  to  which  their  activities 
substantially  contribute  to  the  EU  environmental  objectives  as  defined  by  the  Taxonomy 
Regulation  (henceforth:  Taxonomy-aligned).  Concretely,  they  will  have  to  calculate  and 
disclose the extent to which their activities are Taxonomy-aligned, including the percentage 
of their capital  expenditure (CapEx), operating expenditure (OpEx), and revenue associated 
with such activities. Consequently, such companies will have adjusted their internal processes 
to be able to track and account for the respective Taxonomy-aligned financial flows. 

Furthermore,  on  21  April  2021  the  Commission  adopted  a  proposal  to  review  the  NFRD, 
which  currently  imposes  reporting  requirements  on  large  public  interest  entities  with  more 
than  500  employees.  It  is  expected  that  this  review  will  expand  the  scope  of  companies 
falling  under  the  NFRD  from  11  700  to  close  to  50  000  companies.  The  Commission  also 
proposed that companies subject to the NFRD should be required to obtain limited assurance 
on  their  non-financial  reporting.  This  would  substantially  increase  the  availability  of 
information  on  the  share  of  Taxonomy-aligned  assets  of  EU  companies,  and  should  help 
facilitate and reduce the costs of issuing Taxonomy-aligned green bonds. 

13  Regulation  on  the  establishment  of  a  framework  to  facilitate  sustainable  investment  (Regulation  (EU) 
2020/852 (Taxonomy)). More information on the Taxonomy Regulation is available in Annex 8.  
14 Those minimum safeguards defined in the Taxonomy Regulation are without prejudice to the application of 
more stringent requirements related to the environment, health, safety and social sustainability set out in Union 
law, where applicable. 
15 Article 4 of the EU Taxonomy Regulation: “Member States and the Union shall apply the same criteria set 
out  in  Article  3  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.” 
16 See Annex 10 on sovereign bonds.  
17 Non Financial Reporting Directive (Directive 2014/95/EU)  

9 

 
 
                                                 
Another  relevant  development  is  the  entry  into  application,  as  of  March  2021,  of  the 
Sustainable Finance Disclosure Regulation (SFDR)18, which governs how financial market 
participants  (including  asset  managers  and  financial  advisers)  should  disclose  sustainability 
information towards end investors and asset owners. Under this Regulation, financial market 
participants will also be required to report on the share of Taxonomy-alignment of the assets 
in which they invest, including potentially, green bonds.  

The  European  Commission  is  also  currently  working  on  establishing  criteria  for  a  new  EU 
Ecolabel for Financial Products19.  It will apply to retail financial products, such as equity 
funds  and  bond  funds,  and  it  will  be  legislated  using  an  extension  of  the  EU-ecolabel 
Regulation.  This  means  the  EU  Ecolabel  for  financial  products  would  rely  on  an  existing 
“brand”,  which  already  benefits  from  a  certain  consumer  recognition.  While  financial 
instruments such as bonds and equity will not be directly eligible for the EU Ecolabel, as they 
are financial instruments and not retail financial products, they will qualify indirectly, as part 
of bond or equity fund portfolios.  

The Commission aims to create a coherent approach to sustainable financial products based 
on increased transparency and the use of the EU Taxonomy. It is expected that the definition 
of green in the criteria for the new EU Ecolabel for financial products will be based on the 
EU  Taxonomy,  and  that  EU  GBS  bonds  would  be  eligible  for  EU  Ecolabel  bond  fund 
portfolios. This could incentivise investment in bonds aligned with the future EU GBS.  

In conclusion, the EU Green Bond Standard is one of several interlinked initiatives that aim 
to incentivise (in the case of the EU GBS) or require (in the case of the Taxonomy, reviewed 
NFRD, and SFDR) the disclosure of Taxonomy aligned green assets by  corporations in the 
EU. For this reason, the impact of the EU GBS initiative should be considered in the context 
of the aforementioned initiatives.    

The  Delegated  Acts  setting  out  the  technical  screening  criteria  for  the  “Substantial 
Contribution”  and  “Do  No  Significant  Harm”  conditions  for  the  two  environmental 
objectives  of  climate  mitigation  and  climate  adaptation  was  adopted  in  June  2021  and  will 
enter into force by the end of 2021 subject to a 6-month scrutiny period by co-legislators. The 
entry into force of the delegated acts covering the other four environmental objectives of the 
Taxonomy  should  follow  12  months  later.  For  this  reason,  it  is  expected  that  at  least  the 
climate-related part of the Taxonomy would be in place before the EU GBS enters into force, 
and potentially all six environmental objectives of the Taxonomy.  

1.4. 

Analytical context 

This  impact  assessment  aims  at  providing  an  unbiased,  comprehensive  and  evidence-based 
assessment of the trade-offs implied by the potential policy options. Significant efforts have 
been  undertaken  to  support  the  analysis.  In  addition  to  the  evaluation  of  the  stakeholder 
consultations and the work of the TEG, market data was collected from external databases to 
map the green bonds market with a view to informing the regulatory response. Further cost 
data and cost estimates were collected from stakeholders and supervisors directly.  

18 Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088) 
19 Under the EU Ecolabel Regulation (Regulation (EC) No 66/2010) 

10 

 
 
 
 
 
 
 
                                                 
A key limitation of the analysis pertains to the extent to which the current green bond market 
aligns  with  the  technical  criteria  under  the  Taxonomy  Regulation.  Given  the  current 
supervisory reporting and public disclosure frameworks, the availability of relevant data and 
information  is  sporadic  and  lacks  necessary  depth  to  carry  out  a  data-driven  analysis. 
Information was however collected in the form of stakeholder feedback.  

It should be noted that an assessment of the taxonomy criteria is not material to the available 
policy choices under this initiative. Co-legislators have already taken such choice in the form 
of  adopted  primary  legislation.  As  mentioned  above,  the  legal  drafting  of  the  Taxonomy 
Regulation rules out a Commission initiative on green bonds which stands disassociated from 
the  taxonomy-based  criteria20.  Only  the  taxonomy  criteria  may  be  used  to  define  an 
‘environmentally sustainable economic activity’. The choice to deviate from this definition is 
excluded given the objective to define and standardise bonds which finance environmentally 
sustainable  activities.  As  such,  there  is  no  policy  option  that  would  require  a  further 
assessment  of  the  usability  of  the  taxonomy  criteria  (excluding  for  sovereign  bonds21).  A 
broader market assessment based on the available data is provided in the impact assessment 
supporting the Delegated Regulation on the Taxonomy.  

In  view  of  these  constraints  on  the  initiative,  the  collective  evidence  stemming  from  the 
different methodological approaches overall can be considered to be sufficiently sound as a 
basis for the impact assessment.  

Two factors limit the amount of quantitative analysis included in the present report, namely 
(1)  the  difficulties  with  using  existing  data  to  estimate  the  effect  of  a  currently  inexistent 
framework, and (2) the intangible nature of certain benefits of green bond issuance, such as 
the green bond premium, or a reputational boost.  

Despite  these  hindrances,  this  analysis  takes  a  quantitative  approach  to  cost  benefit 
assessment  where  possible.  Annex  3  sets  out  a  quantitative  estimate  of  the  costs  of 
registration and supervision by ESMA for external reviewers, as well as a related estimate of 
the cost for issuers of making use of external review services under the proposed EU GBS. 
Annex 6 includes estimated ranges for the green bond premium, although the data on the size 
of  this  premium  is  inconclusive.  At  the  same  time,  other  reported  benefits  of  green  bond 
issuance,  such  as  a  reputational  boost  for  the  issuer,  could  not  be  quantified,  and  little 
relevant literature was found no this topic. For these reasons, the cost-benefit assessment in 
section 6, which brings together all these elements, is mostly qualitative.   

2. 

PROBLEM DEFINITION 

2.1. 

What are the problems? 

The  current  impact  assessment  considers  the  functioning  and  interplay  of  two  closely 
interlinked markets: the market for green bonds (in particular high quality green bonds) and 
the market for external review services, used to give investors assurance about the alignment 
of their green bond to existing market standards. This section will identify the main problems 
affecting  the  two  markets  in  scope,  and  their  consequences.  It  will  then  consider  the 
underlying problem drivers.  

20 c.f. Article 4 Taxonomy Regulation  
21 See Section 5 – Policy Options and Annex 10 – Sovereign Bonds  

11 

 
                                                 
2.1.1.  For investors: Costly/difficult to identify high quality green bonds 

The green bond market suffers from a moral hazard problem that reduces trust in the market 
and drives up costs for investors (and issuers). The problem can be summarised as follows: 
once an investor has bought a “use of proceed” green bond, it relies on the issuer to follow up 
on  the  green  commitments  made,  usually  in  terms  of  investing  bond  proceeds  in  certain 
activities.  From  the  issuer  side,  green  bond  issuance  can  be  profitable,  for  instance  due  to 
reputational  gains  or  potential  price  benefits  from  issuing  green  debt22.  But  the  real  costs 
associated with following up on green commitments create an incentive for the issuer to shirk 
on the commitments made to investors once the bond has been issued. If so, investors will be 
the main losers, as the bonds they hold will no longer be green. For these reasons, investors 
may worry about the greenness of the bond and want to verify the bond’s greenness ex ante.  

However,  investors  currently  face  significant  constraints  to  (i)  determine  the  positive 
environmental  impact  of  a  bond,  and  (ii)  compare  different  green  bonds.  Despite  the 
existence of several commonly used market standards, which to a certain degree overlap and 
can  be  used  conjunctively,  the  green  bond  market  does  not  sufficiently  enable  investors  to 
identify high quality green bonds.  

In particular, definitions of green projects vary or are inexistent.  For example, the dominant 
market standard (ICMA’s Green Bond Principles) relies on high-level principles for eligible 
green projects, not detailed criteria. As for the more prescriptive CBI standard, its privately 
maintained definitions omit many potential sectors of green economic activities. 

Also,  the  quality  and  role  of  external  review  varies  widely.  ICMA  GBPs  has  no  clear  and 
formalised mechanism to guarantee the quality and integrity of the external review process, 
for example through registration and supervision of external reviewers of green bonds. As for 
the CBI standard, it includes certification but lacks a rigorous mechanism for supervising the 
conduct of those external reviewers. 

Because  of  this  lack  of  standardised  definitions  of  green  projects,  lack  of  standardised 
transparency requirements, and the varying quality of external review, investors may need to 
expend  time  and  resources  on  assessing  and  double-checking  information  published  by 
existing green bonds issuers.  

While  this  situation  is  already  problematic  today,  two  trends  further  aggravate  the  moral 
hazard problem, which could accentuate the issue in the future:  

1)  As explained in Annex 6, demand for green bonds is increasing, which may have the 
effect of driving up green bond premia, and thereby increase the incentive for issuers 
to issue green bonds. 

2)  As  explained  in  Annex  8,  the  green  bond  market  is  increasingly  expanding  into 
sectors where it is more difficult agree on what is sustainable, such as manufacturing.  

While  sovereigns  also  are  confronted  with  controversies  around  green  bonds,  and  in 
particular  the  need  to  better  define  green  proceeds,  the  risk  to  investors  is  less  acute,  as 
sovereigns generally have a transparent approach to use of  proceeds, and benefit from high 
levels of trust in the green bond market, as evidenced by green bond premia for sovereigns, 
which are relatively high23.  

22 See Annex 6 – Costs and Benefits of issuing green bonds 
23 See Annex 6 

12 

 
                                                 
2.1.2.  For  issuers:  Additional  costs  for  issuing  a  green  bond  (due  to  market 
fragmentation) 

Issuing  a  green  bond  already  requires  additional  cost  for  issuers,  for  example  in  terms  of 
reporting,  external  review,  and  internal  reorganisation  and  training.  However,  the  moral 
hazard  problem  referred  to  in  2.1.1  means  that  issuers  are  under  increasing  pressure  to 
demonstrate the greenness of their bonds. The diversity of market practices in the green bond 
market (both with regards to definitions of green, and the market for external review) means 
that  issuers  may  need  to  incur  additional  costs  in  order  to  enhance  the  credibility  of  their 
green issuance:  

  In the case of corporate green bond issuers, investors frequently require issuers to obtain 
an ESG rating for their company. This is in principle an unnecessary cost, since the green 
bond  itself  and  the  underlying  projects  are  usually  already  reviewed  by  an  external 
reviewer. 

  Issuers,  and  in  particular  first-time  issuers,  may  need  to  spend  significant  resources 

deciding which standard to make use of, due to the diversity of market practices.  

  The  lack  of  a  common  definition  of  green  and  of  a  green  bond  means  that  issuers  may 
need to spend additional resources, e.g. on additional advisory services, to demonstrate the 
green  credentials  of  their  bond,  even  after  the  requirements  of  the  chosen  standard  has 
been met.   

2.1.3.  For issuers: Uncertainty around green assets, potential reputational risks 

There is overall uncertainty on the type of economic activities that can be considered green, 
due to a lack of international agreement on such definitions. This has helped to cause  some 
issuers to  experience  reputational damage as stakeholders questioned the  greenness of their 
bond24.  

Collected  feedback  shows  that  the  fear  of  adverse  publicity  because  a  deal  is  deemed 
“insufficiently  green”  has  prevented  some  issuers  from  tapping  the  market25.  This  is 
particularly  the  case  in  economic  sectors  that  are  very  important  for  the  transition  to  a  low 
carbon  economy,  but  where  the  identification  of  green  assets  and  projects  is  not 
straightforward due to a lack of carbon neutral and/or otherwise fully sustainable alternative 
production process and technology, such as steel or cement industries.  

So far, these sectors have seen relatively limited green bond issuance26.  

24 See Annex 4 on market context and controversies, and also the following articles: “Bond market asking what 
is green curbs climate friendly debt” and “How green are green bonds?”   (In addition, the issuer of a green bond 
could  come  under  criticism  should  the  proceeds  of  the  bond  finance  an  activity  with  questionable  social 
practices that do not meet minimum social safeguards.). 
25  A  fear  often  cited  by  stakeholders  is  that  investors  would  challenge  the  greenness  of  bonds  issued  by  such 
corporates based on their overall corporate activities rather than focusing on the asset or project financed as per 
the use-of-proceeds approach.   
26 According to the June report of the TEG 

13 

 
 
 
                                                 
Drivers  

Problems 

Consequences 

What can we address 
directly? 

What are we aiming to 
address? 

What do these problems 
lead to? 

External review 
market: 
heterogeneity, 
lack of 
transparency, 
conflicts of 
interest 

Green bond 
market:  
Lack of clear and 
harmonised 
definitions of 
green projects 
and green bonds 

For investors: 
Costly to identify 
genuine high-
quality green 
bonds 

For issuers:  
- Additional costs 
due to market 
fragmentation 
- Uncertainty 
around green 
projects, 
potential 
reputational risks 

Potential for 
market disruption 
from 
greenwashing 

Not enough high 
quality green 
bonds issued 
compared to 
market demand 

Wider 
consequences 

How does this impact 
society and citizens? 

Risk that not 
enough 
investment is 
directed towards 
projects with 
substantial 
climate and 
environmental 
impact 

Figure 1: Problem tree  

2.2. 

Consequences 

2.2.1.  Potential future market disruption from greenwashing 

As the current market for green bonds is based on voluntary market standards with minimal 
government  intervention,  it  mainly  relies  on  trust  among  investors  and  issuers.  While 
controversies  relating  to  alleged  greenwashing  of  the  bond  itself  or  the  underlying  projects 
are  relatively  rare,  a  more  frequent  criticism  relates  to  the  sustainability  credentials  of  the 
green  bond  itself.  However,  with  continued  fast  market  growth  and  in  the  absence  of 
regulatory intervention, the risk of major controversies regarding greenwashing, insufficient 
environmental  impact  of  a  bond,  or  issues  linked  to  a  bond  not  complying  with  minimum 
social  standards,  for  example,  will  only  increase.27  But  as  the  market  grows,  and  as  the 
problems  identified  in  section  2.1  become  more  acute,  the  risk  of  such  incidents  and  their 
potential impact on the functioning of the whole of the green bond market increase.  

In addition, while issuers might communicate their green promises for the use of proceeds in 
their  marketing  and  standard  related  documents,  such  information  is  not  systematically 
included  in  the  contractual  and  regulatory  documents  for  the  bond  transaction,  which  can 
make  it  difficult  for  investors  to  hold  issuers  to  account  for  honouring  their  green 
commitments. 

The  combination  of  these  factors  may  lead  to  situations  where  investors  are  given  a  false 
sense of the sustainability impact of the funded project or asset. In effect, the sustainability 
impact may fall short of investor’s  initial expectations. If this should occur, investors could 

27 See Annex 4 for more information on greenwashing controversies.   

14 

 
 
 
                                                 
risk financial losses, as they may have to sell their bonds because they no longer comply with 
investment guidance or criteria, particularly in the case of institutional investors.  

Any  such  incident  could  disrupt  the  current  green  bond  market  by  creating  reputational 
problems  for  the  whole  sustainable  investment  market,  reducing  the  trust  of  investors  on 
which this market relies, and further increasing costs for issuers.  

2.2.2.  Not enough high quality green bonds issued compared to market demand 

In  their  June  2019  report,  the  TEG  found  that  there  was  a  fundamental  problem  of  lack  of 
supply in the market for green bonds, as evidenced by the frequent oversubscription of green 
bond auctions or sales. In 2019, demand for green bonds outstripped supply by more than 5 to 
1,  compared  to  a  ratio  of  3  to  1  for  conventional  bonds.28  This  means  that  the  green  bond 
market is not exploiting its full potential for growth.  

Green bond issuance is conditional on the existence (or creation) of a corresponding amount 
of  green  investments  on  the  issuer’s  balance  sheet.  For  this  reason,  the  lack  of  eligible 
investment is the main limiting factor for green bond issuance. This factor is out of the scope 
of this impact assessment. 

However, the problems  for issuers identified in  2.1 also  play  a part in  limiting supply. The 
problem of uncertainty around green assets and potential reputational risks serves to dissuade 
potential green bond issuers.  At the same time, the additional costs for issuing a green bond 
due  to  market  fragmentation  contribute  to  reducing  the  net  benefits  of  green  bonds,  and 
therefore indirectly reducing issuance.  

2.3. 

Wider consequences 

2.3.1.  Risk  that  not  enough  investment  is  channeled  towards  projects  with 
substantial climate and environmental impact 

The market for high quality green bonds is important for channelling funding into the type of 
fixed  investments  needed  to  reach  the  EU’s  climate  targets.  However,  despite  the  overall 
situation  of  growth,  the  problems  and  consequences  identified  in  2.1  and  2.2  constitute 
market  barriers  that  could  trap  the  market  in  an  inefficient  equilibrium29  and  hinder  future 
market development.30  

If not enough high quality green bonds are issued to respond to market demand, there is a risk 
that  substantial  funding  is  instead  diverted  to  activities  and  projects  that  –  while  they  may 
have  environmental  benefits  –  are  not  substantially  contributing  to  the  EU  climate  and 
environmental objectives.  

In  order  to  fund  climate  mitigation,  climate  adaptation,  and  wider  environmentally 
sustainable purposes, the market for high quality green bonds therefore needs to be supported 
to reach its maximum potential.  

28 CBI: “Green bond pricing in the primary market: January – June 2020”  
29 Pauline Deschryver & Frederic de Mariz: “What Future for the Green Bond Market?”, 2020 
30  As noted by Bowman (2019), due to a lack of credibility, credentials, and supply  —there is a risk that the 
infancy of the market does not offer enough data to investors to make an educated investment decision and as a 
result,  investors  are  reluctant  to  move  forward  creating  a  “chicken  and  egg”  problem”.  (Source:  Louise 
Bowman: “ESG: green bonds have a chicken and egg problem”, 2019) 

15 

 
 
                                                 
2.4. 

What are the problem drivers?  

The  problem  drivers  can  be  divided  into  those  affecting  the  market  for  external  reviewers, 
and those affecting the market for green bond issuance. 

2.4.1.  External  review  market:  Heterogeneity,  lack  of  transparency,  and  potential 
issues relating to conflicts of interest in the external review market 

The  external  review  (see  Annex  9)  is  usually  carried  out  by  third  parties,  according  to 
procedures  which  are  specific  to  each  reviewer,  and  which  have  emerged  organically 
alongside  the  development  of  various  market  standards.  For  this  reason,  there  is  also  a 
considerable amount of diversity in market practices and in the quality of services provided. 
In turn, this diversity obstructs market transparency and hinders the market from functioning 
effectively and from delivering high quality external review services that serve the interests 
of issuers and investors alike.  

To give only a few examples of market diversity:  

-  External reviews may include a consideration of the ESG rating of the issuer, or not. 
-  They  may  rely  on  the  project  categories  of  ICMA’s  Green  Bond  Principles,  or  more 

prescriptive definitions of green projects.  

-  They may be valid for several transactions or concern specifically the pre-issuance or post-

issuance stage of the bond.  

-  There  is  also  a  wide  variety  of  actors:  non-financial  rating  agencies  specialising  in  second 
party opinions, big-four audit firms providing mostly post-issuance verification, credit rating 
agencies, and global technical inspection and certification bodies are all active in the external 
review market.  

In  its  report,  the  TEG  also  highlighted  a  number  of  challenges  in  this  sector,  including 
variable  quality  of  assessments,  potential  lack  of  independence  or  management  of  potential 
and actual conflicts of interest and the handling of potentially price sensitive information. 

This  situation  can  lead  to  information  asymmetries  and  a  reduction  in  overall  trust  in  the 
green  bond  market  and  the  integrity  of  the  credentials  of  specific  bonds.  The  range  of 
differing approaches by entities with varying levels of expertise in environmental matters can 
create uncertainty for issuers and investors on the actual value, quality and impact of external 
reviews.  It  can  also  lead  to  duplication  and  increased  costs.  In  Deschryver  and  de  Mariz 
(2020)31, investors note the lack of a consistent certification system, in comparison with credit 
ratings in the conventional bond market.  

In  addition,  given  the  lack  of  a  common  classification  system  and  criteria,  some  issuers  in 
fact  engage  with  multiple  reviewers  in  order  to  attain  a  higher  degree  of  certainty  and 
investor confidence. Another common practice is for issuers to obtain ESG ratings in addition 
to  the  external  review,  as  many  investors  associate  the  greenness  of  the  bond  with  the 
greenness of the company itself. This gives rise to additional costs that would potentially not 
arise if these issuers could instead more fully rely on the opinion of the external reviewer. 

31  Deschryver  and  de  Mariz  (2020):  What  Future  for  the  Green  Bond  Market?  How  Can  Policymakers, 
Companies, and Investors Unlock the Potential of the Green Bond Market?  

16 

 
 
 
                                                 
In  January  2021  the  Commission  published  an  extensive  study  on  the  market  for 
Sustainability-Related Ratings, Data and Research32, which overlaps to some extent with the 
market  for external  review services. The study  noted that while efforts  to develop  common 
voluntary  standards  for  sustainability-related  product  and  service  providers  have  been 
undertaken, none have been firmly established across the market. The study also highlighted 
the increasing array  of sustainability-related product  and service providers operating in this 
growing  market,  which  emphasises  the  need  for  greater  transparency  across  the  industry  in 
terms  of  methodologies,  disclosures  and  how  research  providers  assess  the  performance  of 
green assets and investments.  

Amid  increasing  demand,  more  financial  data  and  research  providers  and  credit  ratings 
providers  are  entering  the  sustainability-related  products  and  services  market,  which  is 
leading  to  increased  merger  and  acquisition  activity  as  those  traditional  players  to  expand 
their service offerings by buying up specialised sustainability-related providers. 

The high level  of industry consolidation  identified in  the study also  highlights  the potential 
for  conflicts  of  interest  to  emerge,  particularly  associated  with  providers  both  evaluating 
companies  and  offering  paid  advisory  services.  Concerns  have  been  raised  about  potential 
conflicts of interest and quality control issues: at present, there is no legal framework in place 
for  minimum  operational  requirements  and  safeguards,  nor  for  registration  or  authorisation 
and  supervision  of  external  reviewers,  as  the  industry  has  developed  organically  without 
regulatory support.   

A  report  by  Bloomberg  Law33  indicates  that  most external  reviewers  are  not  subject  to  any 
stand-alone independence requirements and in some cases, reviewers and their affiliates also 
provide  advisory  services  to  potential  green  bond  issuers,  which  may  raise  independence 
issues. The report highlighted that the conclusion or opinion provided by external reviewers 
can  vary  depending  on  the  provider  in  particular,  and  on  differing  definitions  of  what 
constitutes a ‘green’ investment, particularly the difference between ‘dark’ and ‘light’ green. 

External reviewers fulfil an important role in bridging the gap between analysing potentially 
complex  green  projects  and  assessing  them  against  the  requirements  of  the  EU  Taxonomy 
and  assisting  investors  with  making  suitably  informed  investment  decisions.  It  is  therefore 
important that potential conflicts of interest are managed and averted, ensuring an appropriate 
level of market transparency. The absence of a supervisory framework for external reviewers 
with minimum standards to ensure the quality and objectivity of their reviews combined with 
a lack of transparency regarding their activities could lead to the misallocation of investments 
or even greenwashing, which would damage investor confidence in the EU GBS market and 
undermine the future development of the EU GBS market. 

The situation is less urgent in the case of sovereign issuers, who frequently make use of state 
auditors instead of external reviewers. These state auditors typically have legally guaranteed  
independence,  and  there  does  not  appear  to  have  been  any  controversies  regarding  their 
performance of the external review tasks.  

More information available in Annex 9 on external review. 

32 Link to study  
33 Green Bond Second Party Opinions: Legal and Practice Considerations’ 

17 

 
 
                                                 
2.4.2.  Green  bond  market:    Imperfect  information  due  to  a  lack  of  clear  and 
harmonised definitions of green projects and green bonds.  

The market for green bonds is hampered by the lack of clear and comprehensive definitions 
of  a  green  economic  activities  to  guide  green  bond  issuance,  and  of  a  common  yet 
prescriptive standard for green bond issuance.  

The  most  commonly  used  standard,  ICMA’s  Green  Bond  Principles,  is  market-developed, 
mostly principles-based and does not refer to a specific taxonomy of eligible green projects. 
The  more  ambitious  CBI  standard  includes  a  market-based  Taxonomy,  but  it  only  covers 
climate-related matters, leaving out important sectors for further emission reductions, or areas 
where  it  is  more  difficult  to  agree  on  the  definition  of  green,  such  as  high  emission 
manufacturing34. 

The  creation  of  the  EU  Taxonomy  is  an  attempt  to  address  this  situation,  by  providing 
comprehensive  and  granular  definitions  of  how  various  economic  activities  can  qualify  as 
environmentally  sustainable  (more  information  in  Annex  8  –  the  Taxonomy).  The  EU 
Taxonomy will be freely available for existing standards to make use of, if they wish.  

However,  in  order  to  make  use  of  the  detailed  definitions  of  the  Taxonomy  in  the  “use  of 
proceeds”  space,  and  ensure  that  investors  can  have  proper  trust  that  the  strict  criteria  are 
complied with, it is necessary to have a standardised system of verification with qualified and 
experienced entities checking that the relevant Taxonomy-criteria have been met.  

As explained in 2.4.1, the current practices around external review do not currently meet this 
requirement, and so far there are no indications that existing market-based standards intend to 
impose  a  more  stringent  oversight  over  external  reviewers.  It  is  also  not  clear  whether  it 
would be feasible for market based standards to operate a rigorous system of monitoring of 
external reviewers. For this reason, it is unlikely that market-based standards will be able to 
credibly enforce Taxonomy-alignment of standards within an acceptable timeframe.  

This  situation  of  imperfect  information  poses  problems  for  both  issuers  and  investors,  in 
particular  those  with  high  sustainability-related  ambitions.  Without  a  clear  definition  of 
green, environmentally ambitious issuers are lacking a clear and reliable way to signal this to 
investors. As for investors, who are increasingly on the lookout for green debt instruments to 
add  to  their  portfolios35,  their  search  is  complicated  by  the  fact  that  there  is  no  commonly 
accepted  definition  of  a  green  bond,  in  particular  on  the  more  environmentally  ambitious 
segment of the market.  

2.5. 

How will the problem evolve? 

Without EU action regarding green bonds, the most likely outcome would be the  continued 
development  of  differing  market-based  standards  for  green  bonds  or  new  legislative 
initiatives at national level. For more information, see section 5.1 – what is the baseline?  

The  TEG  has  pointed  to  the  large  range  of  approaches  in  the  field  of  external  review  as  a 
potential  source  of  problems,  creating  uncertainties  for  issuers  and  investors  on  the  actual 
value,  quality  and  impact  of  the  external  reviews.  Concerns  have  been  also  raised  about 

34 The CBI Taxonomy is mostly used in the market for green bonds (although other sectors have also made use 
of it to some extent), and it only covers about a quarter of the green bond market (26% of green bonds obtained 
CBI certification in 2020). The CBI Taxonomy does not contain screening criteria for transitional sectors such 
as energy intensive and hard-to-abate industry. 
35 CBI: “Green Bond European Investor Survey”, 2019 (Link) 

18 

 
 
                                                 
potential  conflicts  and  quality  control  issues  in  this  market.  Without  a  legal  framework  in 
place, the market cannot provide for the registration and supervision of external review on its 
own, and thus most of these issues would likely remain unaddressed.  

Because of the expected strong growth of the green bond market, the vulnerabilities that exist 
within the current market-based system are likely to grow, which may amplify the risk of a 
potential high impact or high visibility occurrence of greenwashing. Such an incident could 
potentially  create reputational  problems for the  whole  green bond market,  thereby reducing 
the trust of investors on which this market relies, and increasing costs for issuers.  

3.  WHY SHOULD THE EU ACT? 

3.1. 

Legal basis 

The  legal  basis  for  this  initiative  is  Article  114  of  the  Treaty  on  the  Functioning  of  the 
European Union  (TFEU), which confers to  the European institutions the competence to  lay 
down appropriate provisions that have as their objective the establishment and functioning of 
the internal market.  

Taking  into  account  the  criteria  set  out  in  the  Vodafone  case  (C-58/08)  Article  114  TFEU 
allows the EU 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.  

Although  other  national  legislation  exists  stipulating  a  framework  for  green  bond  issuance 
(e.g.  in  China),  no  EU  Member  State  has  yet  legislated  to  establish  an  official  green  bond 
standard at national level. The current EU market for green bonds is therefore entirely based 
around  market-defined  standards  and  practices,  with  assurance  to  investors  provided  by 
companies  acting  as  external  reviewers.  These  market-based  standards  set  out  high-level 
process-based  guidelines  or  recommendations,  but  as  outlined  in  Section  2,  the  underlying 
definitions of green projects are insufficiently standardised, rigorous, and comprehensive. For 
this reason, various practices co-exist, which make it costly for investors to identify genuine 
green bonds.  

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 would consider creating a standard at national level, or establishing national 
guidelines.  

Such national standards would likely seek to address the same problems that the proposed EU 
GBS initiative aims to address, but the results may be divergence across EU Member States. 
There are already examples of Member States operating with diverging frameworks in their 
issuance  of  sovereign  green  bonds,  or  in  the  area  of  labels  for  environmentally  sustainable 
financial  products.  For  this  reason,  it  is  likely  that  disparities  between  national  laws  would 
emerge  that  obstruct  the  fundamental  freedoms  and  undermine  a  European  level  playing 
field.  Therefore  there  is  an  identifiable  need  for  a  harmonized  green  bond  standard  to  be 
applied across the EU. 

19 

 
 
 
3.2. 

Subsidiarity: Necessity of EU action36 

For  now,  Member  States  seem  to  refrain  from  establishing  national  legislation,  which  is 
likely  linked  to  the  widespread  expectation  that  the  Commission  will  act  in  this  area,  as 
announced in the 2018 Sustainable Finance Action Plan. In consultation feedback, many EU 
Member  States  have  been  calling  for  a  harmonized  green  bond  standard  at  EU  level. 
However, in the absence of such a harmonised standard, it is predictable that Member States 
would bring forward their own legislation in the area of green bonds. 

Without EU action regarding green bonds, the most likely outcome would be the continued 
development  of  market-based  standards  for  green  bonds  or  new  legislative  initiatives  at 
national  level.  Such  uncoordinated  actions  at  national  level  may  lead  to  a  proliferation  of 
diverging green bond standards, which would fragment the green bond market in the EU and 
potentially hamper cross-border investment flows. The EU GBS would ensure a level playing 
field  and  reduce  the  potential  scope  for  disparities  across  the  EU  while  supporting  the 
attainment  of  the  EU’s  sustainable  finance  policy  objectives.  It  also  has  the  potential  to 
become a leading  global standard for green bonds.  An intervention at  the EU level  is  more 
likely  to  successfully  define  consistent  requirements  for  the  internal  market  and  thereby 
prevent  market  distortions.  Therefore,  a  legislative  measure  (based  on  Article  114  TFEU) 
would further improve the functioning of the Single Market. 

3.3. 

Subsidiarity: Added value of EU action 

In  a  similar  way  to  the  bond  market,  the  green  bond  is  an  inherently  international  market 
made up of issuers, typically larger companies, seeking out a broad and diverse population of 
investors, and investors seeking out the highest possible liquidity and frequently trading debt 
on cross-border secondary markets. For this reason, national legislation to tackle the failures 
identified in the green bond market would have the potential effect of fragmenting a market 
which is inherently international.  

The market for external  reviewers of green bonds is also a cross-border market.  In order to 
preserve  a  level  playing  field  for  the  companies  providing  external  review  services,  any 
legislation setting up a regime for the registration and supervision of these entities should also 
be at EU level. Finally, given the many interactions between a potential initiative for an EU 
Green  Bond  Standard,  and  other  relevant  EU-level  legislation,  such  as  the  Taxonomy 
Regulation,  an  EU  instrument  appears  to  be  more  suitable.  A  possible  intervention  at  EU 
level therefore complies with the principle of subsidiarity as set out in Article 5 of the TFEU.  

For a detailed analysis of the legal basis, see Annex 12.  

4. 

OBJECTIVES: WHAT IS TO BE ACHIEVED? 

This  initiative  is  a  direct  response  to  vocal  requests  from  green  bond  investors  and  issuers 
alike  for  a  credible  and  high-quality  standard  for  Taxonomy-aligned  green  bonds,  as 
expressed  for  example  in  the  targeted  consultation  on  the  EU  GBS.  According  to  this 

36  According  to  the  principle  of  subsidiarity,  the  EU  should  act  where  it  can  provide  better  results  than 
intervention  at  Member  State  level.  In  addition,  EU  action  should  be  limited  to  what  is  necessary  in  order  to 
attain the objectives, and comply with the principle of proportionality. 

20 

 
 
 
                                                 
feedback, such an initiative should standardise and develop the market for green bonds and 
set the global standard for the application of the EU Taxonomy in green bond markets, so that 
green  bonds  become  a  genuine  tool  for  the  EU  to  transition  towards  climate  neutrality. 
Building on this feedback, this section sets out the main objectives for this initiative. 

4.1. 

General objectives 

The  general  objective  is  to  better  exploit  the  potential  of  the  single  market  to  contribute  to 
meeting the EU’s climate and environmental objectives, in accordance with Article 2(1)c of 
the Paris Agreement, by  

facilitating further development of the market for high quality green bonds, while  

- 
-  minimising disruption to existing green bond markets, and 
- 

attracting sovereign issuers to the framework while catering to their specificities  

This  would  be  achieved  by  establishing  a  standard  (or  similar)  for  high  quality  green  bond 
issuance that would: 

Improve the ability of investors to identify and trust high quality green bonds 

- 
-  Facilitate the issuance of high quality green bonds, by: 

- 
- 

reducing costs from market fragmentation 
clarifying green definitions and reducing the reputational risk for issuers from sectors 
that are not sufficiently covered by existing market-based taxonomies 

- 

include some flexibility for sovereigns issuers.  

4.2. 

Specific objectives 

There  are  two  specific  objectives,  which  relate  to  the  two  problem  drivers  identified  in 
section 2.4.  

4.2.1.  The  EU  GBS  should  clarify  and  harmonise  definitions  of  green  projects  and 
green bonds 

By aligning green bonds with the EU Taxonomy, this initiative should contribute to clarifying 
green definitions on the bond market. This should help investors in the process of identifying 
high quality green bonds, comparing them against each other, and mitigating against the risk 
of  greenwashing.  It  should  also  help  issuers  in  the  process  of  issuing  green  bonds  and 
identifying green economic activities on their balance sheets. 

4.2.2.  The EU GBS should harmonise outcomes, improve transparency, and address 
potential conflicts of interest  for external reviewers 

External  review  is  a  well-established  market  practice  and  a  core  part  of  almost  any  green 
bond  issuance,  irrespective  of  the  type  of  issuer  or  the  standard  followed.  However,  as 
detailed in 2.2, a wide-range of market practices and actors co-exist in a limited space.  This 
initiative  will  aim  to  strengthen  external  review  for  the  high  quality  EU  green  bonds,  and 
improve its quality, usefulness, and trustworthiness for investors, by harmonising outcomes, 
addressing  conflicts  of  interest,  and  improving  transparency  and  oversight  over  the  overall 
process.   

For  the  EU  GBS  itself,  the  requirements  for  external  reviewers  are  intended  to  provide  an 
additional  level  of  assurance  to  issuers  and  investors  that  those  external  reviewers  that  are 

21 

 
 
registered  have  implemented  effective  policies  and  procedures  to  ensure  the  quality, 
independence and overall integrity of their assessments. This will make the EU GBS distinct 
from other green bond standards in the market and support the intention to establish the EU 
GBS as the gold standard for green bonds.   

Problems 
For  investors:  Costly/difficult  to  identify 
high quality green bonds  
For issuers:  

Objectives 
Improve  the  ability  of  investors  to  identify  and  trust 
high quality green bonds 

-  Additional costs for issuing a green 
bond due to market fragmentation 
-  Uncertainty  around  green  assets, 

Facilitating issuance of high quality green bonds by: 
-  Reducing costs from market fragmentation. 
-  Clarifying  green  definitions  and  reducing  the 

potential reputational risks 
Problem  drivers  in  the  external  review 
market 
Heterogeneity, lack of transparency, issues 
related to conflicts of interest  

reputational risk for issuers. 

Specific objectives in the external review market 

Harmonising  outcomes,  improving  transparency,  and 
addressing conflicts of interest.  

Problem  drivers 
market 

in  the  green  bond 

Specific objectives in the green bond market 

Lack of clear and harmonised definitions of 
green projects and green bonds.  

Clarifying  and  harmonising  definitions  of  green 
projects and procedures for issuing green bonds. 

Table 2: Problems and objectives 

5.  WHAT ARE THE AVAILABLE POLICY OPTIONS AND HOW DO THEY COMPARE? 

5.1. 

What is the baseline from which options are assessed? 

Under the baseline, there would be no Commission action in the green bond market, whether 
in the form of legislation or guidance. This would maintain the status quo in the market, with 
most  green  bond  issuers  relying  on  existing  market-based  principles  and  guidance37.  The 
principle characteristics of the baseline scenario are: 

  Continued market growth along or slightly below current trajectories. 2015-2020 saw an 
impressive average annual growth of 46% in terms of green bonds issued, and also 46% in 
terms of volume38. It is expected that the green bond market will continue to grow along or 
slightly  below  these  trajectories.  The  main  factors  driving  this  trend  are  an  enhanced 
awareness for sustainability factors of downstream consumers, increasing market demand for 
green bonds, and a reinforced sustainability focus in many Member State and EU policies. 

  Growth of external review market, but no legal framework in place for the registration 
and  supervision  of  external  reviewers.    The  assessment  of  green  bonds  by  an  external 
reviewer  will  likely  remain  the  market  norm,  and  hence  this  market  will  grow  in  line  with 
market  needs.  However,  the  differing  approaches  of  the  range  of  entities  in  this  field  will 
continue to be a potential source of problems, creating uncertainties for issuers and investors 

37 e.g. ICMAs Green Bond Principles, Climate Bonds Initiative  
38 Source: CBI data (see Annex 5 – Market Developments for more info) 

22 

 
  
 
 
 
                                                 
on  the  added  value,  quality  and  impact  of  the  external  reviews.  Issues  relating  to  potential 
conflicts  of  interest  and  quality  control  would  not  be  addressed  and  the  EU  GBS  would 
therefore have  to rely on existing market processes and external reviewers. 

  No dominant classification system to determine the greenness of projects and assets, and 
continued use of partial  and high-level  taxonomies. While the Taxonomy Regulation  for 
climate  mitigation  and  climate  adaptation  will  enter  into  force  in  2021,  the  Commission 
would  not  take  any  action  to  promote  it  as  part  of  an  official  green  bond  standard.  While 
existing  market-based  guidance  provides  broad  ‘green  criteria’,  they  generally  lack 
specificity and granularity for more detailed assessments. Some issuers also prefer to refer to 
their own taxonomies, rather than using the CBI Taxonomy. This indicates that the market is 
unable  to  converge  around  a  single  standard  classification  system  that  is  at  the  same  time 
comprehensive and granular.  

  Continued uncertainty for investors and issuers on the definition of green. This in turn 
generates  inefficiencies  in  terms  of  search  costs,  increased  risk  exposure  for  investors  and, 
depending on the applied market practice, higher issuing costs. On the one hand, issuers will 
continue to face reputational risks in cases where there is doubt over the greenness of assets 
or  projects.  This  is  particularly  a  concern  for  non-traditional  green  issuers  which  generate 
revenue  mainly  from  carbon  intensive  activities.  In  effect,  their  green  bond  issuance  levels 
are likely to remain very low with potential negative impacts on their ability to transition.  

On  the  other  hand,  investors  would  lack  clarity  and  transparency  on  the  greenness  of 
investments.  Since  there  is  no  common  classification  system  in  place,  each  bond  and  its 
corresponding  activities  need  to  be  assessed  individually  to  determine  whether  it  meets  the 
individual investor’s understanding and expectations of ‘green’, thus driving search costs.        

It can be expected that there will be some uptake of ‘taxonomy aligned’ bonds (i.e. making 
use of the EU taxonomy) even without EU intervention. It is expected that market standards 
would allow the use of the EU Taxonomy as one of several definitions of green. However, 
the  issues  set  out  in  terms  of  consistency,  comparability  and  certainty  would  still  largely 
persist.  The  market  would  also  remain  heavily  fragmented  due  to  possible  different 
understandings  of the taxonomy criteria. As there would not  be any means of enforcement, 
issuers could claim taxonomy-alignment without facing supervisory repercussions. This may 
in  fact  lower  transparency  and  confidence  in  the  market  and  negatively  affect  the  wider 
uptake  of  the  taxonomy  criteria  as  a  benchmark.    It  is  unclear  whether  the  CBI  Taxonomy 
would converge or diverge from the EU Taxonomy. 

  Amplified  risk  of  high  visibility  or  high  impact  market  controversy.  Seen  against  the 
expected  growth  of  the  green  bond  market,  the  vulnerabilities  that  exist  within  the  current 
market-based  system  may  amplify  the  risk  of  a  potential  high  impact  or  high  visibility 
occurrence of greenwashing. Such an incident could potentially create reputational problems 
for the whole green bond market, thereby reducing the trust of investors on which this market 
relies, and increasing costs for issuers.  

  Potential national action: There is also the potential that Member States may develop their 
own  legal  regimes  for  green  bonds,  potentially  based  on  discrepant  Taxonomies.  We  have 
seen a similar development in the case of labels for green investment funds (see section 3  – 
legal basis). The fact that Member States are not actively pursuing such plans at this moment 
is  likely  due  to  the  Commission’s  ongoing  work  on  the  EU  GBS.  Should  the  Commission 
abandon these efforts, it is likely that Member States would seek to compensate with national 
initiatives, given the growing importance of sustainable finance for the financial industry and 
for low-carbon investments.  

23 

 
5.2.  Description of the policy options 

This  impact  assessment  focuses  in  particular  on  the  three  key  policy  dimensions  set  out 
below. The three dimensions are related, but the policy choices do not depend on each other 
across policy dimensions.  

1)  Scope of application for green bond issuers (and core requirements of EU GBS)   
  Option 1: EU GBS alignment voluntary for all green bond issuers  
  Option 2: EU GBS alignment mandatory for non-sovereign EU green bond issuers, following 

transition-period 

2)  Regulatory treatment of external reviewers of EU GBS-aligned bonds 
  Option 1: Registration and limited supervisory oversight 
  Option 2: Authorisation and supervision with more stringent requirements 

3)  The extent of flexibility for sovereign users of the EU GBS 
  Option 1: No flexibility compared to corporate issuers 
  Option 2: Flexibility regarding non-Taxonomy-related requirements.  
  Option 3: Flexibility regarding non-Taxonomy- and Taxonomy-related requirements  

Each policy option is described and also assessed below. The potential willingness of green 
bond  issuers  to  make  use  of  the  proposed  standard,  based  on  the  preferred  policy  choices 
across all policy dimensions, is assessed in section 6: Preferred option. 

5.3. 
requirements of the EU GBS) 

Policy Dimension 1: Scope of application for green bond issuers (and core 

The current section will assess the extent to which the EU GBS should apply to current and 
future green bond issuers, and the core requirements of the standard.  

In  the  2018  Sustainable  Finance  Action  Plan,  the  Commission  tasked  the  Technical  Expert 
Group  on  Sustainable  Finance  (TEG)  with  drawing  up  a  report  on  an  EU  Green  Bond 
Standard, based on current market best practices. In line with this mission, the TEG proposed 
the standard that is summarised in table 2 below (full standard is available in Annex 14).  

TEG’S PROPOSAL FOR THE EU GREEN BOND STANDARD 

ELIGIBLE GREEN PROJECTS: 
 
 
 

Physical or financial assets. 
CapEx or selected Opex (with 3-year look-back period) 
Public investments or public subsidies 

Must be aligned with Taxonomy Regulation: 
1.  Contribute substantially to at least 1 environmental objective. 
2.  Not significantly harm any other objective  
3.  Comply with the minimum social safeguards 
4.  Align with Technical Screening Criteria (TSCs) where available.  

Flexibility: If no TSCs are available or applicable, an external reviewer shall 
confirm that projects nonetheless meet the 3 other requirements. 

Grandfathering:  Subsequent  changes  to  TSCs  should  not  apply  to 

REQUIRED REPORTING: 

Green Bond Framework: setting out 
environmental objectives, process to 
determine Taxonomy alignment and track 
proceeds, projects to be financed by the 
bond, and what impact metrics will be 
used.  

Allocation Reporting (annually): Shall 
include a breakdown of allocated amounts 
to Green Projects at least on sector level. 

Impact Reporting: At least once during 
bond lifetime after full allocation of the 

24 

 
 
 
 
 
 
  
 
 
 
 
outstanding EU Green Bonds (grandfathering). 

bond proceeds. 

VERIFICATION REQUIREMENTS (a.k.a. EXTERNAL REVIEW): 
- 
- 

The issuer shall appoint an external reviewer to confirm alignment of the Green Bond Framework with the EU GBS.  
Verification of the Final Allocation Report is required.  

Verification providers will be subject to accreditation including explicit requirements related to: 
1.  professional codes of conduct related to business ethics, conflicts of interest and independence; 
2.  professional minimum qualifications and quality assurance and control;  
3. 

standardised procedures for Verification. 

Table 3 – TEG’s proposal for an EU GBS39 

Alignment with market best practices 

The  final  set  of  requirements  of  the  EU  GBS  itself  that  are  being  examined  in  this  impact 
assessment are based on the draft standard proposed by the TEG, which in turn is based on 
(or similar to) market best practices, including best practice within the existing standards such 
as the ICMA GBPs and the CBI standard40 (for example where an existing standard does not 
require but recommends certain practices): 

o  with  regards  to  reporting,  these  include  the  publication  of  a  green  bond  framework,  of 

allocation reports, and impact reports41.   

o  With  regards  to  external  review,  these  include  external  review  of  the  green  bond 

framework and the final allocation report.  

o  With  regards  to  eligible  green  projects,  these  include  the  “use  of  proceeds”  approach. 
This model enables a wide-range of approaches,  including securitisation bonds, revenue 
bonds, project bonds, covered bonds, and other debt instruments.  

Allocation and impact reports 

Building on a practice established in the CBI standard, the EU GBS would require issuers to 
publish  yearly  allocation  reports  detailing  the  use  of  green  bond  proceeds,  and  providing 
evidence on the Taxonomy-alignment of the projects funded by their bonds. These allocation 
reports  are  what  enable  external  reviewers  and  investors  to  check  the  issuer’s  progress  and 
hold the issuer to account for fulfilling its sustainability commitment. In line with market best 
practice,  the  EU  GBS  will  require  issuers  to  have  their  allocation  report  reviewed  by  an 
external reviewer after a certain amount of time.  

As  is  also  common  market  practice,  the  impact  report  is  the  issuer’s  review  of  the 
environmental  impact  of  the  bond  once  all  the  proceeds  have  been  allocated.  This  allows 
investors  to  quantify  and  compare  the  environmental  impact  of  their  investment,  and 
mitigates against the risk of “greenwashing”. For transparency reasons, both reports would be 
publicly made available to ensure full transparency.  

Feedback from stakeholders 

39 See Annex 14 for more information on the TEG’s proposed standard 
40 See section 1 for a description and comparison of these two standards.  
41  79%  of  green  bonds  issued  prior  to  November  2017  already  had  impact  reporting  in  place.  (Source:  CBI: 
“Post-issuance reporting in the green bond market”) 

25 

 
 
 
 
 
 
 
 
 
 
                                                 
By  following  established  market  practice,  the  EU  GBS  would  avoid  needlessly  changing 
well-established  practices  regarding  the  format,  frequency,  and  type  of  reporting.  It  would 
also avoid needlessly disrupting the market for external review. The alignment with market 
best  practices  is  also  justified  based  on  the  desire  to  position  the  EU  GBS  as  the  foremost 
standard in terms of transparency and environmental credibility. Finally, the  alignment with 
existing market best practice was preferred by a large majority of respondents to the targeted 
consultation on the EU GBS, who also agreed with all the main requirements of the EU GBS 
as proposed by the TEG. 

In particular, investors argued that the  core requirements of the EU GBS would respond to 
their  needs  for  clarity,  consistency,  comparability,  transparency  and  assurance  that  the 
financed  projects  are  aligned  with  the  EU  Taxonomy.  A  majority  of  issuers  and  financial 
service-providers  also  agreed  with  the  proposed  requirements,  arguing  that  the  EU  GBS 
could help to standardise, clarify, and create a genuine market for high quality green bonds. 
However,  some  respondents  worried  that  the  requirements  would  be  difficult  to  meet  for 
SMEs wishing to issue green bonds, especially with regards to reporting and external review. 
Table 3 below provides a summary of the consultation feedback on this issue. 

Requirements proposed by the TEG 

Aligning  eligible  green  projects  with  the 
EU Taxonomy: 
Publishing  a  Green  Bond  Framework 
before issuance  
Publishing an annual allocation report  
Publishing an environmental impact report 
at least once before final allocation 
Having the (final) allocation report and the 
Green Bond Framework verified 

to 
Answers 
the question 
160 

Strongly  agreed  + 
rather agreed 
136 (87%) 

Strongly  disagreed  + 
rather disagreed 
8 (5%) 

160 

161 
159 

157 

145 (90.5%)  

2 (1.5%) 

145 (90%) 
126 (79%) 

6 (4%) 
15 (9.5%) 

139 (81.5%)  

12 (8%) 

Table 4 – Feedback from targeted consultation on the EU GBS 

For  the  reasons  set  out  above,  it  is  recommended  that  the  core  elements  of  the  EU  GBS 
should be aligned with market best practice.  

Alignment with the EU Taxonomy 

While being modelled on market best practice, the potential EU GBS would also go beyond 
existing standards by including a requirement  to  align bond proceeds with  the Taxonomy.42 
As  noted  in  section  1,  this  is  a  legal  requirement  for  the  EU  GBS.  In  practical  terms,  this 
means that only those issuers with existing Taxonomy-aligned assets on their balance sheets, 
or plans to invest in new assets aligned with the EU Taxonomy, would be able to issue using 
the EU GBS.  

Given  that  the  Taxonomy  sets  out  comprehensive  and  detailed  criteria  for  the  definition  of 
projects  that  are  green,  some  potential  green  bond  issuers  may  struggle  to  meet  this 
requirement. This means the standard would likely be more costly for the average green bond 
issuer to align with, compared to current market standards.  

42 In addition, it may include a requirement to only use authorised and supervised external reviewers, depending 
on the outcome of this impact assessment (see section 5.4). 

26 

 
 
 
 
                                                 
At  the  same  time,  the  EU  GBS  would  likely  allow  certain  issuers  to  increase  the  benefits 
typically associated with green bond issuance, such as a reputational boost  for the issuer, a 
diversification of the investor base, and a potential green bond premium, since these benefits 
typically increase with the level of ambition and green assurance of the bond.  

For the reasons set out above, the issuers most likely to benefit from (and therefore employ) 
the  EU  GBS  are  those  wishing  to  demonstrate  a  strong  green  commitment.  The  overall 
positive feedback from issuers to the targeted consultation indicates that there are many such 
issuers. A more detailed assessment of the impact of the link with the Taxonomy is carried 
out in section 6 – Preferred option.  

Transitional sectors in the Taxonomy  

Because  the  EU  Taxonomy  includes  transitional  sectors,  such  as  manufacturing,  proceeds 
from EU GBS could also be used to fund activities that are not low carbon. These sectors are 
included because there is a need to stimulate emission reductions even in those sectors where 
zero carbon is challenging or impossible to achieve today. At the same time, many of these 
sectors have significant potential for CO2 reduction.  

However, this inclusion creates a theoretical risk of undermining the green credibility of the 
standard,  in  particular  given  the  fact  that  the  leading  ambitious  green  bond  standard  on  the 
market, CBI, does not include such activities in its Taxonomy. At the same time, this risk is 
mitigated by the strict conditions impose by the Taxonomy Regulation, as also explained in 
annex 8.5, on those activities that may be considered transitional.  

In  particular,  in  order  to  be  considered  transitional,  activities  must  have  greenhouse  gas 
emissions that are substantially lower than the sector or industry average and they must not 
hamper  the  development  and  deployment  of  low-carbon  alternatives  or  lead  to  a  lock-in  of 
assets incompatible with the objective of climate-neutrality.  

For  green  bond  market  participants,  the  advantages  of  including  such  activities  are  clear: 
issuers  in  transitional  sectors,  which  has  been  an  underperforming  sector  for  green  bonds, 
will  have  clear  EU-sanctioned  definitions  of  green  to  underpin  their  green  bond  issuance, 
substantially  reducing  the  reputational  risk  of  issuing.  This  could  allow  issuers  that  are 
currently  wary  of  issuing  green  bonds  to  join  the  market.  For  investors,  the  EU  Taxonomy 
will provide clarity on what is considered best in class43, allowing those investors that wish to 
fund transitional activities to do so with more confidence in the greenness of their bond.  

Grandfathering 

The EU GBS proposal would envisage to allow issuers of existing green bonds to opt-in and 
designate their bond as an EU green bond, provided that all criteria for a new EU GBS bond 
are met. Green bonds that financed assets which do not meet the taxonomy criteria will not be 
able to carry the EU GBS designation. Deviating from this strict approach would undermine 
the  increased  transparency  and  consistency  (in  particular  as  concerns  the  green  definition) 
that the standard aims to achieve.  

43  For  example,  for  manufacturing  sectors  covered  by  the  EU  Emission  Trading  Scheme,  TEG  recommends 
using the ETS benchmark for free allocation for a sector (i.e. best 10% of carbon intensity) in order to specify 
the best performance in that sector. 

27 

 
 
                                                 
As concerns grandfathering in the case of subsequent changes to the taxonomy, the proposal 
could  stipulate  that  an  EU  green  bond  would  retain  this  designation  until  it matures  (=  full 
grandfathering),  even  if  a  later  amended  version  of  the  taxonomy  would  no  longer  classify 
the underlying asset or project as green. Options that would deviate from this approach have 
been excluded at an early stage (for more information, see Annex 13).  

5.3.1.  Policy options 

For non-sovereign green bond issuers, such as Corporates, there are two alternatives:  

1)  Option 1: EU GBS alignment voluntary for green bond issuers in the EU  

Under this option, issuers of green bonds would retain the freedom to decide whether to issue 
green bonds using the EU GBS or not. Should they choose to align with the EU GBS, they 
would have to meet  all the requirements under the standard. Other market  standards would 
still  be  available,  and  could  potentially  be  used  in  combination  with  the  EU  GBS.  For 
sovereign green bond issuers, this is the only alternative, since for legal reasons the standard 
cannot be made mandatory for these issuers. 

2)  Option  2:  EU  GBS  alignment  mandatory  for  non-sovereign  green  bond  issuers  in  the 

EU, with transitional phase in: 

The second option would be a mandatory standard for non-sovereign issuers, where all green 
bonds issued by such an issuer in the EU would need to make use of the EU GBS in order to 
be  able  to  be  called  a  green  bond.  The  option  of  a  mandatory  standard  also  covering 
sovereign  issuers  was  not  assessed  (see  Annex  13).  For  corporate  issuers,  the  mandatory 
alignment  with  the  EU  GBS  would  be  phased  in  over  a  defined  transitional  period,  with 
grandfathering of existing bonds to ensure that investors who have purchased green bonds in 
good  faith  are  not  penalised.  After  the  transitional  period,  any  green  bonds  that  are  issued 
without  being  aligned  with  the  EU  GBS  would  lose  the  right  to  label  themselves  as  green 
bonds in the EU.  

In  addition,  the  policy  option  of  “Flexibility  for  corporate  issuers  with  regards  to 
Taxonomy-alignment”  was  discarded  at  an  early  stage.  Annex  13  describes  the  policy 
option in detail, as well as the reasons for discarding it at an early stage. 

5.3.2.  How do the policy options compare? 

1)  Option 1: EU GBS alignment voluntary for green bond issuers in the EU  

PROs:  This  approach  minimises  the  risk  of  holding  back  the  market.  It  provides  issuers  of 
high quality green bonds with a dedicated standard to signal to investors their sustainability 
ambitions  or  achievements,  without  imposing  it  on  those  green  bond  issuers  who  are  less 
ambitious.  It  would  allow  use  of  the  standard  to  grow  over  time  in  line  with  market 
experience  with  the  use  of  the  taxonomy,  and  as  legal  requirements  for  Taxonomy-aligned 
disclosure  gradually  enter into force. Several  respondents  to  the targeted consultation  made 
the  comment  that  it  was  important  to  keep  the  standard  voluntary,  and  were  worried  that 
otherwise  existing  green  bonds  could  lose  their  status  as  green.  Depending  on  the 

28 

 
 
 
 
 
 
 
development  of  the  green  bond  market  and  the  success  and  take-up  of  the  EU  GBS,  its 
voluntary  nature  could  be  reviewed  (and  potentially  changed  to  binding)  after  a  certain 
amount of time.    

CONs:  Take-up  of  EU  GBS  may  be  limited  at  first,  or  permanently.  The  risk  of  green-
washing  and  potential  market  disruption  from  a  controversy  could  persist.  The  lack  of 
transparency and confusion about the green credentials of those green bonds not making use 
of  the  EU  GBS  would  continue.  Financial  flows  labelled  ‘green’  would  only  partially 
contribute to achieving the EU climate objectives.   

Impact  on 
issuers 

 

Issuers would be given an extra standard which they can make use of. This would in 
particular  benefit  issuers  of  high  quality  green  bonds,  as  the  EU  GBS  is  better 
tailored to such issuers. This would allow those investors the opportunity to better 
differentiate  themselves  from  the  market  competition,  which  could  contribute  to 
increasing  the  benefits  of  green  bond  issuance  for  those  issuers  (i.e.  reputational 
boost, green bond premium).  

  The  additional  cost  of  using  the  EU  GBS  would  be  lower  for  (1)  issuers  with  a 
higher existing share of Taxonomy-aligned assets on their balanced sheet, and (2) 
issuers falling under the scope of the current NFRD, the future revised NFRD, or 
the  SFDR  (for  financial  institutions),  who  would  all  be  required  to  disclose  their 
share of Taxonomy-aligned assets and expenditure. For those issuers, some of the 
costs  of  identifying  and  reporting  on  the  Taxonomy-aligned  assets  would  already 
have been incurred. 

 

  For issuers active in sectors underserved by existing market-based taxonomies (e.g. 
steel,  cement,  aluminium  or  chemicals)  the  link  to  the  EU  Taxonomy  in  the  EU 
GBS  may  persuade  some  of  them  to  issue  new  green  bonds  to  fund  mitigating 
measures in their manufacturing process44.  
In the targeted consultation, some respondents worried that the requirements would 
be difficult to meet for SMEs wishing to issue green bonds, especially with regards 
to reporting and external review. 
Investors  would  on  the  one  hand  be  faced  with  yet  another  standard,  which  may 
increase confusion and fragmentation of the market.  

 

  On the other hand, they would benefit from the existence of a green bond standard 
with high quality assurance, allowing them more easily identify high quality green 
bonds, and to be less exposed to the risk of greenwashing.  
Institutional  investors  wishing  to  bolster  the  green  credentials  of  their  portfolios 
would  have  at  their  disposal  a  new  tool  for  identifying  Taxonomy-aligned  bonds, 
and this should help for example with increasing the share of taxonomy-alignment 
for the purposes of disclosures to clients under the SFDR. 

 

  Ultimately,  this  could  also  help  retail  investors  access  more  high-quality  green 
investment opportunities, for example through bond funds whose assets include EU 
GBS aligned bonds.  

  External  reviewers  would  be  given  a  new  business  opportunity  as  registered 

reviewers of the EU GBS.  

  Even if a supervisory regime is set up, they would not be under any obligation to 
seek registration, as they would be free to continue serving other parts of the green 
bond market.  

Impact  on 
smaller 
issuers 
Impact  on 
investors 

Impact  on 
external 
reviewers 

Table 5: Impact of voluntary standard 

44 See annex 7 

29 

 
 
 
 
 
                                                 
2)  Option  2:  EU  GBS  alignment  mandatory  for  green  bond  issuers  in  the  EU,  with 

transitional phase in: 

PROs: The average quality of green bonds traded on EU markets would be higher. The clarity 
regarding green projects for all green bonds on the market would be higher. Investors would 
benefit from  reduced cost  of due-diligence. Financial flows labelled ‘green’ would strongly 
contribute  to  achieving  the  EU  climate  objectives  as  per  the  criteria  in  the  Taxonomy 
Regulation.  

CONs: There is a risk of constraining the market as the mandatory requirement is phased in. 
The Taxonomy remains untested in practice so it is difficult to assess the feasibility of using 
the  EU  GBS  for  current  green  bond  issuers.  There  is  a  strong  risk  of  issuance  and  trading 
moving  to  markets  in  third  countries,  especially  as  many  issuers  currently  cannot  comply 
with  the  Taxonomy  at  this  stage.  Only  a  very  small  group  of  respondents  to  the  targeted 
consultation (3 out of 167) called for a mandatory standard. 

Impact  on 
issuers 

Impact  on 
investors 

Impact  on 
external 
reviewers 

  Since  the  term  “green  bond”  would  be  reserved  for  green  bonds  aligned  with  the 
EU  GBS,  this  option  would  narrow  the  available  options  for  existing  and 
prospective  green  bonds  issuers.  They  would  have  the  choice  between  issuing  a 
green  bond  according  to  the  EU  GBS,  or  opting  for  another  type  of  bond or  debt 
instrument altogether. There would be no other forms of green bonds available.  
  For  those  issuers  who  are  not  able  to  identify  Taxonomy-aligned  assets  on  their 
balance  sheets,  or  willing  to  invest  in  Taxonomy-aligned  assets,  issuing  a  green 
bond in the EU would no longer be possible. For this reason, they may choose to 
issue under third country jurisdictions.  

  The  clarity  regarding  green  projects  for  all  green  bonds  on  the  market  would  be 

higher, which would reduce the risk of greenwashing.  

 

  However, the flow of green bonds would likely be reduced, at least in the short run, 
which  is  a  bad  outcome  for  investors,  given  the  current  high  demand  and 
oversubscription for green bonds.  
In  the  short  run,  the  flow  of  green  bonds  would  likely  be  reduced,  so  business 
opportunities would be reduced for external reviewers.  However, in the long run, it 
is  possible  that  business  opportunities  would  increase,  if  the  EU  GBS  leads  to 
increased  use  of  external  review,  especially  for  post-issuance  review  of  the 
Taxonomy-alignment of proceeds.  
If a supervisory regime is set up, all external reviewers of green bonds that wish to 
continue offering this service would need to seek registration under this regime. The 
costs of this for the reviewer will be assessed in section 5.4  

 

Table 6: Impact of mandatory standard with phase-in 

Comparison table: 

The following table summarises the assessment of the options against those objectives which 
are relevant for the green bond market: 

Clarifying and 
harmonising definitions 
of green projects and 

Option 1: Voluntary standard 
+ 
Depends on take-up. If EU GBS is 
used, it will help to disseminate 

Option 2: Mandatory standard 
++ 
EU Taxonomy and market best practices on 
reporting and external review would become the 

30 

 
 
 
 
 
 
 
procedures for issuance  Taxonomy and harmonise 

norm. Full harmonisation.  

definitions. Further fragmentation 
will be limited by alignment of EU 
GBS with market best practice.  

Reduce costs for issuers   0 

Efficiency (cost-
effectiveness) 

Impact on SMEs 

Other economic, 
environmental, social and 
fundamental rights 
impacts 

Coherence with EU 
policy objectives 

No net costs, as only those issuers 
who estimate a benefit from using 
standard would do so.  
+ 
Achieves objectives (partially) 
without imposing net costs on any 
issuers.  
0  
SMEs will be free to disregard the 
standard, but in some cases they 
may also be disadvantaged by not 
being able to afford to use the 
standard.  
+ 
Positive environmental impact and 
positive economic impact. Social 
safeguards are included in 
Taxonomy.  
++ 
Aligned with overall EU sustainable 
finance strategy and transition to 
carbon neutrality 

- 
While there may be a net benefit for some 
issuers, others may forego green bond issuance 
altogether. 
- 
Achieves objectives but imposes net costs on 
some issuers, and may end up disrupting 
market. 
- 
Some issuers may struggle to use standard due 
to market best practice requirements. 

+ 
Positive environmental impact but less positive 
economic impact, as there may be less green 
bond issuance. 
Social safeguards are included in Taxonomy. 
+ 
Aligned with overall EU sustainable finance 
strategy and transition to carbon neutrality, but 
market disruption may harm Capital Markets 
Union. (Issuers could choose to stop issuing 
green bonds altogether) 

5.4. 
GBS-aligned green bonds  

Policy  dimension  2:  Regulatory  treatment  of  external  reviewers  of  EU 

This  policy  dimension  assesses  two  potential  options  for  the  regulatory  treatment  of  third 
parties providing external review services to issuers of EU GBS-aligned green bonds, in light 
of the issues identified as part of problem driver 2.4.145   

Stakeholder  feedback  to  both  the  RSFS  public  consultation  and  the  EU  GBS  targeted 
consultation  indicated broad market  support for  an external  reviewer regime46.  In the RSFS 
public  consultation,  a  significant  majority  (78.8%  of  141  responses)  supported  the 
introduction of a certification and supervision regime for external reviewers administered at 
the EU level.  At the same time, respondents highlighted the importance of proportionality in 
any new regime to ensure that smaller entities can continue to provide these services.   

The introduction of a formalised regime for external reviewers would be a forward-looking 
and pre-emptive action.47. So far, there are no significant issues identified in the market for 
external  review  of  green  bonds,  which  in  any  case  is  still  quite  small,  with  annual  revenue 
estimated between EUR 5 million and EUR 10 million.  But  the market  for EU GBS bonds 

45 Heterogeneity, lack of transparency, and potential issues relating to conflicts of interest in the external review 
market 
46 See Annex 2 for more info on stakeholder feedback.  
47 Preliminary ESMA market estimations, based on an average fee of EUR 40,000 per issuer and overall green 
bond issuance of EUR 490 billion 

31 

 
 
 
 
 
 
 
                                                 
does not yet exist, so it is impossible to say for certain what issues may be encountered in the 
external review market for such EU GBS bonds.  

In  particular,  the  potential  regime  for  external  reviewers  would  aim  to  raise  overall  trust 
levels in the external review process  and the protection of the integrity of the EU GBS. By 
raising  the  level  of  trust  in  the  market,  investors  will  be  able  to  more  easily  identify  green 
high  quality  green  bonds,  which  will  support  the  further  development  and  growth  of  the 
market.  Integrity  is  particularly  important  for  the  EU  GBS,  since  it  will  cater  to  the  higher 
quality segment of green bonds, thanks to its alignment with the EU Taxonomy and market 
best practice.  

Imposing  a  framework  on  all  external  reviewers  would  undermine  the  voluntary  approach 
being taken for the EU GBS which is intended to only be used by those market players that 
fully support its objectives and are willing to bear the additional cost or administrative burden 
to deliver meaningful and trustworthy green investments to the market. 

In  the  same  vein,  the  TEG  recommended48  the  establishment  of  a  regime  to  promote  the 
development  of 
the  quality  and 
standardisation  of  the  review  process  for  the  EU  GBS,  while  ensuring  a  level  playing  field 
across  the  Union  and  meet  the  high  demand  from  investors  seeking  quality  green  financial 
assets.  

the  European  green  bond  market  by 

improving 

The  framework  should  build  upon  the  existing  pool  of  service  providers  while  ensuring  a 
level-playing  field  for  companies  that  have  the  relevant  skills  to  provide  external  review 
services. The calibration of the framework’s requirements are key to ensuring that it does not 
act as a disincentive for firms to register or force smaller firms out of the market.  It is also 
important  to  consider  the  resource  requirements  at  supervisor  level  to  minimise  costs  and 
resource demands to administer the new scheme.  

In order to support the entry of smaller participants into the market, the framework must be 
proportionate  in  its  requirements  in  order  to  reflect  the  nature  and  scale  of  activity.  By 
including  proportionality  measures  and  limiting  the  framework’s  requirements  that  would 
necessitate organizational changes and require additional financial resources, risks associated 
with  insufficient  competition  can  be  avoided.  Such  risks  include  higher  prices  or  other 
barriers to entry, and inadequate choice for smaller issuers. 

As the market grows in size and importance or if specific issues arise regarding the conduct 
of  external  reviewers  more  generally,  the  framework  could  be  reviewed  and  extended  to 
encompass  all external  reviewers or could  be incorporated into other potential  Commission 
initiatives to improve supervision of entities in the green market more generally. 
While  the  majority  of  existing  external  reviewers  are  based  in  the  EU,  provision  could  be 
made  in  the  proposed  framework  to  facilitate  third  country  reviewers  that  wish  to  assess 
compliance with the EU GBS. Existing frameworks contain equivalence provisions or allow 
for certification or endorsement of third country entities49. 

48 June 2019 TEG report on an EU GBS 
49 Additional information is contained in the External Review Annex. 

32 

 
 
 
 
 
 
 
                                                 
5.4.1.  Policy options 

With  regard  to  a  potential  regulatory  regime  for  external  reviewers,  the  two  main  policy 
options are: 

1)  Registration and limited supervisory oversight and requirements: This option consists of 
tasking  ESMA  with  registering  external  reviewers  of  the  EU  GBS,  which  would  require  a 
legislative  instrument.  Under  this  approach,  external  reviewers  would  be  required  to  only 
register with ESMA with limited ongoing supervisory requirements.  

2)  Authorisation and supervision with more stringent requirements: This option consists of 
tasking  ESMA  with  authorising  and  supervising  external  reviewers  of  the  EU  GBS,  which 
would require a legislative instrument. This approach entails a more stringent framework for 
the authorisation and supervision of external reviewers. 

In  addition,  the  policy  option  of  “tasking  national  competent  authorities  (NCAs)  with 
managing  a  regime  for  external  reviewers”  was  discarded  at  an  early  stage.  Annex  13 
describes the policy option in detail, as well as the reasons for discarding it at an early stage. 

5.4.2.  How do the policy options compare? 

1)  Option 1: ESMA registration with limited ongoing supervision 

The  framework  for  external  reviewers  of  the  EU  GBS  could  set  out  requirements  on  their 
minimum professional conduct, transparency and registration and supervision. For example, 
external  reviewers  could  be  subject  to  requirements  on  professional  ethics,  good  repute, 
objectivity,  independence  and  conflicts  of  interest,  and  be  required  to  demonstrate  and 
maintain professional minimum qualifications, quality assurance and control and be required 
to follow specific procedures when carrying out verification activities, in particular whether 
bond  proceeds  have  been  used  to  finance  Taxonomy  aligned  expenditures.  In  order  to  be 
registered,  the  external  reviewer  would  need  to  demonstrate  that  it  only  charges  non-
discriminatory and cost-based fees to issuers and that its fees are not dependent on the results 
of its assessment activities.  

The external reviewer would be required to ensure that the members of its management body 
have appropriate levels of qualification and expertise to fulfil its tasks and that they conduct 
their  activities  with  integrity  and  good  repute.  The  external  reviewer  should  have  proper 
operational  safeguards  and  internal  processes  that  enable  it  to  assess  the  compliance  of  a 
green bond with the EU GBS requirements.  

With regards to  conflicts of interest, there could  be specific requirements to ensure that the 
external  reviewer  and  its  employees  are  independent  from  the  issuer  and  the  verification  is 
carried  out  objectively,  independently  and  is  not  affected  by  any  existing  or  potential 
conflicts  of  interest  or  business  relationship.  Potential  or  existing  conflicts  of  interest  that 
have  been  identified  should  be  eliminated  or  mitigated  and  disclosed  without  delay.  The 
reviewer would also be required to document its relevant policies and procedures in order to 
evaluate  their  effectiveness.  The  designated  competent  authority  would  be  empowered  to 
investigate and take enforcement action if necessary to ensure the integrity of the market and 
the EU GBS. 

33 

 
 
 
 
 
 
The approach for registration and supervision of external reviewers could be similar to  that 
for  third  party  verifying  STS  compliance50.  This  would  allow  for  the  registration  of  an 
external reviewer with a designated competent authority, in order to register them to assess 
the compliance of a green bond with the EU GBS and to carry out post-issuance verification 
of  the  use  of  proceeds.  A  current  list  of  registered  external  reviewers  and  green  bonds  that 
have been issued with an SPO (Second Party Opinion) on their compliance with the EU GBS 
requirements could be provided on an official website maintained by ESMA.  

PROs:  This  approach  would  have  the  benefit  of  a  single  registration  process  for  external 
reviewers with  a limited ongoing supervisory burden. The framework would  be based on  a 
set  of  proportionate  requirements  covering  professional  conduct  and  transparency  of  the 
external  reviewer’s  policies  and  procedures  that  the  designated  competent  authority  would 
assess an application against. These requirements would be proportionate to the current size 
of  the  external  reviewers,  the  general  market  and  the  non-systemic  nature  of  their  activity. 
This approach would minimise the cost and resource implications for both external reviewers 
and  the  designated  competent  authority  whilst  increasing  accountability  and  market 
transparency. 

CONs:  Under  this  option,  external  reviewers  would  not  be  subject  to  more  stringent 
requirements  covering  their  organisational  structure  and  financial  resources.  This  might 
create  the  risk  that  the  external  reviewer’s  activity  is  of  lower  quality,  which  could  lead  to 
increased reputational risk for issuers and negatively impact the reputation of EU GBS bonds. 
Less  intensive  ongoing  supervision  would  limit  the  ability  of  the  designated  competent 
authority  to  actively  detect  and  intervene  in  the  event  of  a  failure  to  comply  with  the 
requirements of the framework by an external reviewer.  

Impact 
on 
reviewers 

•  This option could impose initial compliance costs for reviewers, because they will 
have to fulfil a number of on-boarding requirements, including paying an initial 
application fee, set under the registration process which they may not necessarily do 
at the moment. 

•  They have to pay a fee for registration.  
•  There will only be limited costs for ongoing supervision. For example, 1 FTE may be 

required for compliance purposes. 

•  Registration is mandatory only for reviewers of EU GBS bonds.  
•  While existing industry-based green bond standards might evolve and incorporate the 
Taxonomy, only issuers of EU GBS bonds will be able to show that their external 
reviewers are registered and supervised. Registering will allow external reviewers to 
access the additional business segment of verifying bonds issued according to the EU 
GBS. It will also give a proof of quality comparative advantage over those reviewers 
that chose not to register when competing for verification business in the segment of 
industry-based green bond standards. 
•  1 – 1.5 FTE for compliance activity.  
• 
•  Ongoing supervision EUR 500 to EUR 2,000 per year. 
• 

Initial application fee between EUR 1,500 and EUR 5,000. 

Issuers may have to pay more, because reviewers might pass on their compliance 
costs to them. 
If issuers do not want to pay for external review, they can choose to follow other 
practices or market standards as the EU-GBS is a voluntary standard.  

• 

Impact 
on 
issuers  

•  The TEG expects that, even if only voluntary, the EU-GBS would rapidly gain 

50 Article 28 of Securitisation Regulation (EU) 2017/2402 

34 

 
 
                                                 
significant market recognition. Investors may expect issuers to use the EU GBS and 
this may lead to a market preference or pricing advantage over other standards. 
•  Non-compliance with the verification standards entails a reputational cost for the 
company. It is reasonable to assume that external verification provides a stronger 
signal to investors of the environmental commitment of the green issuers than a self-
attributed green label. 

•  The  benefits  for  investors  are  dependent  on  the  types  of  requirements  that  will  be 
imposed  on  external  reviewers.  For  instance,  investors  will  benefit  from  more 
credible external reviews where the independence, objectivity and quality assurance 
of  the  service is  guaranteed  by  the  framework.  Greater  standardisation  of  reporting 
templates would improve transparency and comparability. Investor confidence in the 
integrity and independence of the process would be enhanced. 

•  ESMA would require additional resources to carry out supervisory tasks with a one-

off cost to cover the development of the IT platform.  

•  According to the TEG, even under a scenario that assumes strong and continued 

growth in the green bond market the number of external reviewers to be registered is 
expected to remain relatively small51 implying that the additional supervisory 
resources required would also be limited. 

•  <0.3 FTE per regulated entity. 1-2 FTE for database and ICT development and 

Impact 
on 
investors 

Impact 
on 
budget 

EU 

maintenance.  

Table 8 - Impact of centralised registration by ESMA 

2)  Option  2:  ESMA  Authorisation  with  more  stringent  ongoing  supervisory  oversight 
and requirements: 

Under  this  approach,  external  reviewers  of  the  EU  GBS  would  be  required  to  submit 
significant  information  on their business  plans, organisational  and resourcing arrangements, 
governance structures, policies and procedures for ensuring compliance with the Regulation 
and  their  assessment  methodologies.  Once  an  application  is  deemed  complete,  the 
supervising  body  would  then  have  to  carry  out  a  detailed  analysis  to  ensure  it  meets  the 
Regulation’s requirements before submitting a decision on authorisation to ESMA’s Board of 
Supervisors  or  the  NCAs’  Board.  A  fee  would  be  payable  to  submit  the  application  and 
reviewers would be subject to ongoing supervisory fees depending on their size and turnover. 

This  approach would be similar to that taken in the Credit Rating Agency Regulation  (EU) 
462/2013  with  stringent  requirements  imposed  on  external  reviewers  that  wish  to  provide 
services to issuers of the EU GBS. 

In  this  regard,  it  is  important  to  note  the  key  differences  between  CRAs  and  external 
reviewers  –  CRAs  are  systemically  important  entities  relied  upon  by  the  market  to  issue 
independent ratings on the creditworthiness of a financial instrument. The determination of a 
rating  is  a  complex  and  detailed  process  requiring  forecasting  and  modelling  of  potential 
impacts  of  changes  in  market  conditions  or  in  the  underlying  assets.  Credit  ratings  have 
significant implications for the pricing of an instrument. 

In the case of credit ratings, there are requirements in the EU legislations (CRR, Solvency II) 
related to the use of credit ratings in the process of determination of the amount of regulatory 
capital.  Credit  ratings  therefore  have  an  impact  on  the  type  and  amount  of  financial 

51 Currently only six external review providers account for more  than ¾ of the market. CICERO:  “Milestones 
2018. A practitioner’s perspective on the Green Bond Market”, 2018 (Link) 

35 

 
 
 
 
                                                 
instruments that credit institutions and insurance undertakings need to hold for the regulatory 
purposes. 

In  contrast,  external  reviewers  operate  in  a  niche  market  for  green  bonds,  and  while  their 
opinions  are  an  important  source  of  assurance  for  investors  and  issuers  regarding  the 
sustainability of their investments, the activity is non-systemic and has limited pricing impact 
on the final price of the bond. 

PROs:  This  approach  would  have  the  benefit  of  a  single  authorisation  process  for  external 
reviewers and harmonised supervision across the union. It could improve standardisation and 
quality  of  the  external  review  process  and  transparency  for  issuers  and  investors  about  the 
activities of external reviewers.   

CONs: ESMA or the designated national bodies will require additional resources to establish 
and administer this new process, and it will take time to complete the legislative process to 
grant  the  necessary  powers  to  ESMA  or  the  designated  national  bodies.  A  comprehensive 
framework would create significant additional costs for external reviewers and ESMA or the 
designated national bodies. A more stringent framework, similar to the Credit Rating Agency 
Regulation, is not proportionate given the size of the market and the non-systemic nature of 
their activities. 

Impact 
on 
reviewers 

•  This option would impose higher compliance costs for reviewers, because they will 
have to fulfil the requirements set under the supervision framework, which they may 
not necessarily do at the moment. 

•  They will have to pay a fee for registration  
•  They will have to bear costs for ongoing supervision.   
•  They would have to incur organisational and resource costs to comply with the 

framework. For example, a minimum headcount of 5 FTEs is required for a small 
entity to be able to comply with the full CRA framework. Based on average salary of 
EUR 50,000 to EUR 90,000 this would be approximately EUR 250,000 to EUR 
350,000. 

•  Authorisation would be mandatory only for reviewers of the EU GBS bonds.   
•  Given the small size of the market for external review in terms of annual total 
revenue, external reviewers may not see the benefits of seeking authorisation 
compared to the costs they have to bear for it.  

•  This approach could favour larger entities in particular CRAs that are active in the 
space and can more easily comply with the requirements. The overall burden of the 
new regime could be too much for smaller entities. 

•  ESMA application fees under the CRA Regulation range from EUR 30,000 to over 

EUR 100,000 for larger entities.  Ongoing supervision costs of up to EUR 20,000 per 
year. 

36 

 
• 

• 

Impact 
on 
issuers 
(larger 
entities) 

Issuers may have to pay more, because reviewers might pass on their compliance 
costs to them 
If issuers do not want to pay for external review, they can choose to follow other 
practices, because the EU-GBS is a voluntary standard. However, the TEG believes 
that, even if only voluntary, the EU-GBS could rapidly gain market recognition and 
become the new standard for green bonds.  Investors may have a preference for EU 
GBS aligned green bonds. 

Impact 
on 
issuers 
(smaller 
entities) 

Impact 
on 
investors 
Impact 
on 
budget 

EU 

•  Non-compliance with the verification standards entails a reputational cost for the 
company. Hence, it is plausible to assume that external verification provides a 
stronger signal of the environmental commitment of the green issuers than a self-
attributed green label. 

•  At least 1 authorised external reviewer would be required to provide the necessary 
SPO and/or post-issuance reporting.  If the compliance costs are too high there is a 
risk that no external reviewers seek authorisation which would have a significant 
impact on the ability of issuers to issue bonds under the EU GBS. 

• 

If smaller entities are forced out of the market by larger entities, this leads to market 
concentration of external reviewers, which could lead to higher costs for issuers 
•  The EU-GBS is a voluntary standard, so smaller entities can also choose to follow 
other practices in order to avoid any additional costs of the EU GBS framework.  

•  The TEG expects that, even if only voluntary, the EU-GBS would rapidly gain 

significant market recognition. Investors may expect issuers to use the EU GBS and 
this may lead to a market preference or pricing advantage over other standards. 
•  Non-compliance with the verification standards entails a reputational cost for the 
company. Hence, it is plausible to assume that external verification provides a 
stronger signal of the environmental commitment of the green issuers than a self-
attributed green label. 

  Investors will benefit from more credible and comparable external reviews 

•  ESMA will require additional resources to carry out supervisory tasks. Initial 

estimates based on the approach taken with CRAs indicates a requirement of 0.3 FTE 
per authorised entity. The associated development and maintenance of IT systems 
and databases could require up to 2 FTE. Based on an assumption of 10 regulated 
entities the annual cost of supervision would range from EUR 1.1 million in year 1 to 
EUR 850,000 from year 2 onwards.  The additional cost in year 1 is to cover the cost 
of associated ICT development 

•  The implied cost of the decentralised regime would be a multiple of the resource 

requirements indicated for ESMA as each competent authority would need to recruit 
additional staff and build the necessary IT systems. 

•  ESMA envisages environmental issues as becoming part of its mandate going 

forward. For example, ESMA has been asked to build capacity on sustainability for 
other purposes (MiFID II; fiduciary duty). Additional green expertise and capacity 
within ESMA will be required, but can be used for multiple supervisory purposes. 
ESMA also participated in the work of the TEG and supports taking on this new role.  

•  Differing approaches at national level could lead to divergence between Member 

States. Some Member States may also lack the necessary expertise and knowledge to 
effectively carry out these functions at the national level or may not have a suitable 
existing body to designate. 

Table 9- Impact of centralised authorisation and supervision by ESMA 

37 

 
 
Comparison table 

The following table summarises the assessment of the options against the objectives set out in 
section: 

Harmonising outcomes, 
improving transparency and 
addressing conflicts of 
interest in the external 
review market 

Option 1 
++ 
Improved transparency and accountability 
Better informed investment decisions 
Cost savings from having to gather, assess 
and compare information 

Reduce costs for external 
reviewers  

Efficiency (cost-
effectiveness) 

Impact on SMEs 

Other economic, 
environmental, social and 
fundamental rights impacts 

Coherence with EU policy 
objectives 

- 
Increased supervisory and organisation 
costs due to additional compliance 
activities 
+ 
Improved reliability, usability and 
comparability of reports and data reducing 
costs for issuers and investors 
Documented policies and procedures for 
addressing conflicts of interest reducing 
level of investor research required 
Mitigates against potential reputational 
damage for issuers and reviewers or need 
to seek multiple external reviews 

- 
Increased costs may be passed on to issuers 
which proportionally would have a greater 
impact on smaller issuers such as SMEs.  
Smaller reviewers would also be impacted 
to a greater extent by increased supervisor 
and compliance costs. 
++ 
Behavioural changes of companies to be 
more sustainable 
Increased investment flows to sustainable 
projects and companies 
++ 
Aligned with overall EU sustainable 
finance strategy and transition to carbon 
neutrality 

Option 2 
+++ 
Improved transparency and 
accountability 
Better informed investment decisions 
Cost savings from having to gather, 
assess and compare information 

-- 
Increased supervisory and organisation 
costs due to more stringent compliance 
requirements 
-- 
Limited size of current market and 
non-systemic nature of the activity 
reduce the efficiency benefit of more 
stringent measures as the imposed 
costs would be outsized in comparison 
to the perceived risks 
The significant additional costs in 
terms of the minimum FTE 
requirement for compliance may 
discourage firms from seeking 
authorisation 
-- 
Additional supervisory costs may be 
passed on to issuers Smaller reviewers 
would also be impacted to a greater 
extent by increased supervisor and 
compliance costs. 

++ 
Behavioural changes of companies to 
be more sustainable 
Increased investment flows to 
sustainable projects and companies 
++ 
Aligned with overall EU sustainable 
finance strategy and transition to 
carbon neutrality 

Costs under option 3 are based on the application of a regime based on the CRA Regulation.  
Option 2 is costed relative to this. 

5.5.  Policy dimension 3: Flexibility for sovereign issuers52 

Sovereigns  are  important  issuers  of  green  bonds:  public  sector  green  bond  issuances 
represented  more  than  one  third  of  global  issuances  of  green  bonds  in  201853.  In  order  to 
cover the market for green bonds, the EU GBS should also cater to sovereigns. This section 

52 (see annex 10 on sovereign bonds for more details). 
53 Moody’s Investor Services: “2019 Global Green Bond Outlook”, 2019 (Link) 

38 

 
 
 
 
                                                 
explores the extent to which specific flexibility in meeting the requirements of the EU GBS is 
justified to allow sovereigns to make use of the standard on a voluntary basis.   

The  TEG  proposed  that  the  EU  GBS  should  apply  equally  to  private  and  public  (including 
sovereign) issuers. In their report, they specified that green expenditures for sovereigns and 
sub-sovereigns  could  include  relevant  public  investments,  subsidies  and  expenditures.  This 
section  will  focus  exclusively  on  the  case  of  a  voluntary  EU  GBS  for  sovereign  issuers  – 
there is no policy option for a mandatory standard for sovereign green bonds, as the chosen 
legal basis – Article 114 TFEU – does not warrant such type of legislative action (see Annex 
13 – discarded options).  

Specificities of sovereign issuers 

The process of issuing a Sovereign green bond is similar to that of issuing a corporate green 
bond,  with  some  specificities.  Stakeholders  have  mentioned  the  following  particularities  of 
Sovereign green bond issuers, and how it might affect their use of the EU GBS:  

  Types  of  expenditure  funded:  Although  Sovereign  green  bonds  may  directly  finance 
tangible  assets  such  as  infrastructure,  they  also  target  more  indirect  and  decentralised 
expenditures,  such  as  subsidies  and  operational  expenditures.  Intangible  assets,  such  as 
research and innovation, also appear more frequently in sovereign bonds than corporates.  
  Lack of project level overview of impacts: It may be difficult for a sovereign to state with 
certainty  that  all  items  funded  are  aligned  with  the  Taxonomy,  in  particular  the  Do  No 
Significant  Harm  (DNSH)  criterion.  Sovereigns  typically  fund  grant  schemes,  and  are  not 
always  in  the  supply  chain  for  individual  projects.  Energy  efficiency  grants  which  are 
distributed to firms in many different industries were mentioned as a potential example.  
  A  preference  for  state  auditors:  public  issuers  may  prefer  to  use  existing  state  agencies 
specialised  in  government  accounts  rather  than  external  third  parties  for  the  review  of  the 
allocation of bond proceeds.  

  Legal  restrictions  on  committing  unspent  proceeds:  In  some  cases,  a  forward-looking 
approach  to  the  allocation  of  green  funds  is  not  possible.  This  could  be  for  example  if  the 
Green  Bond  Framework  of  a  sovereign  issuer  cannot  commit  a  Parliament  or  pre-empt  the 
final decision on the allocation of state funds. 

This means that two types of flexibility may be relevant for Member States wishing to apply 
the EU GBS: flexibility linked to the EU Taxonomy Regulation (i.e. on use of proceeds) and 
flexibility linked to other requirements. These two will now be discussed in order. 

1)  Flexibility linked to the EU Taxonomy Regulation 

In its draft report on the EU GBS, the TEG advocated for the inclusion of a limited degree of 
flexibility  related  to  the  specific  technical  screening  criteria  set  out  in  the  Taxonomy 
Delegated  Acts,  by  relying  on  the  fundamental  principles  of  the  Taxonomy  Regulation  to 
verify that investments align with the Taxonomy (the “TEG approach”). This was justified by 
the need to  handle  gaps  in  the gradual  development  of the Taxonomy,  and areas where the 
criteria  would  not  directly  applicable,  such  as  outside  the  EU’s  borders  or  for  particularly 
innovative projects.  

While  Member  States  that  responded  to  the  targeted  consultation  on  the  EU  Green  Bond 
Standard were in general supportive of the core components of the EU GBS as proposed by 

39 

 
 
 
 
the  TEG,  and  especially  of  the  alignment  with  the  Taxonomy,  a  number  of  Member  States 
also agreed with the TEG’s proposal for flexibility. 

However,  there  is  an  important  legal  dimension  to  the  question  of  flexibility  from  the 
requirements  of  the  EU  Taxonomy  Regulation.  Article  4  of  The  EU  Taxonomy  Regulation 
specifies that: “Member States and the Union shall apply the same criteria set out in Article 3 
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. “  

Given that the EU GBS initiative will pursue, as its core objective, the aim of delineating the 
boundaries of what shall constitute an ‘environmentally sustainable’ bond, the EU Taxonomy 
will need to be applied fully to determine the eligibility of the proceeds of the bond issuance, 
for corporate issuers. This excludes the type of flexibility suggested by the TEG for corporate 
bonds. 

However, although the EU is not legally allowed to deviate from the Taxonomy Regulation 
when  setting  out  standards  for  green  bonds  issued  by  corporates54,  this  restriction  does  not 
apply  in  the  case  of  Sovereign  issuers.  Accordingly,  there  is  legal  scope  for  affording 
flexibility around the definition of eligible green proceeds for potential sovereign issuers of 
EU GBS green bonds. Two such potential flexibility approaches are explained below.  

1)  “Flexibility pocket” approach 

One potential approach is to allow Sovereign issuers to include as proceeds in their EU GBS-
aligned  bond  expenditure  that  has  a  positive  environmental  impact,  but  is  not  Taxonomy 
aligned.  Under such a “flexibility pocket” approach, the proceeds of the sovereign EU GBS 
bond would be clearly divided into two parts: one part that would be 100% aligned with the 
criteria  of  Article  3  of  the  Taxonomy  Regulation,  and  a  second  part  (the  “pocket”)  where 
there would be flexibility to diverge from the Taxonomy.  

The size of this pocket would be capped, and subject to some minimum criteria: for example, 
only economic activities not covered by existing Technical Screening Criteria under the EU 
Taxonomy,  because  those  criteria  are  not  yet  developed  for  a  specific  sector  or  a  specific 
environmental objective, would be eligible for the flexibility pocket. Furthermore, economic 
activities  would  still  need  to  (i)  substantially  contribute  to  one  of  the  six  environmental 
objectives as set out in the Taxonomy Regulation, (ii) do no significant harm to any of these 
objectives, and (iii) meet the minimum safeguards of the Taxonomy Regulation. The projects 
in the flexibility-pocket would not be considered Taxonomy-aligned.  

The separation into two parts would facilitate the task for financial institutions holding these 
bonds  of  disclosing  Taxonomy-alignment  under  the  Sustainable  Finance  Disclosures 
Regulation.55  Any  use  of  flexibility  would  be  accompanied  by  appropriate  disclosures,  to 
ensure that investors are fully aware of its extent, and can discount the Taxonomy-alignment 
of the bond accordingly.  

54 Cf. Article 4 of the Taxonomy Regulation, see discarded options 
55  Regulation  (EU)  2019/2088  of  the  European  Parliament  and  of  the  Council  of  27  November  2019  on 
sustainability‐ related disclosures in the financial services sector (Link) 

40 

 
 
 
 
 
 
 
 
                                                 
Member  States  were  consulted  on  the  “flexibility  pocket”  approach  using  a  targeted 
questionnaire (see Annex 9 for full results).  

2)  Applying the “TEG approach” only to sovereign issuers: applying the Taxonomy by relying 

on its fundamental principles  

Another  potential  approach  would  have  been  to  follow  the  TEG  approach  outlined  on  the 
previous page, but only for sovereign issuers.  

In  practice  this  approach  could  lead  to  certain  paradoxical  outcomes:  given  that  sovereigns 
and  corporates  often  ultimately  fund  the  same  economic  activities,  flexibility  in  the 
application  of  the  Taxonomy  could  lead  to  inconsistencies.  In  particular,  such  flexibility 
could lead to the exact same economic activity being judged differently based on the source 
of its funding. 

For example, a project outside the EU could potentially be deemed Taxonomy-aligned while 
an identical one inside the EU would not be. Or a project in a sector not yet covered by the 
Taxonomy could be deemed Taxonomy-aligned if it’s funded by a sovereign, but not if it’s 
funded by a corporate. This could lead to unwanted outcomes, such as allowing public actors 
to  crowd  out  private  actors  by  being  able  to  offer  “Taxonomy-aligned”  funding  where  the 
private  sector  is  not.  In  order  to  avoid  this  inconsistency,  it  is  not  recommended  to  give 
sovereigns  the  flexibility  to  interpret  or  apply  the  Taxonomy  differently  to  corporates.  For 
these  reasons,  Member  States  were  not  actively  consulted  on  the  “TEG  approach”  to 
flexibility. 

2)  Flexibility linked to other requirements 

Taking  into  account  the  issues  mentioned  by  sovereign  respondents  to  the  consultation, 
potential  flexibility  for  sovereign  green  bond  issuers  could  also  be  possible  with  regards  to 
other aspects, such as the reporting and review requirements of the EU GBS. In particular, the 
following types  of flexibility could  be considered for sovereign issuers of EU GBS-aligned 
green bonds:  

  Allowing, if necessary, sovereign issuers and the reviewers of their EU  GBS-aligned  green 
bonds  to  assess  the  alignment  with  the  criteria  of  the  Taxonomy  Regulation  based  on  the 
terms and conditions of funding programmes, rather than at project level. This could greatly 
facilitate the process of assessing Taxonomy-alignment for sovereigns, especially in case of 
government  programs  funding  multiple  projects  according  to  Taxonomy-aligned  terms  and 
conditions.  

  Allowing sovereign issuers to rely on internal state auditors instead of external third parties 

for the review of the allocation of proceeds.  

5.5.1.  Policy options 

Based  on  this  feedback,  the  following  three  options  are  proposed  to  grant  flexibility  to 
sovereign issuers wishing to  make use of the EU GBS when  compared to  the requirements 
for private issuers:  

-  Option 1: No flexibility compared to corporate issuers 

41 

 
 
 
 
 
 
 
 
 
 
-  Option 2: Flexibility regarding other requirements, but not the EU Taxonomy 

Regulation) 

-  Option 3: Flexibility regarding other requirements and the EU Taxonomy Regulation 

These options are cumulative in the level of flexibility, i.e. option 3 includes the flexibility of 
option  2  but  goes  further  by  adding  flexibility  on  taxonomy  requirements.  Keeping  this  in 
mind,  the  following  assessment  will  focus  on  the  impact  of  the  additional  flexibility 
introduced for each option.  

5.5.2.  How do the policy options compare? 

1)  Option 1: No flexibility compared to corporate issuers  

PROs: Full consistency. No preferential treatment of the public sector. The credibility of the 
standard will be boosted.  

CONs: Additional difficulties for sovereign issuers to make use of the EU GBS.  

Impact  on 
sovereigns 

Impact of no EU Taxonomy Regulation-related flexibility:  
Sovereigns wishing to use the EU GBS would need to comply fully with the Taxonomy. 
Depending on when the EU GBS is adopted, sovereigns may struggle at first to identify 
enough Taxonomy-aligned expenditure to justify issuing an EU GBS bond. But the time 
it will take co-legislators to negotiate and adopt the EU GBS (estimated Q2 2022) may 
give some MS the time to make the necessary preparations.  

Sometimes  it  may  be  the  case  that  MS  have  expenditure  which  is  green  and  of  equal 
ambition  to  something  which  would  be  Taxonomy-aligned,  but  still  not  Taxonomy 
aligned due to differences with the Taxonomy TSCs. In such cases, MS would need to 
adapt  their  sustainable  expenditure  (e.g.  relevant  funding  programs)  to  ensure 
Taxonomy  alignment.  In  the  medium  to  long  run  this  could  lead  to  more  Taxonomy-
alignment  in  general,  as  it  would  also  incite  the  private  sector  to  follow  suit.  In  the 
meantime, sovereigns could also chose to follow other standards, as in any case the EU 
GBS would be voluntary for sovereigns.  

Impact of no flexibility on other aspects:  
Sovereigns wishing to use the EU GBS would also need to comply fully with the EU 
GBS-related  requirements  for  corporate  issuers,  including  on  external  review,  project-
by-project reporting, and refinancing.  
-  On  project-by-project  reporting,  it  is  likely  that  the  lack  of  this  flexibility  would 
cause  significant  hindrances  for  MS  issuers,  as  they  are  not  used  to  proving 
alignment by assessing every single project, and they gave quite strong support for 
this flexibility in their stakeholder feedback. 

-  On external review, only a couple of sovereign issuers have made not made use of 
external  third  parties,  so  the  loss  of  this  flexibility  would  mean  that  only  a  small 
minority of MS would need to adapt their practices.   

Impact  on 
corporates 

Impact  on 
investors 

Corporates issuing the EU GBS would benefit from a level playing field with sovereigns 
in  terms  of  use  of  proceeds.  In  particular,  this  means  that  they  would  not  be 
disadvantaged when seeking to finance green expenditure using the EU GBS.  
Investors would benefit from full clarity as there would be no exceptions for sovereigns. 
They would be able to treat sovereign EU GBS bonds as fully Taxonomy aligned, even 
at the individual project level.  

42 

 
 
 
 
 
 
 
However it is also likely that sovereign issuance of EU GBS would be lower under this 
option, meaning that there would be fewer bonds to meet the demand for high quality 
green bonds.  

Table 10- Impact of no flexibility option 

2)  Option  2:  Flexibility  regarding  other  requirements,  but  not  the  EU  Taxonomy 

Regulation 

PROs:  Consistency  with  regards  to  the  Taxonomy.  Coherent  definitions  of  what  is  green. 
Flexibility on EU GBS requirements overcomes the main obstacles sovereigns would face in 
using  the  EU  GBS.  Feedback  from  MS  shows  that  they  are  mostly  in  favour  of  flexibility 
related to other (i.e. non Taxonomy-related) requirements.  

CONs: Sovereigns may struggle to apply the Taxonomy 100%, which would be challenging 
for them and may limit their use of the EU GBS.  

Impact  on 
sovereigns 

Impact of no Taxonomy-related flexibility:  
Similar to option 1.  

Impact of flexibility with regards to other requirements: 
Sovereigns wishing to use the EU GBS would be given flexibility with regards to other 
including  on  external  review,  project-by-project  reporting,  and 
requirements, 
refinancing. 
-  On project-by-project reporting, the additional flexibility will help MS that wish to 
issue green bonds to fund decentralised spending programmes, such as subsidies for 
renewable  energy  installation  or  energy  efficiency  measures.  The  flexibility  to 
assess  government  spending  programmes  based  on  their  terms  and  conditions, 
instead of assessing each of the individual projects funded, would greatly facilitate 
the  process  of  assessing  Taxonomy-alignment  for  sovereign  issuers,  and  could 
support increased sovereign use of the EU Taxonomy. 

-  On external review, those MS who wish to do so will be able to make use of their 

state auditors to review allocation reports.  

Impact  on 
corporates 

Impact  on 
investors 

Despite some flexibility given to sovereigns, corporates issuing the EU GBS would still 
benefit  from  a  level  playing  field  with  sovereigns  in  terms  of  use  of  proceeds.  In 
particular,  this  means  that  they  would  not  be  disadvantaged  when  seeking  to  finance 
green expenditure using the EU GBS. 
Investors would benefit from full clarity on use of proceeds and Taxonomy-alignment, 
as there would be no exceptions in this respect for sovereigns. They would be able to 
treat  sovereign  EU  GBS  bonds  as  fully  Taxonomy  aligned,  although  they  may 
occasionally ask for additional clarifications at project level. 

However  it  is  also likely  that sovereign  issuance  of EU  GBS  would  be  slightly  lower 
under this option (although still higher than under option 1), meaning that there would 
be fewer bonds to meet the demand for high quality green bonds. 

Table 11 - Impact of some flexibility option 

3)  Option 3: Flexibility regarding other requirements and the EU Taxonomy Regulation 

43 

 
 
 
 
 
 
 
 
 
 
 
PROs: Sovereigns would be fully facilitated in their use of the EU GBS, and their ability to 
identify  EU  GBS-eligible  expenditure  on  their  balance  sheets  may  be  higher,  potentially 
allowing them to more easily issue EU GBS-aligned green bonds if they choose to.   

CONs:  Feedback  from  MS  shows  that  they  are  divided  on  the  question  of  flexibility  on 
Taxonomy-related  requirements,  with  some  expressing  significant  reservations.  So  far,  the 
green  bond  market  has  not  operated  with  separate  requirements  for  sovereigns  and 
sovereigns, so this would be an untested approach. Inconsistencies within the EU GBS could 
lead to paradoxical situations, and it could weaken the usefulness of the EU GBS as a gold 
standard  for  high  quality  green  bonds,  as  it  would  give  less  certainty  on  the  positive 
environmental impact of use of proceeds. 

Impact  on 
sovereigns 

Impact of Taxonomy-related flexibility:  
Sovereigns  would  be  fully  facilitated  in  their  use  of  the  EU  GBS.  By  using  the 
flexibility pocket, their ability to identify EU GBS-eligible expenditure would rise. This 
could facilitate the issuance of EU GBS-aligned green bonds, in particular for smaller 
MS.  

At the same time, as pointed out by a majority of MS in feedback, such inconsistencies 
between sovereigns and corporates could lead to a situation where sovereign EU GBS 
bonds are considered less green than corporate EU GBS bonds. Investors would need to 
account for the potentially lower share of Taxonomy-alignment of sovereign EU GBS 
bonds. There is a risk that this would cause them to treat sovereign EU GBS bonds as 
less  desirable  than  corporate  bonds,  which  means  that  funding  costs  for  sovereigns 
using green bonds could rise (i.e. their green bond premium would be lower). For this 
reason,  it  is  not  clear  to  what  extent  sovereigns  would  choose  to  make  use  of  the 
flexibility pocket. 

Overall, feedback from MS shows that they are divided on the question of flexibility on 
Taxonomy-related requirements, with some expressing significant reservations.  

Impact  on 
corporates 

Impact  on 
investors 

Impact of flexibility with regards to other requirements: 
Similar to option 1.  
Corporates would in effect have stricter conditions for using the EU GBS compared to 
sovereigns.  Depending  on  the  extent  to  which  sovereigns  make  use  of  the  flexibility 
pocket, they may find themselves at a disadvantage in certain situations. For example, a 
sovereign would be able to issue an EU GBS-aligned bond for funding certain projects, 
where corporates would not be able to do the same.   
Because of the flexibility pocket following different requirements from the rest of the 
bond,  investors  would  need  to  devote  resources  to  checking  the  greenness  of  the 
expenditure in the flexibility pocket.  

There  is  a  risk  that  this  would  cause  them  to  treat  sovereign  EU  GBS  bonds  as  less 
desirable than corporate bonds.  

Table 12 - Impact of full flexibility option 

Comparison table: 

The following table summarises the assessment of the options against those objectives which 
are relevant for the green bond  market. The options are assess compared to each other (not 
compared to the baseline). 

44 

 
 
 
  
 
 
 
 
Clarifying and 
harmonising 
definitions of 
green projects 
and procedures 
for issuance 
Reduce costs for 
issuers  

Option 1 
++ 
This option would 
preserve full 
harmonisation between 
sovereign and corporates 

Option 2 
+ 
This option would mostly 
preserve harmonisation between 
sovereign and corporates. 

0 
This option would not 
reduce costs for 
sovereigns  

+ 
This option would reduce costs 
for issuers, including potentially 
quite significant costs associated 
with assessing Taxonomy-
alignment of individual projects. 

Efficiency (cost-
effectiveness) 

0 
This option does not 
reduce costs for 
sovereigns. 

Impact on SMEs  0 

Other economic, 
environmental, 
social and 
fundamental 
rights impacts 

Coherence with 
EU policy 
objectives 

N/A 
0 
Positive environmental 
impact, negative 
economic impact as 
sovereign issuance is not 
facilitated.  

0 
Aligned with overall EU 
sustainable finance 
strategy and transition to 
carbon neutrality, but 
sovereigns will not be 
encouraged to issue EU 
GBS, which may harm 
Capital Markets Union  

+ 
This option reduces costs while 
achieving most objectives.  

0 
N/A  
+ 
Positive environmental impact 
and positive economic impact, as 
sovereign issuance is facilitated.  

+ 
Aligned with overall EU 
sustainable finance strategy and 
transition to carbon neutrality 

Option 3: 
- 
This option would create 
divergence in the definition of 
“green”, and could lead investors 
to discriminate against sovereign 
bonds. 
+ 
This option would allow 
sovereigns to include elements in 
use of proceeds without 
assessing Taxonomy-alignment. 
But the market price of their 
bonds may go down due to being 
perceived as less green. 
- 
This option reduces costs, but 
does not achieve the objective.  

0 
N/A 
0 
Potential negative environmental 
impact, as coherence of 
Taxonomy definitions 
challenged. Positive economic 
impact, as sovereign issuance is 
facilitated. 
- 
Not aligned with overall EU 
sustainable finance strategy due 
to deviations from harmonisation 
under Taxonomy definitions.  

5.6. 

Options discarded at an early stage 

The following options were considered but discarded at an early stage:  

(1) Non-legislative measure: Commission Communication on an EU GBS 
(2) Developing other standards and labels as part of a framework  
(3) Tasking  national  competent  authorities  (NCAs)  with  managing  a  regime  for  external 

reviewers  

(4) Flexibility for corporate issuers with regards to Taxonomy-alignment  
(5) A mandatory standard for sovereign issuers 
(6) Banning the refinancing of existing green assets and expenditure by the EU GBS 
(7) Options which may imply the loss of green status before the bond matures.  

Annex 13 describes each of these options in detail and the reasons for discarding them at an 
early stage.  

45 

 
 
 
 
 
 
6. 

PREFERRED OPTION  

The  chosen  option  builds  on  market  best  practices  in  the  field  of  reporting  and  external 
review,  and  on  the  alignment  with  the  EU  Taxonomy.  The  alignment  with  market  best 
practices is justified based on the desire to position the EU GBS as the foremost standard in 
terms  of transparency, legal  certainty, and environmental  credibility.  It  will  also  help  avoid 
fragmentation and reduce confusion for issuers and investors. The link with the criteria in the 
Taxonomy is legally mandated. In feedback from the targeted consultation on the EU GBS, 
the vast majority of respondents agree with these choices.  

6.1. 

Policy dimension 1: scope of application 

The current data and stakeholder evidence indicates that under the mandatory option, there is 
a  risk  of  strong  disruption  to  the  green  bond  market.  In  contrast,  the  voluntary  standard 
achieves  many  of  the  same  objectives,  while  minimising  market  disruption.  Whereas  a 
mandatory standard forces net costs on some, a voluntary standard will likely only be used by 
those  who  see  a  net  benefit  in  doing  so.  For  this  reason,  the  voluntary  option  avoids 
discouraging issuers from issuing green bonds, and impairing the development of green bond 
markets.   

A  voluntary  standard  would  in  particular  appeal  to  issuers  of  high  quality  green  bonds, 
allowing  them  to  highlight  more  clearly  to  investors  and  others  their  environmental 
credentials.  For these issuers, the potential additional  costs of complying  with  the EU GBS 
(in  particular  related  to  the  assessment  of  taxonomy-alignment  and  external  review)  would 
more  likely  be  cancelled  out  by  higher  benefits,  such  as  investor  demand  and  a  potential 
green bond premium, would also likely be higher. This possibility is supported by the strong 
interest shown from stakeholders in the EU GBS. 

In the targeted consultation, several respondents made the comment that it was important to 
keep the standard voluntary, and expressed worries that existing green bonds could otherwise 
lose their status as green. Only a very small group (3 respondents out of over 160) called for a 
mandatory standard.  

The  conclusion  of  this  assessment  is  therefore  that  option  1  (EU  GBS  alignment 
voluntary  for  green  bond  issuers)  is  the  best  policy  option.  This  means  that  green  bond 
issuers in the EU and elsewhere will be free to align their green bonds with the standard if 
they  wish  to,  based  on  their  own  cost-benefit  assessments.  The  voluntary  nature  of  the  EU 
GBS will apply to all potential issuers, whether private or public. Issuers will also have the 
option  of  using  the  EU  GBS  alongside  other  standards,  for  example.  This  facilitates  the 
creation  of  a  competitive  market  environment  that  allows  investor  demand  to  drive  future 
issuances rather than regulatory requirements. 

6.2. 
bonds 

Regulatory  treatment  of  external  reviewers  of  EU  GBS-aligned  green 

The second policy dimension concerns the nature of a registration and supervision regime for 
external reviewers.  

Based on the analysis of the available policy options and taking into account stakeholder 
feedback, the EU GBS should proceed with option 1. This option would require external 
reviewers  to  seek  registration  from  ESMA  with  limited  ongoing  supervisory  requirements, 

46 

 
 
 
 
which  are  proportionate  to  the  size  of  the  market  and  the  non-systemic  nature  of  their 
activities. This approach would also limit the additional supervisory and organizational costs 
for external reviewers and supervisors.  

Given the non-systemic  nature of  external  reviewer activity and the relatively small size of 
the market, a more stringent regime which would incur greater organisation and supervisory 
costs  is  not  required  at  the  present  time.  However,  developments  in  the  market  should  be 
monitored  to  ensure  the  framework  is  functioning  as  intended  and  the  number  of  external 
reviewers that have sought registration would be a key performance metric. 

Registration  and  limited  supervision  by  ESMA  would  support  a  harmonized  application  of 
rules  as  well  as  uniform  supervision  and  ESMA  staff  would  also  be  able  to  leverage  their 
experience from the supervision of credit ratings agencies and trade repositories.  While this 
option  would  impose  compliance  costs  on  external  reviewers,  all  investors  and  users  of 
opinions  from  external  verifiers  would  benefit  from  the  same  level  of  investor  protection, 
transparency and integrity across the market. In contrast, if a national competent body were to 
fulfil  the  same  function,  this  could  lead  to  divergent  approaches  and  fee  levels  across  the 
Union  and  additional  national  rules  could  restrict  the  ability  of  reviewers  to  provide  their 
services on a cross-border basis. 

6.3. 

The extent of flexibility for sovereign users of the EU GBS 

The  third  policy  dimension  concerns  the  extent  of  flexibility  which  should  be  given  to 
sovereign issuers of the EU GBS.  

According to the responses to a dedicated stakeholder questionnaire on the matter, Member 
States  are  evenly  divided  on  the  idea  of  a  flexibility  pocket  for  non-Taxonomy  aligned 
expenditure, but the strongest arguments weigh against such flexibility. In particular, having 
two  grades  of  green  expenditure  within  the  use  of  proceeds  could  lead  to  a  singling  out  of 
sovereign users of the EU GBS as less green, or it could harm the credibility of the standard, 
or undermine its legal certainty and transparency. Some MS also argued that as sovereigns, 
they should set the bar, and they feared that the flexibility pocket would introduce additional 
complexity. 

However,  Member  States  are  broadly  very  positive  to  the  suggestions  for  flexibility  with 
regards  to  other  requirements,  such  as  on  project-by-project  reporting,  such  as  on  external 
review, and refinancing.  

Hence, the chosen approach is option 2 (flexibility with regards to other requirements, 
but  not  the  requirements  of  the  Taxonomy  Regulation).  By  pursuing  this  option,  MS 
should be able to make use of the EU GBS (on a voluntary basis) on a level playing field with 
corporates,  while  still  benefiting  from  some  flexibility  that  takes  into  account  their 
institutional  specificities.  In  particular,  the  flexibility  to  assess  government  spending 
programmes based on their terms and conditions, instead of assessing each of the individual 
projects  funded,  would  greatly  facilitate  the  process  of  assessing  Taxonomy-alignment  for 
sovereign issuers, and could support increased sovereign use of the EU Taxonomy. 

It is important context that any Commission proposal on the EU GBS would need adoption 
by co-legislators before it can enter into force. This means that the Taxonomy-alignment of 
sovereigns today is less relevant than the expected and actual Taxonomy-alignment in 2022, 
when the EU GBS may actually be available to use. Meanwhile, given the dynamic nature of 

47 

 
 
 
 
the  taxonomy,  regular  monitoring  and  evaluation  is  also  foreseen  to  update  technical 
screening criteria in line with market developments.  

In  addition,  the  Commission  is  currently  assessing  how  to  give  more  space  within  the 
taxonomy  level  2  rules  for  transition  or  other  activities  in  line  with  the  taxonomy’s 
objectives. Creating more flexibility or widening the scope also for Sovereign issuers in this 
way seems to offer a more coherent, reliable approach than doing this for sovereign EU GBS 
issuance alone. 

6.4. 

Alignment with objectives 

As  shown  in  the  table  below,  the  preferred  option  package  is  aligned  with  the  objectives 
detailed in section 4.  

Objectives 
Facilitate  further  development  of  the 
market for high quality green bonds… 
…while  minimising  disruption 
to 
existing green bond markets. 

…  and  attracting  sovereign  issuers  to 
the  framework  while  catering  to  their 
specificities 

Improve  the  ability  of  investors  to 
identify  and  trust  high  quality  green 
bonds 
Facilitate  the  issuance  of  high  quality 
green  bonds,  by  reducing  costs  from 
market fragmentation 

Facilitate  the  issuance  of  high  quality 
green  bonds,  by  clarifying  green 
the 
definitions 
reputational  risk  for 
issuers  from 
sectors  not  sufficiently  covered  by 
existing market-based taxonomies 

reducing 

and 

Alignment of preferred policy options 
-  The  alignment  with  market  best  practices  meets  this 
objective, as it caters to higher quality green bonds.  
-  The  choice  of  a  voluntary  rather  than  mandatory 

standard meets this objective.  

-  The  choice  of  a  light  rather  than  stringent  regulatory 
regime for external reviewers meets this objective.  
-  The  choice  of  the  some  amount  of  flexibility  for 
sovereign issuers, without risking discrimination against 
sovereign  issuers  for  insufficient  Taxonomy  alignment 
of green bonds, meets this objective. 

-  The choice of a regulatory regime for external reviewers 
(rather than relying on existing market processes) meets 
this objective. 

-  The  lack  of  flexibility  w.r.t.  the  Taxonomy  Regulation 
meets this objective by avoiding fragmentation between 
corporate and sovereign green bonds. 

-  The  alignment  with  market  best  practices  meets  this  

objective by avoiding market fragmentation. 

-  The  choice  of  a  voluntary  rather  than  mandatory 
standard  is  not  well  aligned  with  this  objective  –  a 
mandatory  standard  would  have  reduced  fragmentation 
more, by unifying the market around one standard. 
-  The  alignment  with  the  EU  Taxonomy  meets  this 

objective, as it clarifies green definitions.  

Table 13 - Alignment with objectives 

6.5. 

Analysis of the expected take-up of standard 

The following section will assess the expected take up and use of the EU GBS, provided that 
a legislative initiative as proposed in line  with the preferred option identified in this impact 
assessment. The analysis begins by assessing the extent to which current green bond issuers 
be able to meet the requirement for 100% taxonomy-aligned use of proceeds. It then conducts 

48 

 
 
 
a partial and high-level cost-benefit analysis of using the EU GBS compared to other green 
bond standards.  

6.5.1.  Taxonomy-alignment – general results 

The first condition for an issuer to use the EU GBS is that they can locate enough Taxonomy-
aligned assets, operating expenditure, or capital expenditure on their balance sheet to match 
the amount of the prospective EU GBS bond.  

Annex  8.3  contains  a  summary  of  the  most  relevant  studies  that  have  been  carried  out  to 
gauge  the  level  of  Taxonomy  alignment,  usually  by  estimating  the  share  of  Taxonomy-
aligned  revenue  for  a  set  of  European  or  global  equities.  This  exercise  is  rendered  more 
difficult by a range of constraints, notably the fact that no part of Taxonomy is yet finalised, 
and  that  requirements  for  Taxonomy-  aligned  disclosures  are  not  yet  in  force,  so  there  is  a 
lack  of  available  data.  These  studied  indicate  that  for  companies  in  the  EU  today,  the 
percentage  of  taxonomy-aligned  activities  would  likely  be  in  lower  single  digit  number 
(likely below 5%)56.  

However,  it  is  important  to  note  that  the  Taxonomy  is  a  tool  for  encouraging  transition 
towards Paris-alignment. In that sense, a lower percentages today indicates a greater need for 
more effort. Crucially, while the study results mentioned above give us a rough indication of 
the  current  state  of  play,  what  matters  for  EU  GBS  issuance  is  the  ability  of  companies  to 
invest  and  create  Taxonomy-aligned  assets  going  forward.  If  so,  the  share  of  Taxonomy-
alignment will increase over time.  

In  this  respect,  a  study  by  EY  where  a  group  of  consultants  identified  over  €200  billion  of 
shovel- ready green investment projects across the EU is a useful reference. EY identified at 
least  €  20.6  billion  worth  of  Taxonomy-aligned  projects  spread  over  several  sectors.  While 
the  study  does  not  give  a  comprehensive  overview  of  the  potential  for  Taxonomy-aligned 
investments  in  Europe,  it  gives  an  indication  of  the  sheer  scale  of  green  and  Taxonomy-
aligned projects potentially in the pipeline, and which could be funded using EU GBS bonds.  

6.5.2.  Taxonomy-alignment – the case of high-emission manufacturing specifically 

As explained further in annex 8.4, the link of the EU GBS with the Taxonomy may facilitate 
green bond issuance by certain sectors currently lagging behind in issuance. The Taxonomy 
sets  out  criteria  for  investments  in  certain  transitional  activities  to  be  considered  as  green 
even  if  they  are  not  low-carbon  activities  per  se.  One  example  is  the  sector  of  energy-
intensive  industry,  which  has  been  insufficiently  covered  by  market-based  taxonomies,  and 
where  green  bond  issuance  is  relatively  low.  According  to  the  TEG,  the  fear  of  adverse 
publicity because a deal is deemed “insufficiently green” has prevented some issuers in such 
sectors from tapping the green bond market.   

Potential  green  bond  issuers  in  this  sector  are  likely  to  benefit  from  being  covered  by  the 
clear criteria of the EU Taxonomy. Annex 8.4 explains how sectors such as steel, aluminium, 
cement, or chemicals, which are among the largest emitters in the EU, may be able to use the 
EU Taxonomy to grow their green bond issuance, with significantly less fear of accusations 
of  green-washing  from  sceptical  investors  or  civil  society.  For  this  reason,  the  EU  Green 

56 Purely as a reference for sake of comparison,  it can be  noted that this share is  higher than  the  share of the 
green bond market compared to the overall bond market, which is 3.5%. 

49 

 
 
                                                 
Bond Standard can, thanks to its link with the EU Taxonomy, help companies in this sector 
enter the green bond market.  

6.5.3.  Cost-benefit  analysis  of  issuing  a  green  bond  using  the  EU  GBS,  versus 
another green bond standard 

An issuer would likely only choose to make use of the EU GBS if the net benefits of doing so 
exceeds the net benefits  of all other options for raising financing, including issuing a green 
bond using one of the other available green bond standards, issuing a conventional bond, or 
raising financing using other means. 

In line with the mandate given to it by the Commission, the TEG has proposed an EU GBS 
draft  standard  based  on  market  best  practice.  Given  the  additional  requirements  for  use  of 
proceeds  to  be  Taxonomy-aligned,  and  to  contract  only  registered  external  reviewers,  the 
standard would likely be more costly - on average - for issuers to align with, compared with 
current  market  standards.  However,  for  issuers  already  following  market  best  practice, 
alignment with the potential EU GBS would be less costly.  

At  the  same  time,  the  EU  GBS  would  likely  also  bring  in  more  of  the  benefits  typically 
associated  with  green  bond  issuance,  such  as  a  reputational  boost  for  the  issuer,  a 
diversification  of  the  investor  base,  and  a  potential  green  bond  premium.  These  benefits 
would increase with the greenness of the bond. For these two reasons, issuers of high quality 
green bonds are the ones who are the most likely to make use of the potential EU GBS, in 
order to reap higher benefits from their existing green credentials. The positive feedback from 
many  green  bond  issuers  to  the  targeted  consultation  indicates  that  there  are  many  such 
issuers who are eager to make use of the EU GBS.  

6.5.4.  Costs of issuing using EU GBS (compared to current green bond standards) 

Issuing a green bond usually implies extra costs compared to a conventional bond, such as for 
administrative  efforts,  staffing  and  training  needs  related  to  the  creation  of  a  green  bond 
program,  the  management  and  monitoring  of  the  use  of  green  bond  proceeds,  and  carrying 
out of reporting requirements after issuance. In addition, there are costs for external  review 
(ranging from EUR 20.000 to 40.000 per issuance, based on stakeholder input).  

Although views  vary, the average  expectation  from  stakeholders is  for slightly higher costs 
for  reporting  and  external  review  for  those  using  the  EU  GBS  (in  particular  those  who  not 
otherwise  follow  market  best  practice,  such  as  aligning  with  the  more  ambitious  CBI 
standard).  

The following section goes through the various costs in details to see how the EU GBS would 
differ from existing market standards.  

1)  Costs of reporting obligations 

If the EU GBS follows market best practice, it would require the publication of a Green Bond 
Framework,  of  yearly  allocation  reports,  and  an  impact  report  following  full  allocation  of 
proceeds.  The  related  costs  are  unlikely  to  vary  significantly  from  current  green  bond 
standards.  

50 

 
 
2)  Costs of external review57 

If the EU GBS follows market best practice, it would require issuers to obtain external review 
of the green bond framework and of their final allocation report. This indicates that the costs 
of  external  review  obligations  under  the  EU  GBS  will  not  vary  materially  from  the  cost  of 
current  green  bond  standards,  in  particular  the  CBI  standard,  which  requires  both  forms  of 
external review.58  

The real change in costs might therefore come from the effect of the potential registration and 
supervision regime for external reviewers, under which external reviewers who wish to cater 
to  EU  GBS  issuers  may  need  to  pay  a  fee  to  ESMA.  Many  respondents  to  the  targeted 
consultation  indicated  that  the  additional  costs  would  depend  on  the  design  of  the  future 
regime  for  external  reviewers.  Annex  3  quantifies  the  average  additional  cost  per  issuer  of 
using the services of an external reviewer registered and supervised under a regime set up by 
the EU GBS. The result of the analysis is that additional costs per client are likely to be in the 
range  of  EUR  1,334  to  EUR  3,281.  For  larger  entities  with  significant  organisational 
capacity, the costs may be lower.  

At  the  same  time,  the  TEG  found  that  the  range  of  approaches  and  services  provided  by 
external reviewers can create uncertainty for issuers and investors on the actual value, quality 
and impact of the external reviews, and can also lead to increased costs, for example, where 
an issuer must obtain more than one external reviewer second opinion, or an ESG rating. For 
this reason, it is possible that the intended standardisation brought to the market for external 
review  by  the  EU  GBS  could  help  to  bring  prices  down,  provided  that  enough  external 
reviewers  apply  for  registration  to  review  EU  GBS  bonds  to  encourage  meaningful 
competition.  

In the targeted consultation,  several  respondents  from  the  financial sector were of the view 
that  the  EU  GBS  would  reduce  costs  for  issuers  in  the  long-run,  due  to  standardisation, 
consolidation,  and  more  competition  among  external  reviewers  (by  reducing  the  ability  of 
external reviewers to differentiate their offers based on content). 

3)  Cost of identifying and tracking assets aligned with the EU Taxonomy 

Issuers  using  the  EU  GBS  would  need  to  integrate  the  taxonomy  criteria  into  their  internal 
assessment of what is considered sustainable, and use it to identify green assets for the bond. 
In  the  targeted  consultation,  many  pointed  to  the  additional  cost  from  screening  proceeds 
against the EU Taxonomy as the main factor of increased costs. Some mentioned in particular 
the need to carry out due diligence according to the DNSH criteria as a major cost factor.  

However,  as  mentioned  in  section  1  parallel  disclosure  requirements  under  the  SFDR59  and 
the Taxonomy Regulation mean that such costs would likely need to be absorbed regardless. 
In  particular,  companies  under  the  scope  of  the  NFRD60  will  have  to  report  as  of  January 
2022  their  share  of  Taxonomy-aligned  expenditure  and  revenues.  This  would  incur  a  cost 
linked to collecting relevant environmental data, matching them with financial data at activity 
level, and disclosing on the resulting alignment. The disclosure requirements enter into force 
in  a  phased  way  over  the  first  few  years,  alleviating  these  effects.  As  the  Commission 

57 For more information, see Annex 3. 
58 External review also brings benefits, see next section. 
59 Sustainable Finance Disclosures Regulation 
60 Non-Financial Reporting Directive 

51 

 
 
                                                 
published  a  proposal  to  extend  the  scope  of  the  NFRD,  it  is  increasingly  likely  that  any 
Corporates  considering  issuing  according  to  the  EU  GBS  would  already  fall  under  the 
requirement to publish these Taxonomy-alignment metrics.  

Due  to  these  legislative  developments,  a  large  part  of  the  internal  costs  related  to  the 
assessment  of  Taxonomy-alignment  may  already  be  incurred  by  issuers,  irrespective  of  the 
EU GBS.  

6.5.5.  Benefits of issuing using EU GBS (compared to current green bond standards)  

For reasons discussed previously, the alignment of EU GBS with market best practice and in 
particular  with  the  EU  Taxonomy  Regulation  may  allow  issuers  to  more  clearly  and  easily 
demonstrate their green commitment. The additional benefits of the external review process 
for the EU GBS may also be valued by both investors and issuers in terms of the additional 
assurance and transparency it provides regarding the greenness of their investment.  

This should increase the signalling effect of the green bond, allowing the EU GBS to amplify 
some of the benefits for green bond issuers:  

1)  Increased reputational boost 

For  example,  issuers  of  green  bonds  typically  obtain  a  reputational  boost,  as  the  label  of 
being  a  green  bond  issuer  can  be  a  strong  signal  about  the  environmental  credentials  of  a 
corporation. Such a signalling effect is likely to be at least as strong, if not a stronger, in the 
case of the EU Green Bond Standard. The EU is also known worldwide to have some of the 
highest environmental standards, so EU GSB alignment could help a company establish itself 
as a green front-runner internationally.  

2)  Increased demand from investors 

According  to  Agliardi  and  Agliardi  (2019)61,  the  rising  environmental  awareness  among 
investors  contributes  to  increased  demand  for  green  bonds  and  to  oversubscriptions. 
According  to  Climate  Bond  Initiative,  62%  of  green  bonds  in  2018  achieved  a  higher 
oversubscription  and  spread  compression  than  their  vanilla  equivalents  after  28  days.  A 
separate  effect  on  demand  may  come  from  the  SFDR,  which  may  facilitate  the  process  for 
holders of EU GBS-aligned bonds to report their share of Taxonomy-aligned assets. 

3)  Increased green bond premium 

There  is  growing  evidence  that  issuers  of  green  bonds  benefit  from  a  so-called  green  bond 
premium, a small but consistent pricing advantage due to investors accepting a lower yield on 
green bonds, which allows issuers of green bonds to borrow more cheaply. Although there is 
no definitive proof on the extent and pervasiveness of such a green bond premium, academic 
research  indicates  that  it  ranges  between  1  and  20  basis  points,  and  in  some  cases  even 
higher.  Stakeholders,  including  a  prominent  investment  bank,  have  suggested  estimates 
ranging from 2 to 30 basis points, although these depend on the sector and issuer type. For 
more information on the estimated size of the green bond premium, please see Annex 6.  

The size of the green bond premium also seems to correlate rather strongly with the level of 
green  commitment  from  the  issuer,  such  as  the  extent  to  which  the  issuer  has  made  use  of 
external review, as well as their history of green bond issuance. This would suggest that there 
is  positive  relation  between  the  ability  to  trust  the  greenness  of  a  bond  and  the  size  of  the 
potential green bond premium for the issuer. If so, issuers making use of the EU GBS may 

61 Agliardi, E., Agliardi, R: “Financing environmentally-sustainable projects with green bonds”, 2019 (Link) 

52 

 
                                                 
benefit  from  an  –  on  average  –  higher  green  bond  premium  than  those  using  market 
standards, given the rigorous requirements and high green quality of the EU GBS.  

6.5.6.  Cost and benefits: Summary table 

The following table sums up the potential costs and benefits for green bond issuers of using 
the EU GBS, versus using another green bond standard.  

Potential  Benefits  of  EU  GBS  VS  other 
green bond standards 
Higher  investor  demand  due  to  alignment 
with EU Taxonomy, and synergies with other 
EU  legislation (companies  can  use  EU  GBS 
when  reporting  Taxonomy-aligned  assets. 
Potential synergies with EU-ecolabel). 

Increased  reputational  boost  for  the  issuer 
due  to  use  of  clear,  recognisable  market 
standard with EU-brand. 

Potential  green  bond  premium,  ranging 
from  1  to  over  20  bps,  due  to  additional 
green  commitment  inherent  in  EU  GBS 
requirements (study finds link between post-
issuance  verification  and  size  of  green  bond 
premium). 

Other  potential  benefits,  such  as 
the 
learning process for the issuer, opportunities 
to attract a more diverse set of investors, etc.  

Potential  Costs  of  EU  GBS  VS  other  green  bond 
standards 
Administrative  costs  of  identifying  Taxonomy-
aligned  assets  (unless  the  cost  is  already  incurred, 
due to legal requirements for companies under NFRD 
scope to report Taxonomy-alignment. 

Potentially  higher  costs  of  external  review,  if 
external  reviewers  pass  on  costs  of  complying  with 
registration  requirements  to  issuers  (which  is  likely). 
These  costs  are  quantified  as  being  between  EUR 
1,334 to EUR 3,281 per issuer, although in the long-
run  the  additional  cost  could  fall  due  to  increased 
standardisation and competition.  

Roughly  similar  cost  for  reporting  and  other  EU 
GBS  requirements,  since  standard  is  aligned  with 
market standard / best practice.  

OUT OF SCOPE: Costs of investing in Taxonomy-
aligned  assets  (this  is  only  relevant  for  companies 
that do not already have sufficient Taxonomy-aligned 
assets  or  expenditure.  It  is  out  of  scope,  as  there  are 
many factors that determine the Taxonomy-alignment 
of  an  issuer’s  assets,  beyond  their  issuance  of  green 
bonds) 

Table 14 - Costs and benefits for issuers of using the EU GBS 

7. 

HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? 

A  robust  monitoring  and  evaluation  mechanism  is  crucial  to  assess  the  extent  to  which  the 
envisaged standard meets its policy objectives. This will allow the Commission to review the 
legislation effectively at a future stage. It  will also facilitate the early detection of potential 
unintended consequences and enable the Commission to address any such issues in a timely 
manner.  

The  intrinsic  link  to  the  Taxonomy  Regulation62  implies  that  the  information  gathered  will 
provide  key  insights  not  only  on  the  functioning  of  the  EU  GBS  but  also  on  the  practical 
applicability  of  the  Taxonomy.  Given  the  taxonomy-based  constraints  for  defining 
‘economically  sustainable  economic  activities’,  the  uptake  of  the  standard  will  critically 

62 c.f. Art. 4 Taxonomy Regulation 

53 

 
 
 
 
 
 
 
 
 
                                                 
depend  on  the  availability  and/or  economic  feasibility  of  taxonomy  eligible  assets  and 
projects. The taxonomy thereby sets the limits within which issuers can adopt the EU GBS 
(i.e. full market penetration is only possible if the whole market converges on a taxonomy-
based system). There are likely to be links also to other related sustainable finance initiatives, 
such as the Ecolabel where the monitoring of the EU GBS will add useful information.    

For  the  monitoring  and  preparation  of  a  future  evaluation  of  the  impact  of  the  legislative 
initiative,  the  following  non-exhaustive  list  of  sources  could  provide  for  a  basis  for 
information gathering: 

a.  ESMA database on registration of external reviewers,  
b.  ESMA database regarding regulatory fees and charges, 
c.  ESMA/NCA database on notifications and complaints, 
d.  External databases on bond market  

The data and indicators for monitoring and evaluation linked to these sources would include 
the following output:   

Data / Indicator  

i. 

ii. 

Total  amount  of  EU  GBS  issued  per 
annum and outstanding  

Total  amount  of  bonds  earmarked  as 
‘green’(but  not  EU  GBS)  issued  per 
annum  and  outstanding 
[EU  and 
globally]  

iii.  Data on the relative pricing of EU GBS, 
bonds  earmarked  as  ‘green’  (but  not  EU 
GBS)  and  other  bonds  outstanding  (as  a 
benchmark  i.e.  from  the  same/similar 
issuers)  

iv.  Data  on  liquidity  in  the  markets  for  EU 
GBS,    bonds  earmarked  as  ‘green’  and 
other bonds outstanding (as a benchmark 
i.e. from the same/similar issuers) 
v.  Number  of  external  reviewers  registered 

under the EU GBS legislation  

vi.  Data  on  the  regulatory  fees  paid  by 

external reviewers  

vii. 

viii. 

Complaint  and/or  supervisory  reports 
concerning compliance with the standard  
Complaint  and/or  supervisory  reports 
concerning 
the 
taxonomy 

the  applicability  of 

 Table 15 - Data and indicators 

the  Taxonomy;  provides 
/  possible  need 

Objective / reasoning 
Aim for long-term growth of the EU GBS market 
following  initial  launch;  will  not  achieve  high 
market  penetration,  at  least  initially,  due  to 
stringent taxonomy requirements   
Acts as a benchmark for success of the EU GBS 
insights  on 
and 
greenwashing 
further 
for 
regulation   
Data provides information on investor preference 
and  success  of  the  EU  GBS  and  Taxonomy;  
pricing  difference  would  also  show  impact  of 
potential  future  incentives  provided  at  EU  or 
national level  
Additional  insights  on  functioning  of  the  market 
versus  others;    liquidity  data  may  also  show 
impact  of  potential  future  incentives  provided  at 
EU or national level 
Measure  of  the  market  attractiveness  of  the 
regime; 
level  of 
competition in the market    
Provides  insights  on  the  effectiveness  of  setting 
up  a 
lighter  and  proportionate  supervisory 
framework   
Information on the effectiveness of ensuring high 
market integrity  
Provides insights on the effectiveness, efficiency 
and coherence of taxonomy related aspects  

indirect  measure  of 

the 

The  timing  of  the  monitoring  needs  to  consider  the  application  date  of  the  legislation.  No 
sooner than five  years following this  date, the Commission  shall carry out  an evaluation  of 
this initiative, unless underlying legislation provides for an  earlier  evaluation deadline. The 

54 

 
  
 
 
Commission will take the sources and indicators mentioned above into account and rely on a 
public consultation and discussions with ESMA and competent authorities.  

In particular, the evaluation could assess the extent to which: 

-  The yearly issuance of EU GBS-aligned green bonds grows faster or at the same pace 

as the yearly issuance of all green bonds 

-  A large share of green bonds backed by Taxonomy-aligned projects are issued using 

the EU GS.  

-  EU GBS-aligned bonds are associated with larger green bond premia than other green 

bonds on average.   

-  The yearly issuance of EU GBS-aligned bonds is sufficient to sustain the activities of 

at least 3 registered external reviewers.  

-  The EU GBS reduces the search costs of investors seeking high quality green bonds, 
and the number of complaints receive by supervisory authorities stays relatively low.  

The  evaluation  shall  be  conducted  according  to  the  Commission's  better  regulation 
Guidelines.   

55 

 
 
 
 
 
 
 
Annex 1: Procedural information 

1. LEAD DG, DECIDE PLANNING/CWP REFERENCES 

This  Impact  Assessment  Report  was  prepared  by  Directorate  C  (in  conjunction  with 
Directorates  B  and  E)  “Financial  Markets”  of  the  Directorate  General  “Directorate-General 
for Financial Stability, Financial Services and Capital Markets Union” (DG FISMA).  

The Decide Planning reference of the initiative “Proposal  for a Regulation of the European 
Parliament  and  of  the  Council  on  the  Establishment  of  an  EU  Green  Bond  Standard”  is 
PLAN/2020/7030.  

This  initiative  is  part  of  the  Commission  Work  Programme  2021  (COM2020  690  final  – 
19.10.2020) and is one of the actions proposed (number 16) by the European Commission in 
the context of “an Economy that Works for People”.  

2. ORGANISATION AND TIMING 

Several services of the Commission with an interest in the initiative have been involved in the 
development of this analysis.   

Four  Inter-Service  Steering  Group  (ISSG)  meetings,  consisting  of  representatives  from 
various Directorates-General of the Commission, were held in 2020.  

The first meeting took place on 19 February 2020, attended by DG ENV, CLIMA, ECFIN, 
EMPL, DEVCO, TRADE, ENER, BUDG, TAXUD, MOVE, RTD, MARE, NEAR, GROW, 
CNECT, EEAS, JRC, SJ and the Secretariat General (SG).  

The  second  meeting  was  held  on  28  May  2020.  Representatives  from  DG  ENV,  CLIMA, 
ECFIN, EMPL, DEVCO, TRADE, ENER, BUDG, TAXUD, MOVE, RTD, MARE, NEAR, 
CNECT, JRC, SJ and the SG were present.  

The third meeting was held on 20 November 2020 and was attended by DG ENER, TRADE, 
RTD,  NEAR,  ECFIN,  DEVCO,  EMPL,  MOVE,  ENV,  MARE,  CLIMA,  GROW,  BUDG, 
EEAS, JRC, SJ and the SG.  

The  fourth  meeting  took  place  on  10  December  2020,  attended  by  DG  CLIMA,  ECFIN, 
EMPL, TRADE, ENER, BUDG, MOVE, RTD, MARE, CNECT, JRC, DEVCO, EEAS, SJ 
and the SG. This was the last meeting of the ISSG before the submission to the Regulatory 
Scrutiny Board on 20 January 2021.  

The meetings were chaired by SG.  

DG  FISMA  has  considered  the  comments  made  by  DGs  in  the  final  version  of  the  IA.  In 
particular, it has simplified the structure of the policy options, reduced the length of the report 
and clarified the links with other EU legislation and initiatives. The analysis of impacts and 
the preferred option takes account of the views and input of different DGs.  

56 

 
 
 
3. 

CONSULTATION OF THE RSB 

The  Impact  Assessment  report  was  examined  by  the  Regulatory  Scrutiny  Board  on  17 
February, 2021. The Board gave a positive opinion with reservations. Taking into account the 
feedback  received  from  the  Board,  the  Impact  Assessment  was  especially  revised  on  the 
following aspects:  

  Further specification of the problem definition/ problem analysis: e.g. concerning deficiencies 
of current green bond market standards, shortcomings on use of EU Taxonomy, description 
of  moral  hazard  problem  of  the  green  bond  market  linked  to  lack  of  clarity  on  green 
investments, justification for regulating an area before significant problems arise, risks of not 
regulating  the  area  of  external  reviews,  different  treatment  of  sovereign  green  bond  issuers 
due to specificities of sovereigns.  

  Better  assessment  on  how  market  standards  would  evolve  in  the  absence  of  a  new  EU 

initiative.  

  Adjustment/ deletion of option that corresponds to the baseline on external reviews.  
  Additional  clarification  for  the  need  for  further  supervision  on  external  reviews,  also  in 
context  of  problem  description  and  definition  of  options.  In  addition,  better  reasoning  for 
choosing a more proportionate approach to regulating evolving segment and not considering 
an option to regulate the external review of existing market standards, in addition to the EU 
GBS.  

  Clarification  of  explanations  on  legal  reasons  for  discarding  the  option  of  a  mandatory 

standard for sovereign issuers.  

  Explanation  in  further  depths  of  the  purpose  and  consequences  of  allocation  and  impact 

reporting. 

  Providing  additional  details  on  the  degree  of  grandfathering  which  is  foreseen  for  the  EU 

GBS.  

  Addressing possible challenges of aligning the EU GBS with the EU Taxonomy, for example 

related to the inclusion of the greening of brown sectors.  

  Description  of  reasons  for  the  mainly  qualitative  assessment  and  the  limitations  regarding 

quantitative data, and the efforts made in that respect.  

  Explanations on how success of the EU GBs initiative will be measured (taking into account 

the estimated costs and benefits of the preferred options of this initiative). 

4. 

EVIDENCE, SOURCES AND QUALITY 

The  impact  assessment  draws  on  an  extensive  amount  of  desk  research,  expert  group 
meetings,  in-depths  interviews  with  selected  stakeholders,  call  for  feedback,  open  public 
consultation,  targeted  consultation,  opinions  and  advice  by  the  potential  supervising 
authorities, targeted questionnaire, academic research papers and other.  

The  material  used  has  been  gathered  since  the  Commission  Services  started  the  EU  GBS 
initiative as set out in the Commission’s Action Plan on Financing Sustainable Growth as of 
March  2018  (see  “Action  2:  Creating  standards  and  labels  for  green  financial  products”). 
This material includes but is not limited to the following:  

  As set out in Action 2 of the Action Plan on Financing Sustainable Growth and at the request 
of  the  Commission,  the  Technical  Expert  Group  (TEG)  on  Sustainable  Finance  started  its 
work  in  June  2018.  As  a  result  of  many  meetings  (13  physical  TEG  meetings)  and  intense 

57 

 
 
discussion, the TEG prepared a comprehensive report with recommendations for an EU GBS 
that  was  published  in  June  2019.  The  TEG  suggested  the  establishment  of  an  official  and 
voluntary EU GBS based on the EU Taxonomy, building on existing market standards. Next 
to that, it provided a usability guide in March 2020, including an updated proposal for an EU 
GBS. The mandate of the TEG ended in September 2020. 

  Regarding  the  draft  TEG  report,  the  TEG  conducted  a  call  for  feedback  that  ran  from  6 
March 2019 until 7 April 2019. It received 104 replies from a balanced group of stakeholders 
(issuers,  investors,  banks,  verifiers,  NGOs,  main  associations  and  NCAs)  with  a  strong 
majority of respondents supporting the creation of a voluntary EU GBS standard as well as a 
strong link to the EU Taxonomy. The results from this call for feedback were considered in 
the final June 2019 TEG report. 

  The Commission launched an open public consultation on the Renewed Sustainable Finance 
Strategy on 8 April 2020 that was open for 16 weeks (due to the corona virus pandemic the 
deadline  for  responses  was  extended  by  one  month  and  closed  on  15  July  2020).  This 
consultation  provided  for  over  100  questions,  including  several  questions  on  standards  and 
labels for financial products as well as on the EU GBS. The Commission received over 600 
replies  to  this  consultation  from  a  large  range  of  stakeholders.  A  Feedback  Statement 
providing an overview of the contributions to this public consultation will be published on the 
Commission’s website.  

  DG  FISMA  carried  out  a  set  of  in-depth  interviews  on  the  EU  GBS  with  11  selected 
stakeholders  different  sectors  and  various  Member  States  in  the  months  of  May  and  June 
2020.  

  As part of the process, DG FISMA 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  (due  to  the  corona  virus  pandemic  the  deadline  for  responses  was  extended  by  one 
month) and closed on 2 October 2020 after receiving 167 responses. The replies have been 
published on DG FISMA webpage. The consultation document consisted of 19 questions in 
total and focused on two main topics, namely on the EU GBS as well as on Social Bonds and 
COVID-19.  Contributions  were  received  from  a  large  range  of  stakeholders,  including 
company/business  organisations,  business  association,  consumer  organisations,  NGOs  and 
public authorities. Geographically, replies were received from 20 EU Member States, 2 other 
European countries and 2 non-European countries. DG FISMA has analysed the feedback to 
this targeted consultation and prepared a Feedback Statement, which will be published on DG 
FISMA website.  

  A  targeted  “Questionnaire  on  Sovereign  green  bond  issuance  using  the  EU  Green  Bond 
Standard” was shared with EU Member States on 2 December 2020 (DMOs) and 9 December 
2020  (Finance  and  Environment  Ministries)  for  feedback  by  15  December  2020.  The 
questionnaire  focused  on  the  usage  of  the  EU  GBS  by  sovereign  issuers  and  provided  10 
questions.  A  large  number  of  Member  States  (17  responses)  provided  concrete  feedback  to 
this questionnaire.  

  DG  FISMA  had  calls  with  European  Securities  and  Markets  Authority  (ESMA)  for  its 
opinion  and  advice  (e.g.  on  19  November  and  8  December  2020)  regarding  a  potential 
registration/supervision regime of external reviewers at EU Level (giving a new role/ task to 
ESMA).  

  The  JRC  prepared  several  academic  /  working  papers  /  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) 

58 

 
“The pricing of green bonds. Are financial institutions special?”; (4) “Green Bonds as a tool 
against climate change”. 

  The  EU  GBS  has  been  on  the  agenda  of  the  Member  State  Expert  Group  on  Sustainable 
Finance since 2019: Member States have been updated on the ongoing EU GBS initiative a 
regular basis and specific issues, as e.g. the link to the EU Taxonomy or the format and the 
nature of a potential EU GBS have been discussed.  

The  material  used  to  inform  this  impact  assessment  comes  from  reputable  and  well-
recognised sources that act as benchmarks and reference points for the topic. Findings were 
cross-checked with results in different publications in order to avoid biases caused by outliers 
in the data or vested interests by authors.  

59 

 
 
 
 
 
Annex 2: Stakeholder consultations and selected interviews 

This section presents the full or partial results of two stakeholder consultations: 

1.  Targeted Consultation on the EU Green Bond Standard (12/06/2020 to 09/10/2020) 
2.  Online consultation on the Renewed Sustainable Finance Strategy (2019) 

1. TARGETED CONSULTATION ON THE EU GREEN BOND STANDARD 

On 12/06/2020 DG FISMA launched a targeted consultation on the Establishment of an EU 
Green Bond Standard (EU GBS). 

The initiative forms part of the Commission’s overall effort to encourage greater investment 
in  green  and  sustainable  investments.  It  is  a  follow-up  to  the  Commission  Action  Plan  on 
Financing  Sustainable  Growth  of  March  2018,  which  tasked  the  Commission  Technical 
Expert  Group  (TEG)  on  Sustainable  Finance  to  prepare  “a  report  on  an  EU  green  bond 
Standard,  building  on  best  practices”  (Action  2:  Creating  standards  and  labels  for  green 
financial  products).  In  its  final  report  of  June  2019,  the  TEG  put  forward  concrete 
recommendations for an EU GBS. It included alignment of the use of bond proceeds with the 
EU Taxonomy, the publication of a Green Bond Framework, mandatory reporting on the use 
of  proceeds  (allocation  reports)  and  on  environmental  impact  (impact  report),  and 
independent  verification  of  the  compliance  with  the  Green  Bond  framework  and  final 
allocation report by an external verifier. This work was supplemented by the TEG’s usability 
guide (with updated proposed Standard and Green Bond Framework) from March 2020. 

Building on this work, the purpose of this targeted consultation was to collect further views 
and  opinions  of  interested  parties  on  the  content  for  the  establishment  of  an  EU  GBS. 
Respondents  were  invited  to  provide  concise  and  operational  suggestions  on  measures  that 
can be put in place to deliver the policy goals.  

The consultation document consisted of 19 questions in total and focused on two main topics, 
namely  on  the  EU  Green  Bond  Standard  as  well  as  on  Social  Bonds  and  COVID-19.  The 
questions  focussed  on  several  issues  such  as  inter  alia  the  rationale  for  establishing  an  EU 
GBS,  possible  core  components  of  a  new  standard,  and  other  issues  such  as  use  of  the  EU 
GBS by public sector issuers as well as establishment of additional standards and labels.  

DG  FISMA  received  166  responses  by  the  end  of  the  consultation  period  on  09/10/2020. 
Contributions were received from a large range of stakeholders (see Table 16 ).  

of 

Type 
stakeholder 
Company/business 
org. 
Business 
Association 
Public authority 
Other 
NGO 
EU Citizen 
Academic/research 
institution 

Number of 
respondents 
75 

% of 
respondents 
45.2 

37 

15 
12 
10 
6 
4 

22.3 

9 
7.2 
6 
3.6 
2.4 

60 

Field of activity 

Other 
Banking 
Investment 
management 
Not applicable 
insurance 
Market infrastructure 
Pension provision 
Accounting 
Auditing 

% of 
respondents 
42.2 
30.7 
17.5 

9.6 
8.4 
6 
5.4 
3 
2.4 

 
 
 
Trade union 
Non-EU citizen 
Consumer org. 
Environmental 
org. 

3 
2 
1 
1 

1.8 
1.2 
0.6 
0.6 

Rating 

Credit 
Agencies 
Social 
entrepreneurship 

2.4 

1.8 

Table 16 - Replies by type of stakeholder and field of activity 

Geographically,  replies  were  received  from  20  EU  Member  States,  2  other  European 
countries and 2 non-European countries (see Table 17 for a detailed breakdown). 

Country of origin 

Germany 
Belgium 
France 
Netherlands 
Italy 
UK 
Greece 
Finland, Spain, Sweden 
Denmark, Norway, United States 
Austria 
Czechia, Luxembourg, Poland 
Argentina, Ireland, Latvia, Lithuania, Malta, Romania, Switzerland 

Table 17 - Replies by country 

Number of 
respondents 
29 
23 
22 
15 
14 
12 
8 
5 each 
4 each 
3 
2 
1 each 

This  feedback  statement  summarizes  the  responses  received  to  each  question.  It  is  not 
intended as a detailed analysis of the responses, but seeks to give a general assessment of the 
contributions received and highlight any common themes or issues related to the EU GBS as 
well as to  Social Bonds  and COVID-19. The summary of the  responses  provides particular 
insight into new areas for action proposed by the respondents. This feedback statement does 
not give any indication of potential initiatives, which the European Commission may or may 
not undertake in the future in this area. 

Summary of individual responses  

Q1) In your view, which of the problems mentioned below is negatively affecting the EU 
green bond market today? 
Based  on  the  average  scores  among  respondents  for  each  of  the  questions,  it  is  possible  to 
identify  clusters  of  problems  which  issuers  identify  as  having  a  similar  degree  of  negative 
impact on the green bond market today, ranked from most to least impactful:  

Close  to  a  rather  high 
impact 
Somewhere  between  a 
certain 
impact  and 
rather high impact 
Slightly  more  than  a 
certain impact 

Uncertainty regarding green definitions. 

Doubt about the green quality of green bonds and risk of greenwashing, 
Costly and burdensome reporting process, and  
Uncertainty with regards to the eligibility of certain assets. 
Absence of economic benefits associated with the issuance of green bonds,  
Lack of available green projects and assets, and  

61 

 
 
 
 
 
 
Less  than  a  certain 
impact 

Lack of transparency and comparability in the market for green bonds. 
The complexity of external review procedures,  
Costly and burdensome reporting process, and  
The lack of clarity concerning the practice for the tracking of proceeds. 

Q2)  To  what  extent  do  you  agree  that  an  EU  GBS  as  proposed  by  the  TEG  would 
address the problems and barriers mentioned above in question 1? 

Based  on  the  average  scores  among  respondents  for  each  of  the  questions,  it  is  possible  to 
identify clusters of barriers and problems mentioned above in question 1 that issuers identify 
as  being  addressed  to  a  similar  degree  by  an  EU  GBS  as  proposed  by  the  TEG.  In  the 
following, they are ranked from most to least impactful:  

between 
Somewhere 
rather  high  and  very 
high impact: 

less 

than 

Slightly 
rather high impact: 
Slightly  more  than  a 
certain impact: 

Less  than  a  certain 
impact: 

Uncertainty regarding green definitions,  
Lack of transparency and comparability in the market for green bonds,  
Uncertainty with regards to the eligibility of certain types of assets, and  
Doubt about the green quality of green bonds and risk of greenwashing. 
Lack of clarity concerning the practice for the tracking of proceeds.  

Absence of economic benefits associated with the issuance of green bonds,  
Lack of available green projects and assets, and 
”Complexity of external review procedures. 
Cost of the external review procedure and  
Costly and burdensome reporting processes. 

Q3) To what extent do you agree with the proposed core components of the EU GBS 
as recommended by the TEG?  

160  respondents  answered  this  question,  and  the  vast  majority  of  them  strongly  agreed  or 
rather  agreed  with  all  the  main  requirements  of  the  EU  GBS  as  proposed  by  the  TEG. 
Investors argued that the core requirements of the EU GBS would respond to their needs for 
clarity, consistency, comparability, transparency and assurance that the financed projects are 
aligned with the EU Taxonomy.  

Several  respondents  also  pointed  out  that  the  EU  GBS  is  largely  aligned  with  current 
voluntary market practices, not least with regards to the requirements for publishing a green 
bond  framework,  reporting,  and  verification.  Some  respondents  however  worried  that  the 
requirements  would be difficult  to  meet  for SMEs wishing to  issue  green bonds, especially 
with regards to reporting and external review.  

Several respondents made the comment that it was important to keep the standard voluntary, 
and were worried that otherwise existing green bonds could lose their status as green. Only a 
very small group (3 respondents) called for a mandatory standard. 

Specific comments made on each of the sub-questions:  

Requirement to align eligible green projects with the EU Taxonomy: 
An  overwhelming  majority  of  respondents  (136/160,  or  87%)  strongly  agreed  or  rather 
agreed  with  this  requirement  (while  only  8  strongly  disagreed  or  rather  disagreed).  A  large 

62 

 
 
  
 
 
 
 
number of comments concerned suggestions for flexibility with regards to the Taxonomy, for 
example with regards to the TSCs, Transition activities, or DNSH, in particular with regards 
to  the  progressive  finalisation  of  the  Taxonomy.  Some  respondents  suggested  that  the  EU 
GBS should allow for general corporate purpose issuance, or target-linked approaches.  

Requirement to publish a Green Bond Framework before issuance  
An  overwhelming  majority  of  respondents  (145/160,  or  90.5%)  strongly  agreed  or  rather 
agreed  with  this  requirement.  Some  respondents  asked  that  the  standard  should  be  defined 
within the legal documentation (as an addition, or instead of the green bond framework) 

Requirement to publish an annual allocation report  
An  overwhelming  majority  of  respondents  (145/161,  or  90%)  strongly  agreed  or  rather 
agreed  with  this  requirement  (while  only  6  strongly  disagreed  or  rather  disagreed).  Some 
issuers  pointed  out  potential  synergies,  such  as  including  the  allocation  reporting  in  the 
issuer’s  non-financial  statement  under  the  NFRD,  or  potential  flexibility,  such  as  giving 
issuers  the  choice  between  a  final  report  and  yearly  allocation  reports.  A  small  number  of 
issuers pointed out that the ongoing reporting obligations (i.e. the Allocation Report and the 
Impact Report) would prove particularly burdensome for SMEs. 

Requirement to publish an environmental impact report at least once before final allocation  
A  very  large  majority  of  respondents  (126/159,  or  about  79%  )  strongly  agreed  or  rather 
agreed  with  this  requirement  (while  only  15  strongly  disagreed  or  rather  disagreed). 
However, a number of comments mentioned that the requirement to publish an impact report 
before  full  allocation  of  proceeds,  as  mentioned  in  the  question,  was  impractical.  The 
consultation question was not clearly worded, as it should have said: “after full allocation and 
before the end of the bond’s lifetime” (as in the TEG’s usability guide).  

Stakeholders  in  favour  pointed  out  that  such  reporting  was  already  established  market 
practice, and that reporting on environmental impact based on standardised metrics is key to 
facilitate  investments  in  line  with  dedicated  impact  strategies.  More  sceptical  respondents 
mentioned that the monitoring of impact could be a considerable cost for issuers, and advised 
against  requiring  issuers  to  disclose  methodologies  and  assumptions  for  the  calculation  of 
KPIs  ex-ante.    One  respondent  pointed  out  that  the  Taxonomy  already  has  built-in  impact 
reporting, as the criteria are set according to impact, hence separate impact reports were not 
necessary.  

Requirement to have the (final) allocation report and the Green Bond Framework verified  
An  overwhelming  majority  of  respondents  (139/157,  or  81.5%)  strongly  agreed  or  rather 
agreed with this requirement (while only 12 strongly disagreed or rather disagreed).  

Respondents argued that including these requirements would strengthen the credibility, trust, 
and integrity of the EU Green Bond Standard, thereby adding to its value, while ensuring full 
transparency,  a  simplified  due  diligence  process,  and  increased  accountability  towards 
potential  and  current  investors.  Some  also  asked  that  the  requirement  for  external  review 
should  be  extended  to  the  impact  reporting.  A  few  respondents  argued  that  deals  with 
external verification benefit from higher market liquidity.   

While few - if any - respondents objected to the requirement for external review of the green 
bond framework, some respondents criticised the requirement for external review of the final 

63 

 
 
   
 
 
allocation  report.  One  line  of  argumentation  was  that  this  requirement  had  limited  value 
added, as the allocation of proceeds is quite straightforward, allowing market participants to 
spot any misuse without help. A few respondents also pointed out that issuers would in any 
case not dare to misallocate proceeds due to the potential reputational risk. Another criticism 
related to the effort required by issuers, with some pointing out that issuers with several small 
projects would suffer disproportionately. For this reason, verification of the methodology for 
choosing eligible projects should suffice. 

Finally, a small minority of respondents were concerned that the external review requirement 
for  the  final  allocation  report  was  not  appropriate  for  issuers  employing  the  so-called 
portfolio approach, where the portfolio of underlying assets is dynamic and therefore bonds 
are never fully allocated (this is due to the fact that the project portfolio changes over time 
and green bonds are not linked to individual projects). 

Q4) Do you agree with the proposed content of the (a) Green Bond Framework, (b) 
Green Bond allocation report, and (c) Green Bond impact report as recommended by 
the TEG?  
The vast majority of respondents agreed with the content of the TEG’s proposed Green Bond 
Framework, Green Bond allocation report, and Green Bond impact report, though with some 
minor suggestions for improvements for each of the three documents. Some respondents also 
clarified  that  while  they  agreed  with  the  spirit  or  the  intention  of  the  documents,  they  had 
different views on how to design each document, and often reserved to answers given to other 
questions in the consultation.  

Q5)  Do you expect that the requirement to have the Green Bond Framework and the 
Final  Allocation  report  verified  (instead  of  alternatives  such  as  a  second-party 
opinion)  will  create  a  disproportionate  market  barrier  for  third  party  opinion 
providers that currently assess the alignment of EU green bonds with current market 
standards or other evaluation criteria?  

The majority of respondents responded positively that the requirement for verification could 
create  a  disproportionate  market  barrier  for  third  party  opinion  providers  while  a  minority 
responded negatively that it would not. However, there were no detailed responses provided 
by negative respondents.  

In  the  detailed  responses,  concerns  were  raised  about  potential  additional  costs  of  the 
proposed  verification  requirement,  particularly  for  smaller  entities,  given  the  need  for 
additional  experience  and  expertise  to  carry  out  the  assessment  of  an  issuers  overall 
sustainability strategy, the alignment of the EU GBS use of proceeds and DNSH. 

Other  responses  raised  concerns  about  potential  professional  indemnity  and  liability  issues 
for  verifiers  as  they  may  face  increased  risks  given  the  need  to  also  provide  an  explicit 
opinion  on  the  issuance’s  alignment  with  the  taxonomy  and  an  assessment  of  DNSH.  One 
response suggested that post-issuance verification could be conducted by auditors as part of 
the issuers annual report which would reduce the burden on other verifiers that could instead 
focus on providing second opinions. 

Another  issue  relates  to  the  “portfolio  approach”,  where  multiple  green  bonds  finance  a 
portfolio of  green loans. Given that the EU GBS is  a bond-by-bond  approach with  specific 
project allocation of proceeds there could be difficulties maintaining the link between bond 
and project as the bonds mature and are replaced with new issuance.  

64 

 
 
 
A  number  of  respondents  expressed  concern  about  the  use  of  the  term  ‘verifier’  in  the  EU 
GBS as it may inadvertently exclude other types of entity from engaging in this activity and 
limit  the  number  of  firms  that  can  provide  these  services  for  the  EU  GBS.  It  was 
recommended  that  the  EU  GBS  use  more  established  terms  such  as  external  reviewer  or 
second opinion provider and build upon existing market practices. 

Q6) Do you agree that 100% of the use of proceeds of green bonds should be used to 
finance or refinance physical or financial assets or green expenditures that are green 
as defined by the Taxonomy?  

Almost all respondents agreed that 100% of use of proceeds being of green bonds should be 
to  finance  or  refinance  assets  or  expenditures  that  are  defined  as  green  by  the  Taxonomy. 
However, a large majority of them are inclined for some degree of flexibility on its alignment 
with the EU Taxonomy. 

Majority  of  respondents  have  not  proposed  any  threshold  for  percentage  of  alignment  with 
the Taxonomy. Those who did,  their proposals  varied for alignment varied mostly between 
70%  and  99%.  Most  respondents  acknowledge  that  a  lower  threshold  will  damage  the 
credibility of the EU GBS and would risk greenwashing practices. 

The  main  reason  for  this  need  of  flexibility  in  the  majority  of  responses  is  that  the  EU 
Taxonomy  is  not  yet  completed,  so  this  threshold  would  apply  to  activities  not  covered  by 
existing  TSC;  they  usually  believe  that  this  flexibility  should  disappear  as  future  criteria  is 
progressively added to the Taxonomy, but additional transparency should be ensured during 
this period.  

In  the  detailed  responses,  some  respondents  expressed  concerns  that  certain  existing  green 
bond  market  issuers  might  not  be  able  to  adapt  to  a  100%  of  alignment  requirement,  in 
particular  small  projects  or  large  and  granular  portfolios.  In  addition,  the  possibility  of 
constraining the innovation and a future alignment with international standards have been put 
forward as reasons to implement some flexibility. 

Some of the responses also reflect a concern related to the differences between the Taxonomy 
criteria  and  current  market  practices,  specifically  for  the  renovation  of  buildings  and  green 
mortgages. 

Other  responses  highlight  the  possible  negative  effect  that  a  100%  alignment  requirement 
without flexibility would have on transitioning activities.  

Q7) Do you agree with the TEG’s approach63 to flexibility with regards to applying 
the Technical Screening Criteria of the EU Taxonomy? Do you see any other reasons 
to  deviate  from  the  technical  screening  criteria  when  devising  the  conditions  that 
Green Bond eligible projects or assets need to meet? 

63 The TEG proposes that in cases where (1) the technical screening criteria have not yet been developed for a 
specific sector or a specific environmental objective or (2) where the developed technical screening criteria are 
considered  not  directly  applicable  due  to  the  innovative  nature,  complexity,  and/or  the  location  of  the  green 
projects, the issuer should be allowed to rely on the fundamentals of the Taxonomy to verify the alignment of 
their  green  projects  with  the  Taxonomy.  This  would  mean  that  the  verifier  confirms  that  the  green  projects 
would  nevertheless  (i)  substantially  contribute  to  one  of  the  six  environmental  objectives  as  set  out  in  the 
Taxonomy  Regulation, (ii)  do not do significant harm to any of these objectives, and (iii)  meet the  minimum 
safeguards of the Taxonomy Regulation. 

65 

 
 
 
                                                 
A  large  majority  of  responses  support  allowing  the  issuer  to  rely  on  fundamentals  of  the 
Taxonomy when it comes to verify the alignment of their green projects. The main reasons 
put  forward are  avoiding that innovation  is  stifled, and ensuring non-EU  companies  have a 
chance to comply with the standard. 

The main concerns centre on the role of the verifier and the increased costs this will imply. 
Respondents  ask  for  flexibility  on  Taxonomy  interpretation,  deep  knowledge  of  both  the 
Taxonomy  and  the  national  specifics,  and  clear  guidelines  while  maintaining  a  solid  bond 
with the Platform on Sustainable Finance (which, in turn, should be inclusive, transparent and 
follow up on innovation and ESG changes). 

There are also some suggestions to limit the involvement of the verifiers to the verification of 
the issuer´s eligibility criteria for green projects or assets, instead of the assets themselves. 

Most  of  the  responses  emphasize  the  need  for  reinforced  transparency  and  reporting 
obligations for issuers making use of this type of flexibility and suggest that issuers explain 
why  they  are  not  complying  with  Taxonomy’s  technical  screening  criteria  (TSC)  through 
additional  disclosures,  such  as  disclosing  at  project  level,  or  providing  the  details  in  GB 
framework and in allocation reports. 

A  minority  of  the  responses  raise  concerns  about  the  treatment  of  cases  enjoying  this 
flexibility  when  detailed  TSC  covering  them  are  developed  in  the  future.  For  all  of  those 
respondents,  reassessment  could  be  a  problem  and  therefore  they  suggest  a  grandfathering 
system as an alternative. 

Some responses ask for further clarification of the do no significant harm criteria. 

As  regards  the  last  sub-question,  the  majority  do  not  see  other  reasons  to  deviate  from  the 
technical screening criteria when devising the conditions that Green Bond eligible projects or 
assets  need  to  meet.  For  the  minority,  who  take  the  opposite  view,  there  is  some 
correspondence  with  the  concerns  expressed  in  question  6  with  respect  to  renovation  and 
green  buildings.  Those  respondents  suggest  that  activities  that  currently  qualify  for  a  green 
bond  according  to  market  standards  should  be  able  to  be  qualified  as  green  under  the  EU 
GBS.  

Q8) As part of the alignment with the EU Taxonomy, issuers of EU Green Bonds will 
need to demonstrate that the investments funded by the bond meet the requirements 
on do-no-significant-harm (DNSH) and minimum safeguards. The TEG has provided 
guidance  in  both  its  Taxonomy  Final  Report  and  the  EU  GBS  user  guide  on  how 
issuers  could  show  this  alignment.  Do  you  foresee  any  problems  in  the  practical 
application  of  the  DNSH  and  minimum  safeguards  for  the  purpose  of  issuing  EU 
green bonds? 

A large majority of respondents thinks that there will be problems in the practical application 
of the DNSH and minimum safeguards for the purpose of issuing EU green bonds. 

The  main  problem  identified  in  the  detailed  responses  is  the  complexity  of  demonstrating 
compliance  with  the  DNSH  and  minimum  safeguards  criteria.  Respondents  consider  this  a 
difficult procedure. They suggest that the Platform on Sustainable Finance and the EC should 
offer  more  guidance  on  how  the  compliance  should  be  demonstrated,  further  clarifying  the 
criteria or providing additional examples. 

In  the  same  way,  many  respondents  see  qualitative  aspects  of  the  DNSH  and  minimum 
safeguards as a source of subjectivity and ambiguity, with a room for interpretation. 

66 

 
 
Respondents offer various suggestions to overcome the abovementioned difficulties: allowing 
some flexibility in terms of compliance with DNSH and minimum safeguards criteria, using 
national and EU legislation as a basis, and developing equivalence between those criteria and 
existing international standards. 

Respondents  generally  also  voice  concerns  related  to  lack  of  data.  Not  all  issuers  seem  to 
have access to the information needed to prove compliance at present. Although the problem 
of lack of data could be solved over time, respondents express their concern about the costs 
of collecting the information needed, especially for third country issuers and SMEs. 

The banking sector is particularly worried by this lack of data. Banks are not able to easily 
check  DNSH  at  a  project/loan  level  mainly  because  projects  are  owned  by  their  customers 
and is difficult for financial companies to gain access to that level of detail. 

Lastly, a minority of the respondents refers to difficulties in complying with DNSH and MS 
criteria for issuers from non-EU countries because DNSH principles are mainly based on EU 
regulations  and  because  not  every  country  complies  with  ILO  Declaration  on  Fundamental 
Principles and Rights at Work.  

Q9)  Research  and  Development  (R&D)  plays  a  crucial  role  in  the  transition  to  a 
more sustainable economy, and the proposed EU GBS by the TEG explicitly includes 
such  expenditure  as  eligible  use  of  proceeds.  Do  you  think  the  EU  GBS  should 
provide  further  guidance  on  these  types  of  activities,  to  either  solve  specific  issues 
with green R&D or further boost investment in green R&D? 

Responses to this question are fairly divided. Among those who answered and considered the 
issue  relevant,  opposite  views  regarding  the  question  whether  R&D  area  should  be  further 
clarified  or  is  sufficiently  clear  are  similarly  represented.  Comparatively  smaller  share  of 
respondents  are  of  the  view  that  the  proposed  EU  GBS  by  the  TEG  should  be  changed  to 
boost R&D.  

Responses  mostly  offer  considerations  of  the  specific  features  of  R&D  activities  (outcome 
uncertainty,  long  term  profile),  and  few  substantive  changes  are  proposed  even  in  the  (b) 
responses group. 

All  of  the  respondents  are  aware  of  the  relevance  of  R&D  for  contributing  to  the 
environmental objectives and highlight  the necessity of further clarification/classification to 
benefit market participants. Some of the suggestions ask for a new R&D category with own 
criteria under the Taxonomy, while others prefer to treat R&D activities within the respective 
green  activities  as  an  eligible  expenditure,  and  provide  additional  information  to  investors, 
preventing greenwashing at the same time. 

Other  responses  propose  the  creation  of  robust  impact  and  allocation  reporting  and 
verification for R&D activities (there is no prevailing view whether this should be mandatory 
or voluntary). 

Only  a  few  of  the  responses  address  more  tangible  and  direct  measures,  like  providing  tax 
relief to investors and issuers regarding R&D activities, or requiring a  minimum percentage 
of  proceeds  to  be  allocated  to  R&D  activities  or  allowing  the  entirety  of  proceeds  to  be 
allocated in R&D activities.  

Overall,  there  is  such  disparity  in  the  suggestions  offered  that  none  of  them  are  widely 
shared. 

67 

 
 
Q10) Should specific changes be made to the TEG’s proposed standard to ensure that 
green bonds lead to more new green investments?  

A large number of respondents across all categories agreed with the content of the standard as 
proposed by the TEG and stated that no specific changes are necessary at least for the time 
being.  The  proposed  standard  promotes  comparability  and  high  quality  of  disclosures  for 
investors. They are overall satisfied with the standard as it stands, which will be sufficient to 
drive the standardization, transparency and simplification of the green bond market in EU and 
steer capital flows towards green investments.  

Next to that, some respondents underlined that possible future changes to the standard could 
only  be  made  after  the  standard  has  been  used  in  practice  for  a  certain  period  of  time.  In 
addition, there is also enough flexibility to incorporate dynamic developments. Any possible 
revision of the standard in the future should take into account the practical experience gained 
by  market  participants  as  well  as  the  developments  of  relevant  legislation,  as  e.g.  the  EU 
Taxonomy Regulation.  

However, a majority of respondents was also of the opinion that specific changes should be 
made to the TEG’s proposed standard. It was stressed that the EU GBS should not be a static 
document, but should be flexible enough to adapt to any new market developments. The areas 
for suggested changes are as follows: 

  Some respondents underlined the need for more flexibility than the current taxonomy allows, 

e.g. in the case of financing renovations of buildings.  

  There  was  a  clear  call  for  putting  in  place  comprehensive  grandfathering  rules  for  eligible 

green projects/assets (project level or/and portfolio level).  

  Regarding the scope of this initiative, some participants favoured a broader approach and see 
the  need  for  a  broader  approach  that  would  also  address  transition  bonds  or  sustainability-
linked bonds. The aspect of refinancing and green loans should also be taken into account.  
  Some respondents called for additional requirements for the impact reporting. Some further 

guidance/ details on how to measure the impacts would be needed.  

  Many respondents highlighted the need for a defined limited look-back or re-financing period 
in  the  green bond  framework to  push new  green investments  (additionality).  There was the 
request that both capex and opex should have a limited look-back period. There were several 
calls for a maximum look-back period of one year. E.g. projects that are more than 10 years 
old  should  not  qualify  under  the  framework,  because  these  bonds  would  not  contribute 
anything new/additional to the green transition.  

Q11)  The  EU  Taxonomy  technical  screening  criteria  will  be  periodically  reviewed. 
This may cause a change in the status of issued green bonds if the projects or assets 
that  they  finance  are  no  longer  eligible  under  the  recalibrated  taxonomy.  In  your 
opinion, should an EU Green Bond maintain its status for the entire term to maturity 
regardless of the newly adapted taxonomy criteria?  

The overwhelming majority of respondents across all categories, issuers and investors, agreed 
that an EU Green Bond should maintain its status for the entire term to maturity regardless of 
newly adapted EU taxonomy criteria. This means that green at issuance should be green for 
the  entire  term  to  maturity  of  the  bond.  According  to  these  respondents,  a  strong 

68 

 
 
 
 
 
grandfathering regime is needed, as this would provide legal certainty and avoid confusion in 
the market once a bond is issued. Clarity, certainty and predictability are crucial for issuers 
and investors when making investments. Any changes to the status of the green bond before 
maturity  would  have  consequences  in  terms  of  investors’  appetite  for  these  products  and 
prices.  Furthermore,  additional  reviewing  would  increase  the  costs  and  make  the  whole 
process more burdensome. It could also cause strong volatility in the price. Some respondents 
even stated that it would generally not be possible to adapt already launched projects to the 
newly recalibrated criteria of the EU taxonomy. 

On the contrary, only a very few respondents were of the opinion that there should not be any 
grandfathering at all, if the updated EU Taxonomy technical screening criteria are no longer 
met. In this case, the EU Green Bond should lose its status. It was also suggested that a non-
compliant green bond could then also be labelled differently.  

However, a minority of respondents was also of the opinion that in the case of adapted EU 
taxonomy  criteria  an  EU  Green  Bond  should  not  maintain  its  status,  but  some  kind  of 
grandfathering would be necessary. A grandfathering period would provide the possibility for 
issuers to adapt the activities to the revised EU taxonomy. Some respondents underlined that 
a  limited  grandfathering  period  would  also  avoid  greenwashing.  In  this  context,  most 
respondents  favored  a  maximum  amount  of  5  years  for  grandfathering.  Few  respondents 
suggested  a  maximum  amount  of  3  years  as  well  as  10  years.  Only  one  respondent  was  in 
favor of a maximum of 20 years. However, few respondents also chose a “different approach 
all together”. Among those, some explained that is depends on the financed asset or protect. 
Grandfathering criteria should not be quantified in years, but rather on a combination of the 
duration  of  the  project  and  the  extent  of  projected  environmental  improvements.  An 
alternative  could  also  be  a  grace  period  allowing  for  realignment  with  new  taxonomy 
standards.  

Q12)  Stakeholders  have  noted  that  the  issuance  process  for  a  green  bond  is  often 
more costly than for a corresponding plain vanilla bond. Which elements of issuing 
green bonds do you believe lead to extra costs, if any?  

The respondents find that verification, reporting, and additional planning and preparation are 
all factors of the EU GBS that will lead to extra costs.  

Most respondents indicate that the extra costs are somewhere between moderate and high for 
all three factors, although additional planning and preparation (including the identification of 
green  assets) is  considered as the  costliest of the three, while verification and reporting are 
roughly tied as the two least costly. Some respondents also mentioned other costs, such as IT 
costs or communication costs.  

Many  respondents  also  mention  that  smaller  issuers  will  have  more  difficulties  absorbing 
these costs, as  they  will represent  a larger  fraction of their bond (thereby affecting the cost 
benefit calculation of green bonds for smaller issuers). The costs are also typically higher for 
first time issuers. There are also differences in ongoing costs, as conventional bonds require 
almost no surveillance after issuance and allocation, whereas green bond needs roughly 20% 
more of human capital at issuance. 

Concerning the overall additional cost impact, the estimates vary. Some think the additional 
costs will not be significant, while others do. For example, one investment bank does not see 
the additional costs as a concern, while some stock exchanges do.  

69 

 
 
 
Q13)  In  your  view,  how  would  the  costs  of  an  official  standard  as  proposed  by  the 
TEG compare to existing market standards?  

Although opinions vary, the average view seems to be that there may be a small cost increase 
for EU GBS users compared to other green bond standards (in particular those who use GBP 
without  CBI  or  without  following  market  best  practice  otherwise),  but  this  cost  increase 
should  normally  not  be  large  or  particularly  dissuasive  (although  for  smaller  issuers,  this 
might  be  a  concern).  It  should  be  noted  that  several  respondents  from  the  financial  sector 
were of the view that the EU GBS would reduce costs for issuers, thanks to standardisation, 
consolidation,  and  more  competition  among  external  reviewers.  One  respondent  welcomed 
that  the  proposed  GBS  allows  for  incorporation  of  multiple  projects  into  a  green  bond 
framework  as  well  as  for  allocation  and  impact  reporting  to  be  done  at  portfolio  level  for 
multiple projects. However, others indicated that costs of the EU GBS would be significantly 
higher than for ICMA GBPs. Many respondents also indicated that a lot would depend on the 
future regime for verifiers (e.g. under ESMA).  

Many pointed to the additional cost from screening proceeds against the EU Taxonomy as the 
main  factor  of  increased  costs.  Some  mentioned  in  particular  the  need  to  carry  out  due 
diligence according to the DNSH criteria as a major cost factor, not least due to the need to 
change internal processes. There was broad agreement that use of the Taxonomy would raise 
costs. However, some respondents pointed out that parallel disclosure requirements under the 
Sustainable  Finance  Disclosure  Regulation  and  the  Taxonomy  Regulation  itself  means  that 
these higher costs would have to be absorbed anyway, independently of the EU GBS, and this 
widespread adoption of the Taxonomy would also facilitate the screening process according 
to its criteria.  

The second most widely mentioned source of additional costs for the EU GBS was the need 
for  a  verification  of  the  green  bond  framework  and  post-issuance  verification  of  the 
allocation, compared to just a second party opinion being required for the ICMA GBPs. One 
issuer mentioned that they had received a first proposal for an external verification that was 
more than double the cost of a normal verification (i.e. a second party opinion). However, not 
all  respondents  agreed  that  the  review  requirements  for  the  EU  GBS  would  raise  costs 
compared  to  current  standards,  given  that  many  existing  green  bonds  already  make  use  of 
post-issuance verification. Several respondents noted that, in terms of structure, the external 
review  requirements  of  the  EU  GBS  as  proposed  by  the  TEG  are  pretty  much  in  line  with 
best market practice of GBP and therefore no material additional costs are expected. Others 
noted that the standardisation of verification requirements would improve clarity and reduce 
the  ability  of  verifiers  to  differentiate  their  offers  based  on  content,  which  could  have  a 
stabilising  effect  on  prices,  in  particular  for  those  seeking  high  quality  verification.  On  the 
verifier  side,  one  company  active  in  this  sphere  noted  that  the  need  to  verify  against  the 
requirements of the Taxonomy would require more data. 

Q14) Do you believe that specific financial or alternative incentives are necessary to 
support the uptake of EU green bonds (green bonds following the EU GBS), and at 
which level should such incentives be applied (issuer and/or investor)?  

For each of the four types of incentives asked about in this question, the average respondent 
answered  that  that  this  incentive  would  have  somewhere  between  “a  certain  impact”  and 
“rather high impact”, with regards to supporting the uptake of the EU green bond standard.  

70 

 
 
 
 
Ranking of the options from most to least popular:  

1.  Other incentives or alternative incentives for issuers.  
2.  Other financial incentives or alternative incentives for investors.  
3.  Public guarantee schemes provided at EU level, as e.g. Invest EU”  
4.  Alleviations from prudential requirements received the least positive response. 

Considerations in favour of incentives  
 

Increase  the  internal  rate  of  return  for 
projects that are eligible for refinancing by 
a green bond.  

  Offset additional costs compared to vanilla 

bonds, but have additional costs.  
  Bolstering uptake of standard by SMEs 
  Compensating issuers, who are required to 
take  on  the  entire  (financial)  workload  of 
issuing green bonds. 

  Singapore  already  offers  targeted  and 
time-limited (until 2023) compensation for 
issuers  to  alleviate  the  heightened  GBS 
documentation requirements, as it is. 
  Help  create  some  momentum  behind  the 
GBS,  and  create  gravity  towards  entire 
asset class.  

Considerations against incentives   
  Promoting  the  use  of  the  green  bond  standard 
should  not  be  confused  with 
the  aim  of 
promoting  green  investment  and  growth.  Green 
projects  can  be  financed  by  many  different 
means,  and  care  needs  to  be  taken  before 
promoting 
the  use  of  a  specific  financial 
instrument  such  as  green  bonds.  Incentives 
should  be  at  the  level  of  climate  policy,  not 
directly related to a financial instrument. 

  The GB market has been a very dynamic market 

without any incentives.  

  Subsidies could lead to market distortions.   
  Alleviations from prudential requirements could 
have  the  potential  to  disrupt  the  risk-based 
approach  of  prudential  framework  and  thereby 
undermine the credibility of these bonds. 

  The net benefit of the EU GBS will be positive, 

so no incentives are needed.  

Q15)  Do  you  foresee  any  issues  for  public  sector  issuers  in  following  the  Standard  as 
proposed by the TEG? 

The  majority  of  respondents,  mostly  coming  from  the  private  sector,  did  not  foresee  any 
issues for public sector issuers in following the Standard as put forward by the TEG. Many 
respondents highlighted that there should be a level playing field between private and public 
issuers of green bonds. It was also put forward that representatives coming from the public 
sector have been closely involved in the development of the EU taxonomy and the EU Green 
Bond Standard so far. Next to that it was mentioned that the purpose of the EU GBS is to be 
globally  relevant  and  accessible  to  issuers  located  in  the  EU  as  well  as  to  issuers  located 
outside the EU.  

However,  at  the  same  time,  a  significant  minority  with  many  respondents  from  the  public 
sector/  authorities  stressed  that  there  are  some  issues  for  public  sector  issuers,  including 
sovereign green bond issuers, following the TEG’s standard. The respondents put forward the 
following issues:  
Many  respondents  mentioned  challenges  with  respect  to  the  EU  taxonomy.  There  are 
difficulties  in  assessing the EU taxonomy alignment  of  environmental policy  related public 
expenditures  or  the  requirements  to  make  representations  on  DNSH.  Moreover,  the 
availability  of  data  to  demonstrate  EU  taxonomy  compliance  might  be  problematic. 
Furthermore, the one-size fits all approach adopted by EU taxonomy screening criteria may 
prove discouraging to countries of smaller size due to liquidity problems in issuance, lack of 
natural resources and other issues inherent to smaller, particularly very small public issuers. 

71 

 
 
 
Further  work  would  be  needed  in  order  to  take  into  account  the  special  nature  of  public 
expenditures.  

Next  to  that, some respondents  underlined the issue of  “additionality” that  may  be difficult 
for public issuers, such as sovereigns, and should not be required. A direct allocation of funds 
to  green  projects  is  not  possible,  as  public  issuers  normally  take  a  backward  looking 
approach. Impact reporting could often not be done for 100 % of assets, because projects are 
not established directly for the bond and thus not designed in a way that guarantees to collect 
data.  Thus,  data  for  impact  reporting  would  often  not  be  available.  More  flexibility  on  the 
format of the impact report would therefore be needed.  

Concerning  the  area  of  verification,  it  was  suggested  that  in  case  of  a  sovereign  bond  the 
allocation  report  should  not  necessarily  be  verified  by  an  external  third  party.  It  should 
possible  that  the  allocation  report  could  be  provided  by  an  internal  auditor  of/  an  agent 
specializing in auditing the State’s accounts.  

Moreover, a potential governance issue was mentioned with respect to possible penalties. If a 
national body is in charge of supervising the green bond standard and applying penalties for 
any breaches by the issuing public entity, this may lead to difficulties.  

Q16)  Do  you  consider  that  green  bonds  considerably  increase  the  overall  funding 
available to or improve the cost of financing for green projects or assets?  

A majority of respondents across all sectors confirmed that green bonds increase the overall 
funding available to or improve the cost of financing for green projects or assets.  

Regarding  the  increase  of  the  overall  funding,  many  respondents  were  of  the  opinion  that 
green  bonds  help  issuers  to  identify,  select  and  channelize  funding  to  green  projects  and 
consequently assist in increasing the funding to green projects/assets. The green bond market 
has  considerably  increased  the  number  of  investment  portfolios  and  the  level  of  dedicated 
investment for the financing of green projects and assets. It was highlighted that green bonds 
are generally oversubscribed, which was explained with market driven dynamics. It was also 
mentioned  that  the  issuance  of  green  bonds  could  play  a  decisive  role  in  the  companies 
funding  strategy  that  could  considerably  increase  the  overall  funding  available.  Such  a 
strategy change may come when the issuance of green debt redirects flows towards greener 
assets. However, at the same time it was also stressed that the availability of green funding is 
not always an issue, but a lack of eligible projects could be a limiting factor.  

When looking at the EU GBS, it was stated that the EU GBS could have a great potential to 
channel  funding,  making  it  easier  for  issuers  to  finance  them.  It  is  vital  that  the  EU  GBS 
could  give  due  consideration  to  market  dynamics  in  its  design  in  order  to  achieve  its  full 
potential. It would further enhance investor confidence in this asset class. 

When  looking  at  financing  costs,  it  was  stated  that  green  bonds  are  an  efficient  way  for 
investors to steer money to sustainable projects. An increasing demand may reduce funding 
costs for issuers  and make issuance  and investments  into green more attractive.  It  was also 
mentioned that for “dark green” investments the financing costs have considerably improved. 
Currently, as there is a limited supply of green bonds, a “greenium” would be visible and the 
costs  of  issuing  a  green  bond  would  be  lower  than  issuing  a  normal  bond.  For  the  future, 
some  respondents  were  of  the  opinion  that  the  costs  of  financing  green  projects  would 
definitely improve, as the market would grow and there would be more competition regarding 
investors' appetite.  

72 

 
 
On the contrary, a relevant minority took a negative approach. Some respondents were of the 
opinion  that  greens  bonds  would  not  considerably  increase  the  overall  funding  or  improve 
financing costs for green projects or assets. There is no real evidence that green bonds would 
lead to any additional green investment, especially since they are associated with an increase 
in certain costs in comparison to plain vanilla bonds. Given the lack of financial advantage, it 
would not be obvious. Furthermore, as current markets provide sufficient liquidity due to the 
general  low  interest  rate  environment,  it  would  not  be  clear  whether  green  bonds  have  an 
impact at all. Nevertheless, this may change in the long run, when small improvements may 
gradually  lower  the  financing  costs  for  issuers,  essentially  resulting  in  better  costs  of 
financing green projects. In this context, the issue of (financial) incentives was raised, which 
could encourage to access further financing via green bonds. 

Finally, few respondents underlined that it would be too early and very difficult to confirm or 
assess  at  this  state,  whether  green  bonds  would  increase  the  overall  funding  available  or 
improve  the  cost  of  financing  for  green  projects  or  assets.  A  possible  price  difference  may 
evolve only over time, as the interest in the green market seems to be growing. 

Questions 17, 18, and 19 of the targeted consultation on the EU GBS asked about social 
bonds. The summary of the responses can be found in Annex 16.  

2. ONLINE CONSULTATION ON THE RENEWED SUSTAINABLE FINANCE STRATEGY 

On 11 December 2019, the European Commission adopted its Communication on a European 
Green Deal (EGD), which significantly increases the EU’s climate action and environmental 
policy  ambitions.  The  EGD  announced  a  Renewed  Sustainable  Finance  Strategy  to  help 
channel  private  capital  towards  sustainable  investments.  The  aim  of  the public  consultation 
was to collect views and opinions of interested parties in order to inform the development of 
the renewed strategy. The online consultation was open from 8 April until 15 July 2020 and 
consisted of 102 questions addressing subjects of interest in the area of sustainable finance.  

A total of 648 organisations and persons provided a response to the questionnaire. The largest 
groups of respondents came from business associations (23%), financial companies/ business 
organisations (14%) and other companies/ business organisations (12%). Other groups with a 
significant number of responses include NGOs/ Civil Society (11%), EU citizens (22%) and 
public authorities (7%).  

The following section will present the responses to some of the questions that are the most 
relevant for the initiative on the establishment of an EU Green Bond Standard.64  

Overview of responses to selected questions 

Q22  asked  stakeholders  if  they  agreed  that  verifiers  of  EU  Green  Bonds  should  be 
subject  to  some  form  of  accreditation  or  authorisation  and  supervision,  as 
recommended by the TEG. 

64  For  questions  25,  26,  30,  and  31,  percentages  of  the  coloured  bars  indicate  the  share  of  responding 
stakeholders for that question (see “n” number in Figure caption). The grey bar indicates the percentage of blank 
responses compared to total survey respondents (n=648). 

73 

 
 
 
                                                 
74% of the responding stakeholders agreed that EU Green Bond (green bonds using the EU 
GBS)  verifiers  should  be  subject  to  accreditation  or  authorisation  and  supervision  at  a 
European  level.  A  smaller  proportion  of  stakeholders  thought  this  should  be  achieved  at  a 
national 
the  TEG 
level  (7%).  Overall,  only  3%  of  stakeholders  disagreed  with 
recommendation. A slightly larger proportion of responding stakeholders indicated that they 
do not know or have no opinion (16%).  

Figure 2 - Should verifiers of EU Green Bonds be subject to some form of accreditation or 
authorisation and supervision? (n=402) 

Q23  asked  stakeholders  if  any  action  the  Commission  takes  on  verifiers  of  EU  Green 
Bonds should be linked to any potential future action to regulate the market for third-
party service providers on sustainability data, ratings, and research. 

Most  stakeholders  responded  that  any  actions  taken  by  the  Commission  on  verifiers  of  EU 
Green Bonds should be linked to future potential actions on market regulation for third-party 
service  providers  on  sustainability  data,  ratings,  and  research  (46%).  35%  of  stakeholders 
indicated  that  they  do  not  know,  and  smaller  proportion  disagreed  (13%).  18%  of  business 
associations,  22%  of  financial  companies/  business  organisations  and  17%  of  other 
companies/business  organisations  made  up  the  majority  of  those  that  provided  a  “No” 
response. However, 47% of business associations, and 54% of NGOs/ Civil Society indicated 
that they either do not know or have no opinion.  

Figure 3 - Should any actions the Commission takes on verifiers of EU Green Bonds be linked to any 
potential future action to regulate the market? (n=374) 

74 

 
 
 
 
Q24 asked stakeholders if they envisage any issues for non-European issuers to follow 
the proposed standard by the Technical Expert Group (TEG).  

The  responses  by  stakeholders  were  largely  mixed,  however,  single  largest  group  indicated 
that they envisage issues for non-European issuers to follow the standards of the TEG (34%). 
25%  of  responding  stakeholders  indicated  that  they  do  not  envisage  issues.  Many  of  the 
stakeholder  types  were  further  split  among  the  different  options,  with  few  cases  where 
stakeholder  types  generally  favoured  one  option.  59%  of  financial  companies/  business 
organisations responded that they envisage issues. 

Figure  4  -  Can  stakeholders  envisage  any  issues  for  non-European  issuers  to  follow  the  proposed 
standard by the TEG (n=365) 

Q25  asked  stakeholders  if  they  agree  that  requiring  the  disclosure  of  specific 
information  on  green  bonds  in  the  prospectus  would  improve  the  consistency  and 
comparability of information for such instruments and help fight greenwashing. 

Most  stakeholders  responded  that  they  either  agreed  (27%)  or  strongly  agreed  (28%)  that 
requiring  the  disclosure  of  specific  information  on  green  bonds  in  the  prospectus  would 
improve  the  consistency  and  comparability  of  information.  64%  of  academics,  71%  of 
consumer organisations,  58% of NGOs/  civil  society stakeholders and 80% of trade unions 
strongly  agreed  with  this  statement,  while  the  largest  proportion  of  public  authorities 
responded that they  agree with  this statement (47%).  Business  associations and companies 
were largely split across the various options following the general data trends in the Figure 
below.  

Figure 5 - Would requiring the disclosure of specific information on green bonds in the prospectus 
would improve the consistency and comparability of information for such instruments and help fight 
greenwashing? (n=383) 

75 

 
 
 
 
Q30 asked stakeholders whether the EU should develop standards for different types of 
sustainability-linked bonds or loans. 

A substantial minority of stakeholders either agreed (26%) or strongly agreed (20%) that the 
EU  should  develop  standards  for  different  types  of  sustainability-linked  bonds  or  loans.  In 
comparison, 12% of stakeholders disagreed and 6% strongly disagreed with this. NGO/ civil 
society stakeholders (44%) and trade unions (75%) were the stakeholders that had the largest 
shares of their group strongly agreeing. Public authorities’ responses were spread across the 
options with most stakeholders indicating that they are neutral (39%) or agreeing (30%). 

Figure  6  -  Should  the  EU  develop  standards  for  different  types  of  sustainability-linked  bonds  or 
loans? (n=388) 

Q70 asked stakeholders if the EU Taxonomy, as it is currently set out in the TEG report 
on Sustainable Finance, is suitable for use by the public sector, in order to classify and 
report on green expenditures. 

Overall, most stakeholders agreed that the EU Taxonomy as it is currently set out is suitable 
for the public sector (56%). Of those that agreed, half indicated that while they agree that the 
Taxonomy is suitable as it is currently set out, it is only partially so (29% of all responses). 
27%  of  stakeholders  did  not  know  or  had  no  opinion.  The  smallest  share  of  responses 
indicated that stakeholders do not agree that the Taxonomy as it is currently set out is suitable 
for the public sector (16%). 

The  stakeholders  that  had  the  highest  proportion  of  stakeholders  selecting  “Yes”  included 
academics  (43%),  consumer  organisations  (67%),  NGOs/  Civil  Society  (45%),  and  “other” 
(43%). Public authorities (21%) and other companies/ business organisations (34%) had the 
highest relative shares of responses stating “No”.  

76 

 
 
 
 
Figure  7  -  Is  the  EU  Taxonomy  suitable  for  the  public  sector  for  classifying  and  reporting  green 
expenditure? (n=334) 

Q73 asked stakeholders if public issuers should be expected to make use of a future EU 
Green Bond Standard for their green bond issuances. 

The majority of stakeholders responded that public issuers should be expected to use the EU 
GBS  for  green  bond  issuances  (69%),  with  a  minority  share  saying  they  should  not  (8%). 
23% of stakeholders responded that they do not know/ have no opinion.  

Figure 8 - Should public issuers be expected to make use of a future EU Green Bond Standard for 
their green bond issuances? (n=316) 

77 

 
 
 
 
 
 
 
Annex 3: Who is affected and how? 

1.  PRACTICAL IMPLICATIONS OF THE INITIATIVE 

The  proposed  voluntary  standard  in  conjunction  with  a  light  supervisory  approach  ensures 
that the objectives are reached in the most cost-effective manner. At the same time, it avoids 
disruptive impacts on existing green bond markets which can continue to operate freely. This 
facilitates the creation of a competitive market environment which allows investor demand to 
drive  future  issuances  rather  than  regulatory  requirements.  The  limited  flexibility  provided 
for sovereign green bond issuers under the standard, simplifies sovereign issuance while also 
safeguarding  the  integrity  of  the  taxonomy  classification  system  (harmonised  definition  of 
green) and increased transparency.   

The initiative will require limited investments both by ESMA as well as external reviewers 
that  decide  to  opt-in.  On  the  side  of  ESMA,  there  will  be  one-off  costs  in  the  form  of 
additional  labour  resources,  training  as  well  as  IT  setup  costs.  Newly  hired  staff  would 
equally lead to increased on-going costs. Training and IT may also give rise to on-going costs 
but are expected to be minimal after initial setup.  

External  reviewers  will  equally  face  costs  if  they  want  to  comply  with  the  standard. 
Supervisory fees should be kept to a minimum for the time being given the market size and 
revenues.  Reviewers  will  however  face  other  direct  compliance  and  legal  advisory  costs  as 
well as organisational costs to meet all requirements. The extent of these costs will strongly 
depend on factors such as the type of service currently offered, ancillary activities and entity 
size. Some market actors are also already complying with other regulatory frameworks. This 
may decrease the one-off costs if certain organisational requirements are met already.      

Issuers will still be able to issue green bonds under different market standards. Similarly to 
external reviewers, they can avoid costs if they do not opt-in. The costs of using the standard 
arise mainly due to cost that are passed on from external reviewers as well as costs relating to 
the  application  of  the  taxonomy.  The  application  of  the  taxonomy  will  however  also  be 
required  under  other  initiatives  (e.g.  NFRD)  meaning  that  parts  of  these  costs  are  incurred 
already. The standard will provide clear advantages in terms of trust which may translate into 
offsetting  pricing  advantages  and  thus  provide  incentives  for  issuers  to  use  it.  Likewise, 
issuers may want to demonstrate a stronger green commitment by issuing under the standard. 
The positive reputation effects are not directly measurable but may easily outpace any costs 
disadvantages over existing market approaches.  

Investors will be provided with a green bond segment which ensures a high degree of market 
integrity, transparency and comparability.  Likewise.  It  provides for a common definition of 
green thereby increasing comparability and trust. The initiative will provide increased choice 
to  investors  and  will  benefit  especially  the  most  committed  green  investors  which  value  a 
stricter green definition. These investors can clearly set themselves apart from the rest of the 
market  by  focusing  their  bond  investments  on  EU  GBS.  Depending  on  the  success  of  the 
standard,  investors  may  even  start  to  fully  converge  on  it  driving  issuance  in  the  same 
direction.  Although  it  is  impossible  to  estimate  this  benefit  quantitatively,  the  increased 
transparency under the standard will ultimately allow a more efficient allocation of capital in 
the green investment market.  

78 

 
 
2. 

SUMMARY OF COSTS AND BENEFITS 

I. Overview of Benefits (total for all provisions) – Preferred Option 
Amount 
Description 

Comments 

Direct benefits 

Avoidance  of  duplicative 
external review costs 

Estimated  total  saving  of  1.75  -  3.5  million 
Euro per year65 

Depends  strongly  on  number  of  issuances, 
rate  of  duplication  and  individual  review 
costs incurred  

No estimate available  

Reduction  of  search  costs 
and  additional 
research 
costs  incurred  by  green 
investors 

Reduced exposure to risks 
of green washing 

No estimate available  

external 

Some  issuers  currently  engage  with 
multiple 
for 
additional  assurance.  This  will  not  be 
necessary  under  the  new  framework  as 
trust in external reviews is increased.   

reviewers 

Green  investors  will  be  able  to  clearly 
distinguish  EU  GBS  from  other  green 
bonds.  The  basis 
taxonomy 
ensures  a  clear  definition  of  green. 
Investors  will  require  less  time  to  and 
effort to ensure that respective bonds are 
in line with their investment objectives.    

the 

in 

The  standard  demands  an  increased 
amount  of 
information  over  other 
market  practices  (given  the  basis  in  the 
taxonomy) 
more 
standardised and higher quality external 
review procedures. This reduces the risk 
of  greenwashing  and 
related  price 
deterioration (if revealed) 

ensures 

and 

Reduced 
issuance  costs 
given common taxonomy 

No estimate available  

Many issuers will already incur the cost 
to  their  assets  against  the  taxonomy 
given,  for  example,  requirements  in  the 
NFRD.  This assessment  will  reduce  the 
cost  of  issuance  of  EU  GBS  as  part  of 
the ‘green assessment’ has already been 
carried out. 

Indirect benefits 

pricing 
Increased 
advantage 
other 
market practice for issuers  

over 

In  a  low  single  basis  point  range  for 
investment grade bonds.  

This  effect  depends  strongly  on  investor 
behaviour and the acceptance and trust in the 
taxonomy as well as the standard itself. 

Increased  trust  and  assurances  as  to  the 
greenness of the bond should help drive 
additional  demand  over  other  green 
bonds.  This  would 
imply  pricing 
advantages  and  reduce  the  costs  of 
financing for issuers 

Increased 
green investments  

high-quality 

No estimate available 

Depends on investor and issuer behaviour 

that 

Assuming 
the  benefits  outstrip 
costs,  at  least  in  the  longer  run,  the 
standard  will 
increase 
help 
investments in green projects and assets 
by  lowering  their  financing  costs.  This 
will reduce  the  negative  externalities  of 
issuers  with  wider  benefits  for  the 

to 

65 This assumes a duplication rate of 10-20% and is based on an average external review costs of 40 000 Euro 
and 2020 issuance figures  

79 

 
 
 
 
 
 
 
 
 
                                                 
(1)  Estimates  are  relative  to  the  baseline  for  the  preferred  option  as  a  whole  (i.e.  the  impact  of  individual 
actions/obligations  of  the  preferred  option  are  aggregated  together);  (2)  Please  indicate  which  stakeholder  group  is  the 
main recipient of the benefit in the comment section;(3) For reductions in regulatory costs, please describe details as to how 
the saving arises (e.g. reductions in compliance costs, administrative costs, regulatory charges, enforcement costs, etc.; see 
section 6 of the attached guidance). 

environment and society.   

II. Overview of costs – Preferred option 

Citizens/Consum
ers  

One-
off 

Recurre
nt 

No cost 
impact 

No  cost 
impact 

a 
for 

Establishing 
framework 
external 
reviewers 

Direct 
costs 

Businesses 

Administrations 

One-off 

Recurrent 

One-off 

Recurrent 

Initial 
Application  Fee: 
EUR  1,500 
to 
EUR 5,000 
Organisational 
costs  (additional 
staffing, 
ICT, 
record  keeping, 
documenting 
processes 
procedures): 
EUR  10,000 
EUR 150,000 

and 

to 

Ongoing 
Supervision: 
EUR  500 
to 
EUR  2,000  per 
year. 
Organisational 
costs 
(additional 
ICT, 
staffing, 
record  keeping, 
documenting 
processes 
procedures): 
1 to 1.5 FTE for 
compliance 
activity. 
Dependent  on 
salary(EUR 
50,000  –  EUR 
90,000). 

and 

Supervisory 
ICT 
Developmen
EUR 
t: 
to 
50,000 
EUR 
150,000 

 <0.3  FTE  per 
entity. 
on 
Dependent 
salary 
scale 
(between  EUR 
75,000  and  EUR 
95,000  per  FTE 
per year). 

FTE 

Ongoing 
Supervisory  ICT 
maintenance: 
1-2 
approximately 
for  full  database 
development and 
ongoing 
maintenance. 
on 
Dependent 
scale 
salary 
(between  EUR 
75,000  and  EUR 
95,000  per  FTE 
per year). 

Cost  of  dealing 
with 
potential 
market 
complaints 

Costs  associated 
potential 
with 
lawsuits 

Indirect 
costs 

No cost 
impact 

No  cost 
impact 

Cost 
of 
advertising  new 
regulatory status 

No cost impact  No 

cost 

impact 

(1) Estimates to be provided with respect to the baseline; (2) costs are provided for each identifiable action/obligation of the 
preferred  option  otherwise  for  all  retained  options  when  no  preferred  option  is  specified;  (3)  If  relevant  and  available, 
please  present  information  on  costs  according  to  the  standard  typology  of  costs  (compliance  costs,  regulatory  charges, 
hassle costs, administrative costs, enforcement costs, indirect costs; see section 6 of the attached guidance). 

80 

 
 
 
 
 
Calculation of overall costs for external reviewers under EU GBS regime over a hypothetical 4-
year period. 

NB: These costs are calculated from the point of view of a small entity which does not already have 
any of the administrative capacity that would be required. For a larger entity, organisational costs may 
be lower than the lower estimate calculated below.  

Cost 
Initial  application fee 
Organisational costs 
Ongoing supervision 
Organisation costs 

Assumptions: 

Type of cost 
One-off  
One-off 
Recurrent 
Recurrent 

Lower estimate  Higher estimate 
1,500 
10,000 
500 
50,000 

5,000 
150,000 
2,500 
90,000 

-  One-off costs are distributed over four years 
-  4 external reviewers will register as EU GBS reviewers 
-  160 EU GBS-aligned bonds are issued per year 
-  External reviewer split the market equally (i.e. each would have about 40 EU GBS-related clients per 

year).  

-  External reviewers pass on all the additional costs, but only to issuers of EU GBS-aligned green bonds.  

Cost 
Total one-off costs 
Total recurrent costs 
Average yearly costs per external reviewer66 
Additional costs per client67 

Lower estimate  Higher estimate 
11,500 
50,500 
53,375 
1,334 

155,000 
92,500 
131,250 
3,281 

The result of the analysis is that additional costs per client are likely to be in the range of EUR 1,334 to 
EUR 3,281. For larger entities with significant organisational capacity, the costs may be lower.  

Overview over current external review market 

 The current market participants belong to four categories (see more in Annex 7 on external reviewers): 

a.  Credit  Rating  Agencies:  Moody’s,  S&P  Global  Ratings,  Fitch,  as  well  as  more  recently 

Beyond Ratings68;  

b.  Non-financial rating agencies and sustainability consultancies specialised in second party 
opinions:  Vigéo-Eiris  (recently  acquired  by  Moody’s),  Sustainalytics,  ISS-oekom  and  the 
research organisation CICERO; 

c.  Big-four  audit  firms  providing  mostly  post-issuance  verification  or  “assurance”  services: 

Deloitte, KPMG, PwC, EY; 

d.  Global technical inspection and certification bodies: e.g. DNV-GL, Bureau Veritas, TÜV, 

etc. 

66 = 1/4 Total one-off costs + total recurrent costs 
67 = Average yearly costs per external reviewer /40 
68  ESMA  has  registered  Beyond  Ratings  SAS  as  Credit  Rating  Agency  in  March  2019.  Beyond  Ratings  was 
acquired by London Stock Exchange Group in June 2019.   

81 

 
 
 
 
                                                 
The majority of external reviewers are currently not under any form of financial regulation. 
However, the entities active in this market are not homogenous. It is the final category (d) for 
which  the  imposition  of  a  regulatory  and  supervisory  regime  would  most  probably  require 
new resources to comply with the regime.   

The  basis  for  this  being  that  (a)  already  have  a  compliance  structure  in  place  to  deal  with 
global  regulatory  requirements  of  credit  ratings  (b)  are  large  multi-national  firms  with 
significant internal support structures to meet wider compliance and fiduciary responsibilities 
(c) are already subject to national regulatory oversight for the provision of audit services and 
provide consultancy services to firms on regulatory compliance and should therefore be in a 
position to adapt to new regulatory requirements for EU GBS reporting. 

For  (d),  a  regulatory  and  supervisory  regime  would  bring  new  costs  and  expertise 
requirements  which  may  not  be  already  in-house.  From  ESMA’s  experience  of  supervising 
smaller  CRAs,  which  could  be  considered  comparable  in  terms  of  revenues  and  scope  of 
activities to the activity of Green Bond  external review, and in particular the class of entity 
under (d), the following may be required in terms of compliance personnel. 

Resources can typically involve 1 to 1.5 FTE for compliance, with up to an additional 1 FTE 
spread  across  internal  audit,  risk  management,  internal  review  and  information  security. 
However, it is also possible for the smallest entities to have 1 FTE for compliance, with and 
additional ~.5FTE spread across the other internal control functions.  There may also be ICT 
development costs required to meet any record keeping and security requirements. 

According to research conducted by CBI in 2018, the external review market was dominated 
by  a  group  of  mainly  European  service  providers  currently  holding  more  than  90%  of  the 
market  with  six  specific  providers  account  for  almost  75%  of  the  market  –  CICERO, 
Sustainalytics, Vigeo Eiris, EY, ISS-oekom and DNV GL.69 As the table below shows, these  
entities  already  have  significant  scale  which  will  mitigate  the  impact  of  any  additional 
compliance burden. 

Predominant external reviewers 
CICERO  
Sustainalytics  
Vigeo Eiris  
EY  
ISS-oekom  
DNV GL  

Headcount  
80  
600  
300  
250,000  
2,000  
12,000  

69 CICERO: “Milestones 2018. A practitioner's perspective on the Green Bond Market”, 2018 (Link) 

82 

 
 
 
 
                                                 
Annex 4: Market Context and controversies 

Use of proceeds 

In  the  use  of  proceeds  model,  which  dominates  green  bond  markets,  the  issuer  commits  to 
earmark the use of proceeds for (specific) green projects. This market has been characterized 
by a strong focus on climate change mitigation. According to research by the Joint Research 
Center70,  585  of  around  1000  analysed  bonds  supported  mitigation.  318  pursued  mixed 
environmental objectives, while only 83 pursued dedicated other environmental objectives, of 
which  only  eight  pursued  adaptation.  The  non-climate  space  sees  a  focus  on  circular 
economy, although the  market  has also  seen innovation recently  with  the first  ‘blue bonds’ 
issued  by  Seychelles  and  the  World  Bank  in  October  201871,  and  recently  even  a  ‘Rhino 
bond’ aimed at protecting biodiversity.72  

Since the agreement on and adoption of the Taxonomy Regulation, the market has begun to 
see  an  increasing  amount  of  references  to  the  Taxonomy  in  the  use-of-proceeds 
documentation  of  green  bonds  (known  as  the  “green  bond  framework”).  For  more 
information, see annex 7.  

Controversies relating to use of proceeds green bonds 

While the premise of use of proceeds is  a  good  one, there have been certain criticisms and 
controversies. This section sets out the main types of controversies affecting use of proceed 
green bonds on the market today.  

1)  Controversy regarding use of proceeds: 

The first is when the underlying project intended to be funded by the proceeds of the bond 
has fallen short of investor expectations, despite being in line with market standards, such as 
the ICMA Green Bond Principles. In this case, the controversy relates to the use of proceeds 
itself. Some examples include: 

  Repsol  -  Repsol’s  green  bond  (2017,  EUR  500m)  was  left  out  of  the  main  green  bond 
indexes  and  rejected  by  some  investors  on  secondary  markets,  despite  being  compliant 
with ICMA’s green bond principles, and having received a second party opinion from an 
external verifier73. The bond proceeds were used to fund energy-efficiency improvements 
in a petroleum refinery plant (Link) 

  Mexico  City  Airport  trust  -  Mexico  City  Airport  Trust  issued  USD  6  billion  of  green 
bonds in 2016 and 2017 to finance a new energy-efficient airport, and the bond received 
green ratings by Moody’s, S&P and Sustainalytics.  In 2018, a political decision was made 
to discontinue the airport project, but some of the green bonds remain outstanding74. The 

70  Fatica, S., Panzica, R.: “Green bonds and use of proceeds reporting”, JRC Technical Report, JRC117571.  
71 The World Bank: “Seychelles launches World’s first sovereign blue bond”, 2018 
72 Srivastava, S. (CNBC): “New ’rhino bonds’ to allow investors to help with wildlife conservation”, 2019 
73 https://www.wsj.com/articles/green-bonds-need-the-right-filter-11593509402  
74 Louise Bowman – ESG: green bonds have a chicken and egg problem (Euromoney, 19 June 2019) 

83 

 
 
 
 
                                                 
cancellation  of  the  project  did  not  lead  to  default  of  the  bond,  but  it  has  since  been 
expelled from some ESG indices75 .  

  Coal  efficiency-  Green  bonds  have  in  certain  instances  been  used  to  finance  coal-

efficiency projects, for example in China.   

2)  Controversy regarding the profile of the green bond issuer 

The second common type of controversy is where the sustainability of the green bond issuer 
itself has been subject to criticism or controversy, and where this controversy has affected the 
willingness of issuers to buy green bonds despite the sustainability of the underlying projects 
to be funded by the green bond. Some examples include: 

  China  Three  Gorges  Dam  -  A  USD  840  million  green  bond  issue  by  the  operator  of 
China’s  Three  Gorges  Dam 
in  2018  caused  controversy,  with  accusations  of 
greenwashing,  due  to  the  Three  Gorges  Dam  having  been  cited as  a  source  of  water 
pollution  and  damage  for  its  surrounding  ecosystems76.  This  was  despite  the  proceeds 
being  intended  to  be  used  for  backing  wind  power  projects  in  Europe.  Despite  the 
controversy, the bond proved popular with investors.  

  Saudi Electricity Company, a state-owned Saudi company, raised EUR 1.3 billion from a 
green bond sale in 2020 to invest in the installation of smart meters across its grid, which 
caused controversy among investors77.  

  The Australian state of Queensland has issued green bonds which have been described 
as  “a  clear  greenwash”  Ulf  Erlandsson  of  the  Anthropocene  Fixed  Income  Institute,  an 
advocacy  group.   While  the  projects  being  funded  by  the  bond  are  environmentally 
friendly, such as to  preserve the Great Barrier Reef, Erlandsson believed they cannot  be 
seen separately from the state’s expansionary coal policy.  

This type of controversy has a significant effect on the green bond market as a whole, as it 
limits  the  number  of  issuers  that  are  able  to  operate  in  the  green  bond  market,  and  forces 
those green bond issuers that are susceptible to be criticised for their overall sustainability to 
take additional steps when issuing green bonds, for example by an obtaining ESG rating for 
their entire company or institution.  

This controversy stems from a view that green bonds exist not just to fund a particular type of 
project,  but  to  fund  a  particular  type  of  company.  And  this  view  is  shared  by  many  in  the 
investor community. In a report by NN Investment Partners (NN IP), a Dutch asset manager, 
the  company  claims  that  “only  around  85%  of  green  bonds  deserve  the  label”78.  They  base 
this conclusion on the logic that the greenness of the bond is linked to the greenness of the 
company. 

NN IP finds that the remaining 15% of green bonds are issued by companies that may use the 
proceeds  for  environment-friendly  projects,  but  which  are  involved  in  activities  that  incur 

75 Investors probe ESG credentials of bond sellers on ‘greenwashing’ fears (Financial Times, 28 October 2020)  
76 Environmental Bonds Stained By Greenwashing –Nikkei Asia, 3 March 2018  
77 https://www.ft.com/content/f794162c-3e45-4078-a7be-2e34fea5dd37  
78 
three-years-says-nn-ip 

https://www.nnip.com/en-INT/professional/insights/global-green-bond-market-set-to-hit-eur-2-trillion-in-

84 

 
 
                                                 
negative  impacts  elsewhere.  As  an  example,  they  mention  a  railway  company  that  could 
finance low-carbon transportation through green bonds, while still being heavily involved in 
fossil fuel freight. NN IP conclude that investors need to closely scrutinise the credentials of 
green bonds and their issuers.   

In a 2019 article by Louise Bowman79, numerous banks and asset managers explain that they 
require issuers to have obtained an ESG rating with a good score, in order to invest in a green 
bond from this issuer. One theory that is put forward to explain the reticence of investors to 
fund green bonds by companies with existing controversies is that the existing definitions of 
green  are  not  clear  enough.  In  other  words,  because  the  definitions  of  green  are  not  clear 
enough, issuers can not reliably commit to use the proceeds on sufficiently green assets, and 
investors use the profile of the company as a proxy for the  greenness  of the bond. Another 
theory that is put forward in the article is that there are no clear and accepted paths  for how a 
green bond issuer can use the proceeds to improve its profile and become more sustainable.  

Other types of sustainable bonds besides green 

In  addition  to  ‘use  of  proceeds’  green  bonds,  other  types  of  sustainable  bonds  are  also 
growing  in  popularity  among  issuers,  in  particular  since  the  beginning  of  the  COVID-19 
crisis in 2020.  

Sustainability-linked  bonds  (SLBs):  There  is  a  small  but  growing  market  segment  for 
target-linked, or sustainability-linked bonds, where the return of the bond is dependent on the 
issuer achieving certain pre-determined quantitative sustainability targets, often in the form of 
reaching certain Key Performance Indicators. If the target is not met, the investor is typically 
compensated monetarily via a coupon step-up. SLBs are typically general purpose corporate 
bonds,  with  no  dedicated  use  of  proceeds,  although  it  is  possible  to  combine  the  two 
approaches into a “sustainability-linked green bond”. Due to the fact that the two formats are 
not  mutually  exclusive,  it  is  possible  that  we  will  see  more  such  hybrids  in  the  future, 
although at the moment they are scarce.  

Some issuers and investors see this target-based approach as a positive development, as it can 
be  a  better  fit  for  a  number  of  issuers,  notably  in  asset-light  corporate  sectors  (such  as 
wholesale).  It  also  involves  less  effort  on  the  part  of  the  issuer  in  terms  of  reporting  and 
transparency  on  use  of  proceeds,  as  well  as  less  need  for  extensive  external  review.  For 
investors, the format is attractive as they are compensated in case the issuer does not reach its 
targets.  Others  highlight  the  increased  risk  of  greenwashing  and  criticize  the  fact  that 
investors receive far less sustainability-related information.  It may also be seen as a way to 
side-step questions on the definition of what is a green asset – i.e. the EU Taxonomy - which 
has  been  a  fundamental  development  in  the  market  in  the  past  year.  For  the  moment,  the 
target-based approach is often seen as a complement to the use-of-proceeds approach. 

As of December 2020, four corporates had issued SLBs: Enel, the Italian utilities company; 
Suzano, the Brazilian pulp & paper company; Novartis, the Swiss pharmaceuticals company, 
and  Chanel,  the  French  luxury  goods  company.  The  variety  of  sectors  demonstrates  the 
versatility of SLBs. The asset manager Amundi evaluates the size of the SLB market at USD 

79 Louise Bowman – ESG: green bonds have a chicken and egg problem (Euromoney, 19 June 2019) 

85 

 
 
 
 
 
                                                 
10 billion, compared to USD 950 billion for use of proceeds green bonds80. In June 2020, the 
International Capital Markets Association published its first ever principles for sustainability-
linked bonds.  

Social bonds: these are ‘use of proceeds’ bonds, whose proceeds are dedicated to promoting 
positive  social  outcomes,  such  as  the  creation  of  affordable  basic  infrastructure,  access  to 
essential  services,  housing,  employment,  and  the  general  socioeconomic  empowerment.  In 
2017,  the  International  Capital  Markets  Association  published  its  first  ever  principles  for 
social bonds.  

Sustainability  bonds:  These  bonds  are  a  combination  of  green  bonds  and  social  bonds.  In 
other  words,  they  are  ‘use  of  proceeds’  bonds  where  the  issuer  dedicates  proceeds  to  a 
combination  of  green  and  social  outcomes.  In  2018,  the  International  Capital  Markets 
Association published its first ever guidelines for sustainability bonds. 

Transition  bonds:  While  there  are  diverging  opinions  as  to  what  constitutes  a  transition 
bond,  the  idea  for  the  moment  is  that these  are  bonds  issued  by  companies  that  promise  to 
become greener but where the outcome may not yet be sufficiently green under existing green 
bond market practices. By December 2019, however, only three such bonds had been issued 
globally (BNP Paribas, 2019).   

Figure  9  -  Annual  issuance  of  green,  social,  and  sustainability  bonds  in  USD  billions  (Source: 
Environmental Finance, 25 September 2020) 

80 De Fay et Crehalet (Amundi asset management insights blue paper) December 2020  - “Sustainability-linked 
bonds: nascent opportunities for ESG investing” 

86 

 
 
 
 
 
 
 
 
 
                                                 
Annex 5: Market developments  

This annex presents the latest figures on the development of the green bond market. Unless 
otherwise indicated, the figures in this annex are based on data from Climate Bonds Initiative 
(CBI), retrieved on 11 January 2021. In these figures, “EU” refers to green bonds issued in 
one  of  the  EU’s  27  Member  States,  plus  those  green  bonds  issued  by  the  European 
Investment Bank, the Nordic Investment Bank, or the European Bank for Reconstruction and 
Development.  

The  CBI  database  operates  with  a  more  restrictive  definition  of  a  green  bond  compared  to 
most comparable databases. To be considered for inclusion, bonds must have at least 95% use 
of  proceeds  financing  or  refinancing  green/environmental  projects,  and  proceeds  should  be 
broadly  aligned  with  the Climate  Bonds  Taxonomy  (so  for  example,  bonds  financing  so-
called “clean coal” are excluded).  

Growth of the market 

Since the first  green bond was issued by the European  Investment  Bank in  2007, the green 
bond  market  has  grown  exponentially  on  the  back  of  strong  investor  demand.    While  2014 
saw  about  EUR  28  bn  in  global  issuance,  2019  reached  around  EUR  239  bn  of  annual 
issuance.  Although the issuance of green bonds decreased in the first half of 2020 due to the 
COVID-19 pandemic, 2020 still beat 2019, with around EUR 520 bn in global issuance. The 
total amount of green bonds issued over the period 2007-2020 is approximately EUR 936 bn.  

EU 
Yearly volume of GBs 
issued (EUR millions) 

Number of 
GBs issued 

World (including EU) 
Yearly volume of GBs 
issued (EUR millions) 

Number of 
GBs issued  

2007 
2008 
2009 
2010 
2011 
2012 
2013 
2014 
2015 
2016 
2017 
2018 
2019 
2020 
Grand Total 
Average annual 
growth (2015-2020) 

€ 600 

€ 287 
€ 720 
€ 116 
€ 1,072 
€ 4,303 
€ 17,205 
€ 19,675 
€ 26,601 
€ 53,843 
€ 55,394 
€ 107,155 
€ 129,189 
€ 416,160 

1 

1 
10 
5 
9 
27 
87 
75 
98 
154 
159 
312 
464 
1,402 

€ 600 
€ 325 
€ 636 
€ 3,213 
€ 945 
€ 2,790 
€ 8,453 
€ 27,618 
€ 40,482 
€ 74,102 
€ 139,042 
€ 146,139 
€ 238,967 
€ 252,869 
€ 936,180 

1 
1 
3 
61 
36 
27 
49 
163 
245 
281 
420 
498 
855 
1129 
3,269 

50.9% 

47.2% 

49% 

37.3% 

Table 18 - Annual data on green bond issuance (EU and worldwide) (Source: CBI data)81 

81 Notes on methodology: 
- 
-  All  green  bond  issues  in  CBI  database  (worldwide  figures,  including  EU).  Figures  for  number  of  green 

Figures are from own calculations based on data from Climate Bonds Initiative.  

bond issuers exclude 3778 bonds issued by one issuer, Fannie Mae. 
Figures in EUR are obtained by multiplying USD figures by an average yearly exchange rate. 

- 
-  Average annual growth rates are obtained by taking the average yearly growth rate from 2015 to 2020.  

87 

 
 
 
 
 
 
                                                 
Volume issued (EUR millions) 

EU

Rest of World

 € 140.000  

 € 120.000  

 € 100.000  

 € 80.000  

 € 60.000  

 € 40.000  

 € 20.000  

 € -  

2015

2016

2017

2018

2019

2020

Figure 10 - Volume of green bonds issued in EUR (source: CBI data) 

Number of green bonds issued 

600

500

400

300

200

100

0

EU

Rest of World

2015

2016

2017

2018

2019

2020

Figure 11 - Number of green bonds issued (source: CBI data) 

Projected future market growth  

This section attempts to give a very approximate estimate of the expected size of the green 
bond market in 2023.  

Current growth in the green bond market is driven by inter alia the following factors:  

- 

- 

Increased investment in climate change mitigating assets, such as low-carbon technology and 
infrastructure 
Increased  demand  from  institutional  investors  and  their  clients  for  green  investments,  for 
example  to  hedge  against  the  risk  of  stranded  assets  and  make  a  positive  impact  against 
climate change.  

-  The  overall  legislative  and  political  environment,  which  favours  transparency  on  the 

sustainability of investments.  

88 

 
 
 
 
 
 
These factors are likely to remain relevant for decades or more, as they are all linked to the 
risk of climate change, which is an underlying driver that will be present for the foreseeable 
future.  For  this  reason,  it  is  reasonable  to  assume  that  the  green  bond  market  is  likely  to 
continue growing, potentially at or close to its current course.  

Should  the  current  average  annual  growth  (from  2015  to  2020)  continue  in  the  next  three 
years, yearly green bond issuance in 2023 would stand at approximately EUR 430 billion in 
the  EU,  and  EUR  830  billion  worldwide.  Using  a  similar  projection,  the  number  of  green 
bonds issued per year is estimated to be about 1470 in the EU and about 2900 worldwide. 

It  is  impossible  to  project  the  market  share  of  the  future  EU  GBS.  However,  by  making 
assumptions about  this market  share, one can arrive at  different  estimates of the number of 
EU GBS-aligned green bonds that may be issued in 2023. If for example the EU GBS should 
manage to capture 30% of the future EU green bond market, and none of the global market, 
this would represent  about  440 EU GBS-aligned green bonds, or about  EUR 130 billion in 
volume,  based  on  the  projections  in  this  annex  on  overall  green  bond  market  size.  These 
figures (for potential EU GBS issuance in 2023) are similar in size to the overall EU green 
bond  issuance  in  2019  or  2020,  all  standards  included,  which  is  illustrative  of  the  current 
rapid growth of this market, and the potential situation should this growth continue.  

Legal status of green bond 

Green  bonds  are  legally  often  general  corporate  purpose  bonds,  where  issuers  make  a 
commitment  to  spend  an  equivalent  amount  as  that  raised  on  green  assets.  The  proceeds 
technically  go  to  the  treasury  however,  and  as  such  finance  the  entire  balance  sheet  of  the 
company. For this reason, the credit risk of the green bond is not related to the green projects, 
but to the credit risk of the entire issuer.  

Other types of green bonds also exist, including project bonds, which are commonly used to 
finance  sustainable  infrastructure  projects.  In  the  case  of  project  bonds,  the  risk  is  directly 
related with the asset being financed and how this asset is operated. Table 19 below provides 
more information on the types of green bonds.  

Type 

"Use of Proceeds" 
Bond 
"Use of Proceeds" 
Revenue Bond or 
ABS 
Project Bond 

Securitisation 
(ABS) Bond 

Covered Bond 

Loan 

Proceeds raised by bond 
sale are 
Earmarked for green 
projects 
Earmarked for or refinances 
green projects 

Ring-fenced for the specific 
underlying green project(s) 
Refinance portfolios of 
green projects or proceeds 
are earmarked for green 
projects 
Earmarked for eligible 
projects included in the 
covered pool 
Earmarked for eligible 
projects or secured on 
eligible assets 

Debt recourse 

Recourse to the issuer: same credit rating applies as 
issuer's other bonds 
Revenue streams from the issuers though fees, taxes 
etc are collateral for the debt 

Recourse is only to the project's assets and balance 
sheet 
Recourse is to a group of projects that have been 
grouped together (e.g. solar leases or green 
mortgages) 

Recourse to the issuer and, if the issuer is unable to 
repay the bond, to the covered pool 

Full recourse to the borrower(s) in the case of 
unsecured loans. Recourse to the collateral in the 
case of secured loans, but may also feature limited 
recourse to the borrower(s). 

89 

 
Type 

Other debt 
instruments 

Proceeds raised by bond 
sale are 
Earmarked for eligible 
projects  

Table 19- Types of green bonds (source: CBI) 

Debt recourse 

Currencies 

In  2018,  euro-denominated  issuance  represented  38%  of  the  annual  market  by  volume, 
overtaking the US  dollar (46% in  2017). Euro-dominated issuance continued to  increase its 
relative position, taking 42% of the total market in 2019, and 48% in 2020.  

% of yearly global issuance  
2015 
2016 
2017 
2018 
2019 
2020 

EUR  Other Currencies 
34%  66% 
25%  75% 
36%  64% 
38%  62% 
42%  58% 
48%  52% 

 Table 20 - Share of the euro in yearly global green bond issuance volume (source: CBI data) 

Share of global bonds issued in EUR 

80%

70%

60%

50%

40%

30%

20%

10%

0%

EUR

OTHER

2015

2016

2017

2018

2019

2020

Figure 12 - Share of the euro in yearly global green bond issuance (source: CBI data) 

Green bond issuers 

Analysis of the current market for green bonds in the EU and world-wide indicates that the 
market is growing rapidly. In Europe, the number of issuers entering the green bond market 
for the first time every year grew by 30% yearly on average between 2015 and 2020.  

New issuers 
2015 
2016 
2017 
2018 
2019 

EU 

Rest of 
world 

54 
77 
118 
180 
239 

22 
25 
39 
44 
64 

90 

 
  
 
 
 
 
 
 
2020 

77 

282 

Table 21 - First time green bond issuers (source: CBI data) 

Once an issuer has entered the market, published a green bond framework, and issued their 
first  green  bond,  they  may  reissue  up  to  several  times  a  year  using  the  same  framework. 
According to Climate Bonds Initiative, 56% of bond volume for 2019 was made up of issuers 
who issued several times during 2019 alone, with a significant number of issuers (79) issuing 
twice a year, and 53 issuers issuing more frequently than that.  

Frequency (# of deals in 2019) 
2 
3 
4 
5-9 
10 or more 
TOTAL 

Number of issuers 
79 
18 
14 
16 
5 
132 

Share of total 2019 volume 
15.8 % 
8.4 % 
4.1 % 
15.4 % 
12.3 % 
56 % 

Table 22 - Frequency of green bond issue per issuer (source: CBI) 

Regional breakdown: 
Europe  (52%  in  2020)  is  the  largest  overall  green  bond  market.  In  terms  of  individual 
countries, however, the US is the largest green bond market, not least due to large amounts of 
green  mortgage-backed  securities  issued  by  Fannie  Mae.  China  is  the  second  largest  green 
bond market. In 2020, the Asia-Pacific regions had the third largest volume after Europe.  

2020 regional green bond issuance 
Supranationals 
5% 

Africa 
0% 

Asia-Pacific 
17% 

N America 
23% 

LAC 
3% 

Europe 
52% 

Figure 13 – 2020 Regional green bond issuance (Source: CBI data) 

Types of issuers  

While  there  are  all  kinds  of  issuers,  the  market  has  historically  been  led  by  public  sector 
issuers  and  financial  corporates.  As  Figure  17  shows,  more  than  half  of  the  market  comes 
from public-related issuers, such as national and local governments, and development banks. 

91 

 
 
 
 
 
 
 
 
Financial  corporates  also  play  a  strong  role,  as  many  banks  issued  green  bonds.  Recently, 
non-financial corporate issuance has been rising as well.  

Figure 14 - Green bonds per type of issuer (CBI) 

Sectors  

Both  financial  and  non-financial  corporate  issuances  have  mostly  revolved  around  either 
housing or electricity production (60% of market in 2019). While these are important sectors 
in  the  transition  to  a  more  sustainable  economy,  it  also  means  that  many  industrial  sectors 
have so far not yet issued green bonds.  

92 

 
 
 
 
 
 
 
 
 
 
 
 
 
Annex 6: Costs and benefits of issuing green bonds  

This annex analyses the potential costs and potential benefits faced by issuers of green bonds, 
to support the analysis in section 7 – preferred option. This annex does not specifically cover 
the costs and benefits of issuing under the EU GBS, but for green bond issuance in general.  

Issuing  a  green  bond  requires  additional  work  in  terms  of  administrative  effort  and  costs 
compared with a conventional bond. According to the TEG, such internal costs represent the 
main share of overall issuance costs. These costs relate to: 

  staff and training needs related to the creation of a green bond program,  
  the management and monitoring of the use of green bond proceeds,  
  monitoring the environmental impact of the green projects,  
  carrying out of reporting towards bond investors after issuance.  

In  addition,  there  are  costs  for  external  review/verifiers  (roughly  EUR  20.000  -  40.000  per 
issuance based on stakeholder input).  

When a profit-maximising corporation issues a green bond, it can be assumed that: 

-  The net benefit (benefits-costs) of issuing a green bond for the issuer is positive. 
-  The  net  benefit  for  the  issuer  is  higher  than  the  net  benefit  of  issuing  a  conventional  (non-

green) bond.  

Unless  these  two  conditions  are  true,  it  is  likely  that  the  issuer  would  rather  issue  a 
conventional bond or use other sources of finance.  

1)  Costs of issuing green bonds compared with conventional bonds: 

During  interviews  with  stakeholders,  there  was  broad  agreement  that  the  issuance  of  green 
bonds is more costly than a regular bond, as it requires more work in terms of gathering and 
presenting the relevant information. However, in the CBI Treasurer survey82, just under half 
of  respondents  (48%)  agreed  that  the  cost  of  funding  green  bonds  was  similar  to  that  of 
vanilla equivalents, while 42% considered the costs to be lower. 

One issuer responding to the targeted consultation indicated that the total additional costs of 
issuing  a  green  bond  (for  verification,  translation,  communication  etc,  but  not  including 
internal costs) range from € 40,000 – €60,000 annually. According to the figures of one large 
investment bank responding to the targeted consultation, for green bonds issued according to 
the ICMA Green Bond Principles, additional costs for green bonds (over conventional bonds) 
linked to verification are around €20,000.  For reporting, the costs vary between €5,000 and 
€10,000, while for planning and preparation, there are additional labour costs due to the need 
for a dedicated person that collects data (at least part time at certain times within the year). 
Other respondents gave more extreme numerical estimates on the overall cost of green bond 
issuance, corresponding to € 100,000 and € 200,000.  

One stakeholder indicated that most issuers cover the internal costs from existing resources. 
Another stakeholder indicated that the additional costs are fairly limited when viewed in the 
context of the scale of the big investment projects, e.g. when issuing a  € 500 million bond. 

82 CBI: “Green bond treasury survey”, 2020 (Link) 

93 

 
 
                                                 
Finally,  a  stakeholder  mentioned  that  digitalization  (e.g.  digital  impact  reporting,  databases 
shared  between  clients  and  investors)  could  be  a  solution  for  reducing  the  costs  for 
sustainable finance products.  

Many  respondents  to  the  targeted  consultation  also  mention  that  smaller  issuers  may  have 
more  difficulty  absorbing  these  costs,  as  they  will  represent  a  larger  fixed  cost  fraction  of 
their bond (thereby affecting the cost benefit calculation of green bonds for smaller issuers). 
The costs are also typically higher for first time issuers.  

The costs of issuing a green bond can be categorised as follows:  

1.2) 

Internal resources  

This relates to the staff and IT systems required to put in place the procedures that allow for 
the issuance of a green bond (as part of a green bond programme), but also to the reporting 
requirements after issuance, which are sometimes seen as cumbersome.  

This is especially needed for setting up the framework, implementing the selection process, 
tracking  the  proceeds/projects  and  an  enhanced/changed  investor  relation  work.  The 
preparation of an impact report involves the monitoring and collection of data, which requires 
additional staff for data analysis and reporting requirements.  

There  are  also  differences  in  ongoing  costs,  as  conventional  bonds  require  almost  no 
surveillance  after  issuance  and  allocation,  whereas  green  bond  needs  roughly  20%  more  of 
human capital at issuance. 

1.3)  Uncertainty and delays 

Setting-up a green bond requires more time, i. a. more internal coordination among different 
department  but  also  external  coordination.  For  many  issuers,  green  bonds  are  a  new 
instrument they need to familiarise themselves with. 

1.4)  External review:  

The  issuance  of  a  green  bond  entails  a  second  opinion/verification.  Green  bonds  require 
recurrent impact reporting and potentially verification of the impact report and/or allocation 
of proceeds. The TEG estimated that the costs for second-party opinions and/or external 
verification  was  roughly  in  the  range  of  EUR  20,000  to  40,000.  Further  estimates  from 
stakeholder interviews and targeted consultations confirmed this. (see table below) 

of 

Second 
Cost 
Party 
Opinion/ 
external Verification 

Stakeholder interviews 
A 
second 
opinion/verifications  costs  around 
€ 15.000 per issuance. 

typical 

TEG:  Approximately 
in  the  range  of  EUR 
20,000 to 40,000. 

Further  stakeholders  mentioned  a 
range  of  roughly  of  €  20.000  to  € 
35.000.  

These  costs  do  not  correlate  with 
the amount of the bond.  

Targeted consultation 
For  SPO:  In 
18.000 to 30.000 

the  range  of 

“A first proposal of an external 
verification  was  more 
than 
double  the  cost  of  a  normal 
verification (SPO)” 

“Likely 
external 
that 
verification under EU GBS will 
be more costly than the current 
SPOs,  as  more  work  will  be 

94 

 
 
 
 
 
 
 
 
Cost 
annual 
of 
review  of  allocation 
report 
Cost 
verification 

overall 

of 

The  annual 
around € 5.000 to € 10.000. 

review  costs  are 

required  to  assess  compliance 
with  the Taxonomy Thresholds 
and the DNSH” 

- around 20 000 
- 25.000 to 30.000 
- 7.000 to 45.000 

Table 23 - Costs of external review 

2)  Benefits of issuing green bonds compared with conventional bonds 

During  interviews  with  stakeholders,  the  following  potential  benefits  for  issuers  of  issuing 
green bonds were identified: 

- 

Increased investor demand, more diversified set of investors, opportunities to attract overseas 
investors  (for  emerging  markets)  and  opportunities  to  advance  individual  sustainability 
objectives/business models;  

-  An  improved  reputation  on  sustainability  in  the  market:  communication  of  commitment  to 
national/regional/global  targets  and  a  capacity  building  exercise  in  dialogue  with  investors 
that increases the understanding for more ambitious longer-term sustainability strategies;  
In  some  cases  a  price  “green  premium”  –  small  consistent  price  benefit  for  issuing  green 
bonds;  

- 

-  More consistency as green bond investors tend to be more stable;  
-  Very  strong  internal  learning  process  for  an  entity  and  after  first  issuance  of  a  green  bond 
entities are in a better place to understand the green process and issuance as well as broader 
sustainability issues and manage future environmental risks;  

-  An  enhanced  coordination  among  different  departments  within  the  company  may  have  a 

positive effect on the corporate culture. 

Given  the  growing  amount  of  green  bonds  that  are  issued,  it  can  be  assumed  that  in  some 
cases these benefits outweigh the existing costs of issuing green bonds,  making green bond 
issuance a net beneficial activity.  

More information on the benefits of green bond issuance:  

-  Communication and signalling. Issuing a green bond is a way to signal to investors a strong 
focus  on  environmental  issues.  This,  in  turn,  can  lead  to  an  overall  lower  funding  curve  as 
investors  become  convinced  that  the  company  is  transition  to  a  more  sustainable  business 
model. 

-  A  diversification  of  the  issuer’s  investor  base.  According  to  a  study  by  the  Harvard 
Business  review (2018)83, green issuers attract  long-term investors with  an increase of 21% 
(the  share  of  long-term  investors  increases  from  7.1%  to  8.6%).  This  in  turn,  makes  green 
bonds less volatile.  

-  Higher demand for green bonds, which provides benefits during the execution, and which 
may  be  evidenced  by  lower  new  issue  premiums.  For  example,  according  to  Climate  Bond 

83 Flammer, C. (Harvard Business Review): “Green Bonds benefit companies, investors, and the planet”, 2018 
(Link) 

95 

 
 
 
 
                                                 
Initiative,  62%  of  green  bonds  in  2018  achieved  a  higher  oversubscription  and  spread 
compression than their vanilla equivalents after 28 days. According to Agliardi and Agliardi 
(2019)84,  the  rising  environmental  awareness  among  investors  contributes  to  increased 
demand for green bonds and to oversubscriptions. 

Green bond premium (greenium) 

While green bonds entail additional costs for issuers, there is growing evidence that issuers of 
green  bonds  are  to  some  extent  directly  compensated  for  those  costs  through  a  pricing 
advantage on primary markets (i.e. issuers  receive a higher market price when they sell the 
bond). This is referred to as a green bond premium (or even “greenium”). Such a green bond 
premium  would  imply  that  investors  accept  a  lower  yield  on  the  bond  due  to  its  green 
characteristics.  

Causes 

Legally,  green  bonds  are  no  different  from  regular  bonds:  although  the  issuer  promises  to 
spend the raised amount on the projects as outlined in the green bond framework, the use of 
proceeds  are  technically  for  general  corporate  purposes  and  therefore  finance  the  entire 
balance sheet of a company. Green bonds rank pari-passu with bonds with the same rank and 
issuer. The green bond holder does not own any additional right on the underlying projects 
and is subject to the same market dynamics. This means that the credit risk and market risk of 
green  bonds  are  similar  to  regular  bonds.  A  green  premium  for  the  issuer  is  therefore 
somewhat of a market anomaly. 

According  to  Ben  Slimane  et  al  (2020),  demand  for  sustainable  investments  is  increasing 
faster  than  supply,  which  is  still  relatively  limited,  creating  a  potential  mismatch  of  supply 
and  demand  that  can  trigger  scarcities  and  thus  larger  premia.  According  to  Agliardi  and 
Agliardi (2019), the rising environmental awareness among investors contributes to increased 
demand for green bonds and to oversubscriptions. In Zerbib (2019), the difference in pricing 
is  attributed  largely  to  investors’  environmental  preferences,  rather  than  to  risk.  As  those 
preferences  manifest  themselves  in  growing  demand  for  green  bonds,  in  particular  from 
institutional investors who wish to have green bonds in their portfolios to attract clients and 
boost  the  green  credentials  of  their  funds  or  products,  it  is  possible  that  the  green  bond 
premium will continue to grow. 

Size of the green bond premium  

It  is  not  always  straightforward to  identify a  green bond premium,  as the price of the same 
bond without the green bond label is not known (i.e. it is a counter-factual). However, reports 
from stakeholders and studies seem to indicate that the green bond premium exists and is in 
fact growing in line with rising market demand for green bonds. 

In May and June 2020, stakeholder outreach pointed to the existence of a small but consistent 
price  benefit  for  issuing  green  bonds,  consisting  of  a  few  basis  points.  According  to  one 
prominent  investment  bank  interviewed  in  September  2020,  outstanding  green  bonds  at  the 
time held a pricing advantage of 3-5 bps to plain vanilla bonds.  

According  to  another  stakeholder,  representing  a  major  European  bank  interviewed  in 
January 2021, the  average  green bond premium  has been increasing over time, to  the point 

84 Agliardi, E., Agliardi, R: “Financing environmentally-sustainable projects with green bonds”, 2019 (Link) 

96 

 
 
 
                                                 
where it became a regular occurrence in the market. The growth in the green bond premium 
over time is  also  observed in  the market  for US municipal green bonds, Karpf  and Mandel 
(2018).  

The green bond premium is also present for sovereign issuers: in a study published by CBI in 
202185  based  on  feedback  from  sovereign  treasurers,  France,  the  Netherlands  and  Germany 
reported that their green bond issuances had benefited from a green bond premium. 

Studies  

  The average premium ranges between two (Zerbib 2019) and eighteen basis points (Gianfrate 

and Peri 2019). 

  Kapraun  and  Scheins  (2019)  examine  both  primary  and  secondary  market  effects  and  find 
that green bonds listed on the London and Luxembourg secondary markets with a dedicated 
green bond segment are traded on average 7 bps lower. 

  Ben  Slimane  et  al  find  (2020)  use  two  methods  to  estimate  green  bond  premia,  and  find 

significant premia of respectively 4.7 bps and 2.2 bps. 

  In a meta-study by MacAskill et al (2020) that examined 15 separate studies on green bond 
premia on primary  and secondary markets,  only the analysis focused on secondary markets 
yielded conclusive results, with spreads there mostly focused between 1 and 9 basis points.  

Determinants of the green bond premium  

Green  bond  premia  vary  significantly  around  the  average  levels  indicated  in  the  previous 
section. Some of the key determinants for variation include:  

  Sector  and  geographic  region:  According  to  stakeholders,  the  size  of  green  bond  premia 
correlates with the supply of green bonds for a given sector or geographic area (lower supply 
of  green  bonds  leads  to  more  important  green  bond  premia).  For  example,  one  stakeholder 
estimates the average green bond premia in the energy and utilities sector at around 5-10 bps. 
In the automobile sector, however, premia are higher. Ben Slimane et al  (2020) report that, 
according to Bloomberg, the €1 billion 10-year green bond issued by the automaker Daimler 
AG  priced  more  than  13  basis  points  tighter  than  its  conventional  spread  curve.  Likewise, 
Volkswagen AG sold eight-year and 12-year green benchmarks with a volume of €2 billion, 
15.4 and 13.6 basis points lower in yield versus the rest of its bonds. Green bond premia for 
bonds from central and eastern Europe, where green bonds are less frequent and hence could 
be more in demand, are currently at between 5-30 basis points.  

  Issuer heterogeneity: the size or existence of the premium depends crucially on the type of 
issuer. (Fatica, Panzica and Rancan, 2021) finds a green bond premium for green bonds that 
are issued by supranational institutions and non-financial corporates, but no price difference 
for green bonds issued by financial institutions, all other factors equal. One possible reason 
behind  such  heterogeneity  is  that  financial  institutions  are  less  clearly  able  to  signal  their 
environmental attitudes, as bond funding is arguably used to finance green loans. The same 

85 Climate Bonds Initiative: Sovereign green, social, and sustainability Bond Survey (2021)  

97 

 
 
 
 
 
 
                                                 
study also  finds that repeat  issuers display an additional premium,  potentially motivated by 
the build-up of a reputation on the green market and better ability on the part of investors to 
screen borrowers. 

  Importance of external review: the literature also suggests that the price premium critically 
depends  on  external  verification.  Fatica  et  al.  (2021)  looked  at  the  primary  bond  market 
worldwide and found that certified green bonds benefit from larger premia compared to self-
labelled  green  bonds.  This  could  be  because  external  review  acts  as  a  signalling  device  for 
bonds with strong climate- or environmental benefits, which means they are able to sell at a 
premium even compared to other green bonds if those do not have external review. Similarly, 
Bachelet et al. (2019) find that green bonds of private issuers have a higher borrowing costs 
compared to non-green bonds unless they have third-party verification. 

  Alignment with strong standards: MacAskill et al (2020) find that the systematic rules and 
standardisation  that  accompany  strong  GB  governance  reduce  informational  asymmetries, 
which helps to overcome investors’ doubts on the ‘greenness’ of a particular green bond, both 
at issuance and reporting of ongoing performance. These findings confirm that investors are 
willing  to  pay  a  premium  for  investments  that  offer  clear  ESG-related  reporting  on  fund 
proceeds, by up to 15 bps on secondary markets (Hyun et al., 2019; Baker et al., 2018).  

Studies on the green bond premium: 

  Serena Fatica, Roberto Panzica, and Michael Rancan. 2021. The Pricing of Green Bonds: 
54, 

of  Financial  Stability, 

Institutions  Special? 

Journal 

Are  Financial 
doi.org/10.1016/j.jfs.2021.100873 

  Hachenberg,  Britta,  and  Dirk  Schiereck.  2018.  “Are  Green  Bonds  Priced  Differently 
from  Conventional  Bonds?”  Journal  of  Asset  Management  19  (6):  371–383. 
doi:10.1057/s41260-018-0088-5. 

  Zerbib,  Olivier  David.  2019.  “The  Effect  of  Pro-Environmental  Preferences  on  Bond 
Prices: Evidence from Green Bonds.” Journal of Banking & Finance 98 (January): 39–
60. doi:10.1016/j.jbankfin.2018.10.012. 

  Gianfrate,  Gianfranco,  and  Mattia  Peri.  2019.  “The  Green  Advantage:  Exploring  the 
Convenience of Issuing Green Bonds.” Journal of  Cleaner Production 219 (May): 127–
135. doi:10.1016/j.jclepro.2019.02.022. 

  Forsbacka,  Kristina,  and  Gregor  Vulturius.  2019.  “A  Legal  Analysis  of  Terms  and 

Conditions for Green Bonds.” Europarättslig Tidsskrift 3: 379–442. 

  Agliardi,  Elettra  and  Agliardi,  Rossella.  2019:  “Financing  environmentally-sustainable 

projects with green bonds” 

  Mohamed  Ben  Slimane,  Dany  Da  Fonseca,  Vibek  Mahtani,  2020.  Amundi  green  bond 
premium – working paper 102-2020 – December 2020 – “Facts and fantasies about the 
Green Bond Premium” 

  MacAskill et al, October 2020 Is there a greenium in the green bond market? Systematic 

literature review revealing premium determinants. (Journal of Cleaner Production) 

  Karpf  et  Mandel  (2018)  The  changing  value  of  the  ‘green’  label  on  the  US  municipal 

bond market 

  Kapraun et Scheins (2019) Which bonds trade at a green bond premium? 

98 

 
 
 
 
 
 
Annex 7: Standards and definitions of green 

The  green  bond  market  has  considerably  progressed  the  debate  on  what  is  green  by 
facilitating the emergence of both market-based and regulatory definitions of green eligibility 
and  their  transparent  comparison86.  This  section  provides  an  overview  over  existing  green 
bond standards and taxonomies for the definition of green, in order to enable a comparison of 
their  span  and  enable  further  analysis.  The  main  standards  and  taxonomies  covered  in  this 
annex include:  

1)  ICMA’s Green Bond Principles 
2)  Climate Bonds Initiative: Climate Bonds taxonomy and eligibility criteria  
3)  France: Climate and Energy Transition Label Taxonomy (recently renamed “Greenfin”) 
4)  China Green Bond Endorsed Project Catalogue  
5)  Other standards and definitions of green 
6)  The Draft/Concept EU Green Bond Standard as proposed by the TEG 

The EU Taxonomy for sustainable finance is covered in annex 7.  

In Europe, the two most common standards are ICMA’s green bond principles (GBP) and the 
Climate Bonds Standard (operated by the Climate Bonds Initiative, CBI), which also 
manages the Climate Bonds Taxonomy. The former, the GBPs, covers nearly the entire 
market, and focuses on process-related recommendations as well as high-level categories for 
eligible sectors.  

The  latter,  CBI’s  standard  and  taxonomy,  comes  with  stricter  requirements  for  eligible 
projects (since it is also a Taxonomy) and is consequently used by fewer issuers. In their own 
assessment, CBI estimates that, out of USD 212 billion in value of green bonds issued in the 
first ten months of 2020, green bonds worth USD 163 billion were aligned with the Climate 
Bonds Taxonomy. Of these, green bonds worth USD 49.5 million requested and obtained the 
CBI certification.  

Following the publication of the Commission’s Action Plan on sustainable finance in March 
2018, the Commission set up the Technical Expert Group on Sustainable Finance (TEG). One 
of its tasks was to draft a proposal for an EU Green Bond Standard. The TEG its report on the 
EU  GBS  in  June  2019,  followed  by  a  usability  guide  in  March  2020.  On  this  basis,  some 
issuers  have  already  begun  to  make  use  of  the  standard,  despite  it  not  yet  being  officially 
adopted by the EU (see box 1). 

Some Member States have developed labels  of  green  financial products  which also  include 
taxonomies.  One  notable  example  is  France,  whose  Greenfin  label  (old  name:  TEEC)  is 
based  on  the  CBI  Taxonomy.  Although  the  label  itself  is  typically  used  for  funds,  the 
underlying criteria have strong indirect implications for green bonds. For example, France’s 
sovereign green bond was aligned with the Greenfin standard. International actors have also 
developed their own taxonomies/bond standards, including the People’s Bank of China Green 
Bond Catalogue.  

86  For  a  detailed  analysis:  China  Green  Finance  Committee  and  EIB,  “The  need  for  a  common  language  in 
Green Finance”, 2017 (Link)  

99 

 
 
 
 
                                                 
In feedback from a 2018 public consultation on institutional investor’s and asset manager’s 
duties  regarding  sustainability,  stakeholders  indicated  that  there  are  too  many  standards 
without a single, commonly-accepted framework. 

Although these standards and taxonomies were primarily developed for use in the green bond 
market,  they  are  also  currently  used  as  the  basis  for  several  existing  national  eco-labelling 
initiatives.  

For example, the TEEC Label (France) and the FNG Siegel (Germany) are based on the CBI 
taxonomy.  The  Nordic  Swan  Ecolabel  is  based  on  ICMA's  Green  Bond  Principle.  And  the 
Luxflag  Climate  Finance  Label  (Luxemburg)  is  based  on  the  MDB/IDFC  taxonomy  (see 
Table  24  -  Other  definitions  and  standards  relating  to  green  bondsTable  24).  On  the  other 
hand, the Austrian Ecolabel only specifies exclusion criteria but does not stipulate the use of 
a specific taxonomy. 

In  each  case,  the  taxonomies  have  been  adjusted  to  reflect  national  priorities,  as  well  as 
having been narrowed down or made more granular for certain sectors. Using the French case 
as an example, the taxonomy used for the TEEC label is based on that of the CBI, with a few 
amendments to take account of the considerations of the stakeholders consulted and national 
public  policy  guidelines.  Among  others,  certain  activities  that  appear  in  the  CBI  taxonomy 
have been excluded from the TEEC label taxonomy, or, in some cases, descriptions of certain 
activities appearing in the CBI taxonomy have been specified in the French example.  

Next  to  the  market-based  standards,  some  regions  and  countries  have  developed  or  are 
developing standards or guidelines for green bond issuances. Several jurisdictions, including 
China, India, Morocco, as well as the ASEAN countries, have green bonds regulations issued 
by  financial  services  authorities.  Several  other  jurisdictions,  including  Chile,  Mexico,  and 
South  Africa,  have  listing  requirements.  In  some  cases,  the  requirements  are  part  of  a 
voluntary standard. The requirements usually revolve around disclosure and reporting issues, 
and  they  often  build  on  the  Green  Bond  Principles.  Most  of  them  contain  use  of  proceeds 
requirements  or  guidance,  although  they  are  often  high-level,  building  on  the  green  project 
categories from the Green Bond Principles. Almost all of them have some form of mandatory 
external review.  

The International Capital Markets Association’s Green Bond Principles (GBP) 

Developed in 2010 and annually reviewed by the Green Bonds Working Group through the 
coordination of the  International  Capital  Markets  Association,  the GBP explicitly recognise 
broad  categories  of  eligibility  for  green  projects  that  contribute  to  several  environmental 
objectives, including: 
- 
- 
- 
- 

climate change mitigation and adaptation, 
natural resource conservation, 
biodiversity conservation, and 
pollution prevention and control. 

Use of proceeds 

Eligibility criteria  

  Recommended to include proceeds in legal documentation 
  Financing or refinancing of eligible green expenditures.  
  Disclosure of proportion of proceeds used for refinancing: Recommended 
High level categories for eligible projects 

100 

 
 
 
 
 
Social  safeguards:  Communicate  clearly  to  investors  the  “process  applied  to 
identify and manage potentially material environmental and social risks” 

Reporting  

Impact monitoring and reporting recommended wherever possible 

External 
requirements 

Review 

Recommended. External review may be partial, covering only certain aspects of 
an issuer’s green bond or associated Green Bond Framework or full, assessing 
alignment with all four core components of the GBP87  

Accreditation of external 
reviewers/ verifiers  

Publication of external verification recommended 
Not addressed in GBPs 

Climate Bonds Initiative: Climate Bonds taxonomy and eligibility criteria 

green 

Dimension 
of 
finance  
Context  

Conceptual 
definition  

The  Climate  Bonds  taxonomy  and  sector-specific  eligibility  criteria  are  meant  to  support 
issuance of / investment in green / climate-aligned bonds.  

The  Climate  Bonds  Initiative  (CBI)  supports  the  growth  of  worldwide  green  bond  markets 
through the development and certification of standards, knowledge creation and networking. As 
part of its Climate Bonds Standard & Certification Scheme, it coordinates the development and 
constant  refining  of  a  taxonomy  and  sector-specific  eligibility  criteria  for  ‘low  carbon  and 
climate resilient’ investments.  
First released in 2013,  the taxonomy is developed and continuously updated by the  CBI team. 
The  eligibility  criteria  are  prepared  by  Technical  Working  Groups,  made  up  of  scientists, 
engineers and technical specialists, with support from expert advisory committees. Draft criteria 
are  presented  to  Industry  Working  Groups  before  being  released  for  public  comment.  Finally, 
criteria are presented to the Climate Bonds Standard Board for approval.  
The  Certification  Scheme  allows  investors,  governments  and  other  stakeholders  to  prioritise 
‘low carbon and climate resilient’ investments. Specifically, this includes projects or assets that 
directly contribute to:  
  Developing low carbon industries, technologies and practices that mitigate greenhouse gas 

(GHG) emissions consistent with avoiding dangerous climate change  

  Essential adaptation to the consequences of climate change  

Taxonomy  / 
sectoral 
focus  

(Inclusion  / 
exclusion)  

Criteria  

The  Climate  Bonds  Taxonomy  identifies  8  sectors  that  can  be  eligible  for  green  and  climate 
bonds:  energy;  buildings;  industry;  waste,  pollution  control  and  sequestration;  transport; 
information technology and communication (ITC); agriculture & forestry; adaptation. For each 
sector,  specific  inclusions,  exclusions  and  investment  areas  for  which  more  work  has  to  be 
done  are  defined.  Further  explanations  and  restrictions  are  added  for  most  areas  to  support 
selection of eligible investments. (Figure 15) 
The investment areas that are specifically  marked as  “excluded” in  the  taxonomy are:  nuclear 
power, fossil fuels (incl. fossil fuel efficiency and energy savings related to fossil fuel extraction, 
transport, power generation; rail transport of fossil fuels), landfill and waste incineration without 
gas/energy capture, timber harvesting, and agriculture on peat land.  
In  order  to  become  certified  under  the  Climate  Bonds  Standards  V2.1  green  bonds  have  to 
comply with additional eligibility criteria.  

These are currently88 available for  
-  Energy (solar; wind; geothermal; bioenergy, marine renewables)  
-  Low carbon transport (private, public, rail freight, cross-cutting) 
-  Water infrastructure 

87 The four components of the Green Bond Principles are: (1) Use of proceeds; (2) Process for project evaluation 
and selection; (3) Management of proceeds; and (4) Reporting. 
88 Latest available version is from January 2020.  

101 

 
 
 
 
 
 
 
                                                 
-  Low carbon buildings 
-  Land use and marine resources (forestry, ecosystem protection and restoration) 
-  Waste management and pollution control 

Criteria are under development in the sectors of  
-  Water-borne transport 
- 
- 
- 

hydro-power 
energy storage, transmission, distribution,  
agriculture.  

/ 

Product 
process 
standards  

fisheries and aquaculture, supply chain asset management for land use 
Industry, including energy-intensive manufacturing 
IT and communication technology  

Eligibility criteria are yet to be developed in inter alia the following sectors:  
-  Carbon capture and storage 
- 
- 
- 
The Climate Bonds taxonomy is part of the Climate Bonds Standard & Certification Scheme. In 
order  to  become  certified,  issuers  have  to  comply  with  a  range  of  pre-  and  post-issuance 
requirements, which are largely aligned with the Green Bond Principles.  
  Pre-Issuance Certification: Assessment and certification of the bond issuer’s internal 

processes, including its selection process for projects & assets, internal tracking of proceeds, 
and the allocation system for funds.  

  Post-Issuance Certification: Assessment and certification of the bond, which must be 

undertaken after the allocation of bond proceeds is underway, and includes assurance from 
the Verifier that the issuer and the bond conform with all of the Post-Issuance Requirements 
of the Climate Bonds Standard. An issuer may also choose to voluntarily repeat the post-
issuance certification process on a periodic basis.  

Investor 
implications  

Globally, 57 Climate Bonds were certified by September 2017. 
The  Climate  Bonds  taxonomy  is  rather  detailed  and  allows  fast  identification  of  (in)eligible 
investment areas. The different sector-specific eligibility criteria, in turn, require more in-depth 
scrutiny.  The  criteria  are  structured  differently  for  each  sector  which  can  be  particularly 
challenging for issuers whose bond projects fall into different green categories.  

Benefits for issuers, according to CBI:  
  More diverse investor base: certification signals the low-carbon integrity of the bond and is 

important for investors looking for climate related investments. Most issuers of Certified 
Climate Bonds find that the range of investors interested in their bond is much broader.  

  Easier-to-find: certification allows potential investors to quickly find a credible green / 

climate bond on Bloomberg and via other providers of market information.  

  Enhanced reputation: certification allows an issuer to associate its organisation with efforts 
to scale up financial flows for delivering the low-carbon economy and securing prosperity 
for future generations.  

  Lower cost: issuers pay less for certification than for a second opinion, and investors avoid 

the cost of environmental due diligence.  

The taxonomy and eligibility criteria have been/are being developed with stakeholders from the 
EU and beyond. They should thus support bond issuers across different countries. 

Policy 
implications 
/ 
EU 
relevance  

102 

 
 
 
 
 
Figure 15 - Sector breakdown of Climate Bonds Taxonomy 

103 

 
 
 
 
 
 
France: Energy and Ecological Transition for the Climate (TEEC) Label 

Dimension 
of 
green 
finance  
Context  

The  label  aims  to  specifically  identify  investment  funds  (equity  funds,  green  bond  funds, 
infrastructure funds and private equity) that contribute to the energy and ecological transition.  

In  2014,  the  French  government  announced  its  intention  to  create  an  Energy  and  Ecological 
Transition  for  Climate  (TEEC)  label  and  an  SRI  label.  These  labels  aim  to  help  investors 
comply  with  legal  requirements  to  demonstrate  the  alignment  of  their  portfolio  to  national  and 
international  targets  (as  specified  in  the  Law  N°  2015-992  on  Energy  Transition  for  Green 
Growth,  adopted  in  2015).  The  TEEC  label  was  developed  by  a  working  group  with 
representatives  of  important  stakeholder  groups,  on  behalf  of  the  then  French  Ministry  of  the 
Environment,  Energy  and  Marine  Affairs.  The  first  version  of  the  “Criteria  Guidelines”  was 
published in 2015.  
The criteria guidelines specify the following:  
  Eligibility criteria for candidate funds (eligible funds, funds’ assets, special cases)  
  Label criteria “Pillar I - Fund’s objectives and methodology for the selection of assets […]”  
  Label criteria “Pillar II – Consideration of ESG Criteria in the construction and life of the 

portfolio”  

  Label criteria “Pillar III – Highlighting positive impacts on energy and ecological transition”  
  Appendix 1 - Definition of activities falling within the scope of the energy and ecological 

transition  

  Appendix 2 - Strict and partial exclusions  
  Appendix 3 - Portfolio allocation thresholds between the various allocation categories  
  Appendix 4 - Information to be submitted regarding environmental impact measurements  
  Appendix 5 - Requirements for the use of derivative instruments within an TEEC-certified 

fund  

  Appendix 6 – List of documents to submit  

Taxonomy 
/  sectoral 
focus  

The taxonomy (provided in Appendix I of the Criteria Guidelines) lists 8 eligible sectors (energy, 
building,  industry,  waste  management/pollution  control,  transport,  ICT,  agriculture  &  forestry, 
adaptation). For each sector, further “areas” (e.g. solar energy), “specific categories and activities” 
(e.g. “PV solar electricity”) and descriptions are provided.  
The taxonomy is the same as that of the CBI with some changes and further specifications:  
  Certain activities listed in the CBI taxonomy have been excluded (fuel efficient vehicles, 

broadband);  

  The descriptions of certain activities appearing in the CBI taxonomy have been specified;  
  Certain activities considered by the CBI taxonomy as requiring additional work, which are 
therefore not currently eligible, have been deemed eligible by the EETC taxonomy;  
  A “Services” category has been added to the "Energy", "Buildings" and "Industry" sectors.  

(Inclusion 
/ 
exclusion) 
Criteria  

The exclusion criteria (provided in Appendix II of the Criteria Guidelines) are as follows:  
Strict exclusion: Companies having activities pertaining to:  
  The exploration-production and exploitation of fossil fuels;  
  The entire nuclear sector, namely the following activities: uranium extraction, uranium 

concentration, refining, conversion and enrichment, the production of nuclear fuel structures, 
construction and use of nuclear reactors, treatment of spent nuclear fuel, nuclear 
decommissioning and radioactive waste management.  

Partial exclusion:  
  Service companies and companies involved in the distribution / transportation and the 

production of equipment and services are excluded, in so far as 33% [inclusive] or more of 
their turnover comes from clients from the strictly excluded sectors (as defined above).  
  Companies making 33% [inclusive] or more of their turnover from one of the following 
activities are excluded: Storage and landfill centres without GHG capture; Incineration 
without energy recovery; Energy efficiency for non-renewable energy sources and energy 
savings linked to optimising the extraction, transportation and production of electricity from 
fossil fuels; Logging, unless managed in a sustainable fashion as defined in appendix 1, and 
peatland agriculture.  

104 

 
China Green Finance Committee: China Green Bond Endorsed Project Catalogue89 

Dimension 
green finance  

of 

Context  

Conceptual 
definition  

Taxonomy 
sectoral focus  

/ 

(Inclusion 
exclusion) 
Criteria  

/ 

Investor 
implications  

The  China  Green Bond Endorsed Project Catalogue  (“Catalogue”) identifies projects that 
are  eligible  for  (re)financing  through  green  bonds  falling  under  the  regulation  of  the 
People’s Bank of China.  
The  Central  Committee  of  the  CPC  and  the  State  Council  in  September  2015  issued  the 
Integrated Reform Plan for Promoting Ecological Progress which, for the first time, clearly 
stated  to  initiate  the  top-level  design  for  the  national  green  financial  system,  including 
through the green bond market.  
Against this background, the Green Finance Committee of China Society of Finance and 
Banking  put  forward  the  Green  Bond  Endorsed  Project  Catalogue  (2015  Edition).  The 
catalogue  aims  to  provide  an  explicit  guideline  for  green  investment  projects.  The 
Committee  commissioned  CECEP  Consulting  Co.,  Ltd.  and  the  Research  Centre  of 
Climate  and  Energy  Finance  of  Central  University  of  Finance  and  Economics  to  prepare 
the Catalogue and undertake relevant research work.  
In addition to challenges from climate change, China is facing other issues such as severe 
environmental  pollution,  aggravated  resource  constraints  and  deteriorated  ecological 
degradation. Environmental benefits are thus framed to comprise GHG emission reduction, 
pollution reduction, resource conservation, ecological protection, etc.  
The Catalogue lists six Level-1 categories of projects with marked environmental benefits 
(Energy Saving; Pollution Prevention and Control; Resource Conservation and Recycling; 
Clean Transportation; Clean Energy; Ecological Protection and Climate Change Adaption), 
31  Level-2  categories  as  well  as  a  large  number  of  Level-III  categories,  with  detailed 
explanations  and  defining  criteria  as  well  as  links  to  the  national  industries  classification 
codes.  
For some categories it is specified which existing sectoral benchmarks and guidelines the 
technology  or  activity  has  to  comply  with  (e.g.  as  defined  in  national  standard  of  energy 
consumption allowance for unit product, Evaluation Standard for Green Building, standard 
of Chinese organic products, etc.).  
For  Solar  Photovoltaic  (PV)  Power  Generation,  specific  thresholds  are  defined  regarding 
conversion efficiency and decay rate.  
In  2016  China’s  green  bonds  volume  aligned  with  China’s  green  definitions  (but  not 
necessarily  with  international  green  definitions,  e.g.  as  determined  by  the  Green  Bond 
Principles) made up USD 36bn or 39% of the global volume.  

Other definitions and standards relating to green bonds 

Labels, 
certification 
schemes  
Guideline  / 
policy  

LuxFLAG  Green  Bond 
Label  

ASEAN  Green  Bond 
Standards 

Guideline  / 
policy 

Sustainable 
Development 
Investments 
(Developed  by  Dutch 
asset  manager  PGGM 
and APG) 

Taxonomy 
(referring  to 
GBP)  
Taxonomy, 
process 
standard 

Taxonomy 
Process 
standard 

Relatively unspecific, taxonomy referring to GBP  

Based on the  international Green Bond Principles and 
in  line  with  the  Climate  Bonds  Taxonomy.  Eligible 
projects  are  defined  by  the  GBP’s  broad  categories 
with  the  addition  of  specifically  excluding  fossil  fuel 
power generation projects. 
Identifies  investments  aligned  with  the  Sustainable 
Development  Goals  (SDGs).  The  SDI  consist  of  a 
broad  list  of  activities  consistent  with  the  SDG  goals 
and sub-goals and a decision tree to assess in a simple 
way whether an investment is aligned or not. 

Guideline  /  The 

Multilateral  Taxonomy 

A  common  approach  to  track  finance  towards  climate 

89 CBI: “Green Bond Endorsed Project Catalogue (Draft for consultation)”, 2020 (Link) 
CBI: “Roadmap for China: Green bond guidelines for the next stage of market growth”, 2016  (link) 
CBI: “China Green Bond Market 2016”, 2017 (link) 

105 

 
 
 
 
                                                 
policy 

Guideline  / 
policy  
Guideline  / 
policy  

Guideline  / 
policy  
Guideline  / 
policy  
Guideline  / 
policy  

Guideline  / 
policy  
Index  

Rating  

and 

Banks 
the 

Development 
(MDBs) 
International 
Development  Finance 
Club (IDFC):  Common 
Principles  for  Climate 
Mitigation 
Finance 
Tacking 

Investment 

Taxonomy  

Taxonomy  

Taxonomy  

Energy 
/ 
Energy 

Morocco  Green  Bond 
guidelines  
US 
Conservation 
Renewable 
Bonds  
EIB  Climate  Action 
Bonds  
Nordic 
Bank  
Working 
eleven 
Financial Institutions  
GBP  Impact  Reporting 
Working Group  
Bloomberg 
Barclays 
MSCI  Global  Green 
Bond Index  
Cicero Shades of Green   Assessment 

Impact 
metrics  
Taxonomy  

of 
International 

Impact 
metrics  

Taxonomy  

group 

Rating  

S&P Green Evaluation   Assessment 

methodology  

methodology  

Rating  

Moody’s  Green  Bond 
Assessment  

Assessment 
methodology  

change mitigation and adaptation which can offer some 
guidance,  especially  to  lending  institutions,  around 
which 
loans  can  be  considered  green.  Eligible 
activities include: 
1. Renewable energy 
2. Lower-carbon and efficient energy generation 
3. Energy efficiency 
4. Agriculture, forestry and land-use 
5. Non-energy GHG reductions 
6. Waste and wastewater 
7. Transport 
8. Low-carbon technologies 
9.  Cross-cutting 
financing instruments) 
Very broad taxonomy with exemplary character  

issues  (e.g.  policy  support  and 

Very narrow focus on energy  

Based on MDB-IDFC, so no need for extra assessment  

Early  taxonomy,  with  focus  on  emission  reductions 
(beyond CO2)  
Four impact indicators defined for RE and EE  

Three  core 
indicators  for  sustainable  water  and 
wastewater management, other sustainability indicators  
Very  open  and  short  list  of  eligible  environmental 
categories  

Assesses  the  expected  environmental  effectiveness  / 
impact of the bond issue (How forward looking is it?)  
Assesses  the  expected  environmental  effectiveness  / 
impact of the bond issue (What are key environmental 
impacts?)  
Assesses  the  expected  environmental  effectiveness  / 
impact  of  the  bond  issue  (How  well  does  the  issuer 
follow the GBP?)  

Table 24 - Other definitions and standards relating to green bonds90 

The TEG’s concept for an EU Green Bond Standard 

Use of proceeds  

Eligibility criteria (1):  

Required to include proceeds in legal documentation. 
Financing  or  refinancing  of  eligible  green  expenditures.  Specific  requirements, 
related to capital/operating expenditures and look-back periods. 
Disclosure of proportion of proceeds used for refinancing: Required 
Economic activities shall be aligned with EU Taxonomy: 
1.  Substantial contribution to one out of six environmental objectives 
2.  Ensure that economic activities do-no-significant harm to any of the EU 

Taxonomy’s six Environmental Objectives 

3.  Comply with sector-specific technical screening criteria, including principles, 
metrics and related thresholds on sectors that are deemed environmentally 

90  Some  parts  of  this  table  are  based  on  EU  study:  “Defining  “green”  in  the  context  of  green  finance”,  2017 
(Link) 

106 

 
 
                                                 
sustainable. 

4.  Ensure compliance with minimum social safeguards represented by the 

principles and rights set out in the eight fundamental conventions identified in 
the ILO’s declaration on Fundamental Rights and Principles at Work.   

Reporting 
External 
requirements 

Review 

Accreditation of 
external reviewers/ 
verifiers  

Green Bond Framework (GBF) is required.  
Impact monitoring and reporting required 
Required.  
Verification of the Green Bond Framework and the Final Allocation Report by an 
accredited verifier to confirm conformity with the EU-GBS.  
Publication of external verification required 
A centralised scheme of accredited verifiers, to be operated by ESMA.  
To be preceded by a voluntary interim registration scheme for an estimated 
transition period of up to 3 years. 

Box 1: Examples of issuers making use of the TEG’s concept for the EU GBS (extracts from Green Bond 
Frameworks) 

Public sector:  
  Grand Duché du Luxembourg: "The eligibility criteria of green categories comply, when applicable, with 
the recommendation of the Technical Expert Group (TEG) final report on the EU Taxonomy (the “EU 
Taxonomy”) published in March 202011 or any updated version, on a best effort basis." 

  CAFFIL: "SFIL Group strives to align this Green Bond Framework with future updates to the Green Bond 
Principles and both the EU classification system (the so-called “taxonomy”) and the EU Green Bond 
standard3 currently under discussion at the European Commission, on best effort basis, since both those 
documents are still subject to ongoing discussions and evolutions." 

  Landwirtschaftliche Rentenbank: " Rentenbank acknowledges that the EU Taxonomy and the EU Green 
Bond Standard are yet to be finalised, but has already elected – on a best efforts basis – to align its Green 
Bond framework with the objective of climate change mitigation." 

Non-financial corporates 
  Volvo: "The Company has also taken into account, on a best effort basis, the recommendations of the 
Technical Expert Group (TEG) final report on the EU Taxonomy (the “EU Taxonomy”) published in 
March 2020 in establishing the definition of the Eligibility Criteria." 

  Daimler: "It is Daimler’s intention to follow the best practices, in relation to Green Bonds and Loans, as the 
market standards develop and as the EU classification of environmentally sustainable economic activities 
(the Taxonomy) and the EU Green Bond Standard enter into force. 

  VW: "On a best efforts basis, VW will review and update the content of the Green Finance Framework and 
managing any future updates of this document to reflect relevant changes in the Group's corporate strategy, 
technology and market developments (e.g. the introduction of the EU GBS)." 

Financial corporates: 
  Deutsche Bank: "In formulating the Framework care was also taken to reflect the latest reports on the 

European Union Green Bond Standard (EU GBS) and the European taxonomy for sustainable activities (EU 
Taxonomy), prepared by the Technical Expert Group on Sustainable Finance established by the European 
Commission." 

  Unipol: "Unipol is fully committed to meet stakeholders’ expectations on investors’ role to support 

sustainable development, as defined in EU “Action Plan: Financing Sustainable Growth”. Therefore, 
criteria established by Regulation (EU) 2020/852 on the establishment of a framework to facilitate 
sustainable investment (“Taxonomy Regulation”) have been considered in the definition of Eligibility 
Criteria." 

  Sparebank: "The Eligibility Criteria used to earmark Eligible Green Assets for SR-Bank’s green bond are 

set out below. Such Eligibility Criteria comply with the recommendation of the Technical Expert Group 
(TEG) report on the EU Taxonomy published at the end of June 2019, which establishes a system to 
classify environmentally sustainable activities by setting out metrics and thresholds." 

  Rabobank: "The eligible projects are aligned with EU Environmental Objective" 

107 

 
 
 
 
 
 
Annex 8: EU Taxonomy – coverage and related disclosure 
obligations 

1.  WHAT IS THE TAXONOMY? 

Regulation (EU) 2020/852, or the Taxonomy Regulation, establishes criteria for determining 
whether  an  economic  activity  qualifies  as  environmentally  sustainable  in  the  EU.  This  can 
then  be  used  to  classify  or  ‘rate’  the  greenness  of  companies,  and  in  turn  of  assess  the 
greenness of their equity and bonds.  

The Taxonomy Regulation is centred on six environmental objectives:  

1.  climate change mitigation 
2.  climate change adaptation 
3.  sustainable use and protection of water and marine resources 
4.  transition to a circular economy 
5.  pollution prevention and control  
6.  protection and restoration of biodiversity and ecosystems 

The  Taxonomy  Regulation  establishes  the  framework  for  the  EU  taxonomy  by  setting  out 
four  overarching  conditions  that  an  economic  activity  has  to  meet  in  order  to  qualify  as 
environmentally sustainable:  
(i)  it contributes substantially to one or more of the six environmental objectives set out in 

the Taxonomy Regulation;  

(ii)  it does not significantly harm any of the other environmental objectives;  
(iii) it is carried out in compliance with minimum (social) safeguards set out in the Taxonomy 

Regulation91; and  

(iv) it complies with technical screening criteria that are established through delegated acts. 
The technical screening criteria specify the conditions under which an economic activity 
meets criteria (i) and (ii). 

For  the  climate  mitigation  objective,  the  taxonomy  Regulation  recognises  three  layers  of 
green activities that can contribute to this objective:  

1)  Low-carbon activities: The first layer is activities that are already low carbon, such 

as renewable energy.  

2)  Enabling activities: The second layer is  activities that enable emission reduction in 
other activities, and that in themselves are environmentally sustainable. For example: 
manufacturing of components essential for renewable energy production  

3)  Transitional activities: The third layer includes activities that are consistent with EU 
and international environmental goals but for which there are no technologically and 
economically feasible low-carbon alternatives 

91 Article 18 of the Taxonomy Regulation specifies: the OECD Guidelines for Multinational Enterprises and UN 
Guiding  Principles  on  Business  and  Human  Rights,  including  the  declaration  on  Fundamental  Principles  and 
Rights at Work of the International Labour Organisation (ILO), the eight fundamental conventions of the ILO 
and the International Bill of Human Rights. 

108 

 
 
 
 
 
                                                 
3.  WHAT DOES THE EU TAXONOMY COVER? 

The  Taxonomy  uses  the  Statistical  Classification  of  Economic  Activities  in  the  European 
Community,  commonly  referred  to  as  NACE,  and  its  codes,  as  the  basis  for  the  activity-
specific  technical  screening  criteria.  In  order  to  decide  for  which  activities  to  develop 
screening criteria, all economic activities were considered on the basis of their own profile as 
for polluting emissions or ability to reduce emissions stemming from other economic sectors.  

If an economic activity is included (“taxonomy-eligible”) at a given point in time, it means 
that this activity has been assessed by technical experts and it was found that the activity can 
make a substantial contribution to one or more environmental objectives under the Taxonomy 
Regulation.  Consequently,  it  appears  in  the  delegated  act  and  receives  technical  screening 
criteria.  In  order  to  be  considered  environmentally  sustainable  or  “taxonomy-aligned”, 
however, these criteria need to be met by an economic operator.  It is important to note that if 
an  activity  is  not  included,  it  does  not  mean  it  is  unsustainable.  The  activity  could  be  only 
marginally contributing, or simply not been assessed yet. The ultimate goal of the taxonomy 
is to assess the whole spectrum of economic activities. 

It is important to note that the EU taxonomy only classifies economic activities; it does not 
include,  classify  or  rate  companies.  Companies  may  have  some  activities  that  comply  with 
the  taxonomy  and  others  that  do  not.  While  the  taxonomy  is  a  binary  tool  for  activities, 
(either an activity is in, or it is out), it is not binary for companies. Companies can take steps 
to increase their share of taxonomy-aligned activities and thus use the taxonomy as a tool for 
the transition.   

The following table indicates the sectors covered by the TEG’s Taxonomy Report, and their 
respective emissions92: 

NACE macro-sector code 

D - Electricity, gas, steam and air conditioning supply 
C – Manufacturing 
H - Transportation and storage  
A - Agriculture, forestry and fishing  
E - Water supply; sewerage, waste management 
and remediation activities 
B - Mining and quarrying  
G - Wholesale and retail trade; repair of motor 
vehicles and motorcycles 
F – Construction  
Q - Human health and social work activities  
O - Public administration and defence; 
compulsory social security 
N - Administrative and support service activities  
I - Accommodation and food service activities  
P – Education  
M - Professional, scientific and technical activities  

92 EU Taxonomy report, Technical Annex, p. 13  

109 

(Scope 
1) 
Tonnes  CO2e 
(2018) 

Covered 
by 
TEG 
Taxonomy 
report? 

1,021,327,916.14  Fully 
836,131,368.27 
543,990,599.69 
526,387,217.14 
161,962,114.37 

Partially 
Partially 
Fully 
Fully 

81,201,552.02 
79,399,182.95 

64,791,686.40 
32,512,530.55 
29,297,099.74 

21,424,859.33 
17,333,105.86 
17,273,274.20 
17,056,511.88 

Partially 
No 

Partially 
No 
No 

No 
No 
No 
Partially 

 
 
                                                 
K - Financial and insurance activities  
S - Other service activities  
J - Information and communication 
R - Arts, entertainment and recreation  
L - Real estate activities 
T - Activities of households as employers; undifferentiated goods- 
and services-producing activities of households for own use 
U - Activities of extraterritorial organisations and bodies 

10,837,435.09 
9,816,300.62 
8,780,514.69 
8,298,587.66 
5,726,208.34 
234,573.70 

No 
No 
Fully 
No 
Partially 
No 

26.68 

No 

Table 25 - Sectoral coverage of TEG's Taxonomy report 

4. 

STUDIES ON TAXONOMY ALIGNMENT AND COVERAGE 

As  Taxonomy-related  disclosures  are  not  yet  in  place,  and  the  Delegated  Acts  of  the 
Taxonomy  Regulation  are  not  yet  adopted,  the  precise  coverage  of  taxonomy-aligned 
activities  in  today’s  financial  markets  cannot  be  determined  at  this  stage  with  sufficient 
reliability. Nevertheless, this sub-section aims to illustrate potential coverage and alignment 
with  the  EU  taxonomy  based  on  the  limited  number  of  existing  studies  that  try  to 
approximate it.  The few studies that exist  are mostly only  available on a commercial basis, 
e.g. with a certain data subscription, also these were made available to Commission services.  

The studies covered differ in many ways, including methodology, scope, assumptions made, 
and types of funds or markets analysed. An important distinction between these studies is the 
level  of  assessment  with  regards  to  EU  taxonomy  -  some  studies  assess  potential  EU 
taxonomy-alignment (i.e. what  share of activities would likely meet  the technical  screening 
criteria),  while  other  limit  the  assessment  to  taxonomy  eligibility  (i.e.  mapping  what 
companies operate in some of the NACE activities from the TEG report[7]).  

The following studies of Taxonomy-alignment are covered in this section: 

1.  Adelphi and ISS ESG, European Sustainable Finance Survey, (2020) 
2.  Ecolabel study “Testing draft EU Ecolabel Criteria on Existing UCITS Equity Fund” 

(2020) 

3.  Study by Nordea (2020) 
4.  Study by MSCI (2020) 
5.  Study by Goldman Sachs “Mapping stocks to the Taxonomy” (2020) 
6.  EY: A Green Covid-19 Recovery and Resilience Plan for Europe (Sep 2020) 

A few important caveats apply to these six studies and their results: 

  The  studies  covered  in  this  section  focus  on  revenue,  whereas  the  EU  GBS  will  require 
Taxonomy-alignment of assets and expenditure, in particular capital expenditure. For this 
reason the studies do not give an answer to the question of potential Taxonomy-alignment 
of  use  of  proceeds  for  bond  issuers.  However,  to  the  extent  that  the  greenness  of  the 

[7]  This  can  be  done  either  based  on  their  primary  NACE  code,  which  is  less  precise,  or  on  NACE  codes 
associated with their different business segments for which financial data exist.  

110 

 
 
 
 
 
                                                 
revenue of a company reflects the greenness of its assets, the studies provide an indication 
of the potential for EU GBS issuance.93  

  Studies are from 2020 or earlier. However the EU GBS is only expected to be adopted in 
2022.  Consequently  it  seems  reasonable  to  assume  that  in  the  years  leading  up  to  the 
adoption of the EU GBS the share of Taxonomy-aligned assets of  many EU companies 
would increase, due to technological trends, market trends, and legislative requirements.  
  One  caveat,  often  noted  in  the  studies,  concerns  the  lack  of  consistent  data  on  potential 
the 
Taxonomy-alignment  from  companies  and  financial  product  providers,  and 
consequent need to make several assumptions, something that the Taxonomy Regulation 
aims to address by ensuring more consistent data along the investment chain. 

  While  these  studies  typically  estimate  the  share  of  Taxonomy-alignmed  revenue  to  total 
revenue, they offer few insights into whether the resulting figures are due to the criteria of 
the Taxonomy itself, or the simple lack of green revenue in the economy overall. For this 
reason, the more interesting metric for our purposes would may be have been the share of 
Taxonomy-aligned revenue as a share of green revenue, not total revenue.  

The studies: 

1.  Adelphi and ISS ESG (2020)  

In  a  taxonomy  mapping  carried  out  by  Adelphi  and  ISS  ESG94  and  commissioned  by  the 
German  ministry  of  the  environment,  the  consultants  analysed  public  data  on  75  European 
companies  companies  listed  on  three  main  European  indices  (EURO  STOXX  50,  DAX  30 
and  CAC  40).  The  study  found  that  approximately  22%  of  their  total  revenue  concerns 
activities listed in the Taxonomy, as proposed by the TEG. 

The study stands out in looking at compliance also with DNSH-criteria. While almost 20% of 
Taxonomy-eligible  revenues  across  the  indices  were  identified  and  3-5%  of  total  revenues 
meet substantial contribution criteria (approximately one fifth of the eligible revenues), less 
than  half  of  this  was  found  to  comply  with  DNSH-criteria.  Overall,  the  study  estimates 
between 1.2% and 2.1% of total revenue across the indices to be fully Taxonomy-aligned (or 
between 4.6% and 10.6% of Taxonomy-relevant revenue). 

The study only considered the two climate-related objectives of the Taxonomy, and did not 
include certain companies such as banks. Other than that, the authors explained that the low 
results were primarily due to a high-carbon economy and a lack of data and reporting from 
companies.  

2.  Ecolabel study 

A recently published study95 commissioned by the European Commission ‘Testing draft EU 
Ecolabel  Criteria  on  Existing  UCITS  Equity  Funds’  tested  potential  EU  taxonomy-related 
thresholds for equity funds to inform the design of an EU Ecolabel for financial products. The 

93  Due  to  the  more  forward-looking  nature  of  capital  expenditure  (as  it  usually  reflects  the  future  economic 
activities of the company, for example in the case of an investment in production capacity), one could argue that 
the share of Taxonomy-aligned economic activities reflected by capital expenditure is likely to be overall higher 
for many bond issuers than the respective share as reflected by revenue.   
94 Adelphi and ISS ESG: “European Sustainable Finance Survey”, 2020 (Link) 
95 Available at: https://ec.europa.eu/info/publications/200626-study-eu-ecolabel-criteria-ucits_en  

111 

 
 
 
                                                 
study  worked  with  a  sample  of  101  ‘green’  UCITS  equity  funds  domiciled  in  the  EU  27 
Member States. Half of these were labelled under one of the existing national labels and the 
other half was not labelled. 

The study clustered the share of green revenue of the 1831 unique companies the funds were 
invested in, into the following five categories:  

  activity is not covered by Taxonomy, 
  activity is per se and unconditionally taxonomy compliant,  
  activity is evaluated against a GHG intensity,  
  activity is evaluated against another numeric threshold, and  
  activity is evaluated against qualitative criteria.  

The  findings  at  company  level  showed  that  52.7%  of  the  activities  in  the  primary  and 
secondary  segments  of  the  companies  were  not  covered  under  substantial  contribution  to 
climate  change  mitigation  in  the  final  TEG  report  on  EU  taxonomy,  followed  by  21.3%  of 
activities covered by EU taxonomy (either as green without a need to meet any threshold, or 
with quantitative or qualitative criteria) and 13.7% being left in ambiguous mapping due to 
data restrictions96. 

Limitations: 

  Only climate change mitigation was considered in this study.  
  DNSH criteria and social safeguards were not addressed (only substantial contribution) 
  Only UCITS equity funds were investigated, although the EU Ecolabel targets a wider 

scope of retail financial products;   

Entire Sample (101 funds) 

Category 
0: Ambiguous Mapping 
1: No Taxonomy exposure 
2: Per se Green 
3: GHG intensities 
4: Numeric 
5: Qualitative 
Energy Production97 

Data restrictions 

Total 

 Revenue-weighted % of activities 
13.7 
52.7 
7.4 
1.9 
2.9 
15.0 
5.4 
0.1 
1.0 
100 

No firm data obtained 
Cash / Currencies 

Table 26 - Clustering of Revenue segments (source: Climate & Company)    

96  Typically  as  some  activities  captured  in  other  industrial  classification  systems  (notably  Standard  Industrial 
Classification) could not be clearly associated with a single NACE activity or due to lack of adequate revenue 
data. 
97 Energy production is listed separately since several activities fall under NACE code 35.11 (i.e. “ambiguous 
mapping”). Nonetheless, an evaluation of energy production activities with the proposed methodology described 
in section 4.3 is possible. 

112 

 
 
 
 
 
                                                 
3.  Nordea 

Nordea also made its own assessment in March 2020 of potential EU Taxonomy-alignment in 
Nordic  equity  markets  based  on  the  interim  TEG  report.  The  assessment  was  done  on  a 
sample  of  257  listed  Nordic  companies  (in  Sweden,  Finland,  Denmark,  and  Norway)  and 
focused on checking both  taxonomy eligibility  (associating companies with  relevant  NACE 
codes) as well as testing substantial contribution to climate change mitigation98. Unlike most 
other studies, DNSH criteria were checked, although mostly on a qualitative basis due to data 
unavailability  and  nature  of  the  criteria.  The  assessment  was  largely  based  on  public 
information99  (e.g.  annual  and  sustainability  reports,  companies’  websites,  product  listings, 
technical specification of products) with limited verification with the companies. 

Overall, this study estimated that: 

  around 60% of companies in the sample are in scope of the EU Taxonomy,  
  around 30% of companies in the sample have some potentially taxonomy-aligned revenues 
  6.5% of revenues of the companies in the sample are potentially Taxonomy-aligned.  

Renewable  energy  and  real  estate  and  construction  companies  have  the  highest  share  of 
potentially Taxonomy-aligned revenues according to the study.  

35%

30%

25%

20%

15%

10%

5%

0%

Figure  16  -  Estimated  share  of  potentially  aligned  activities  in  different  sectors  based  on  Nordea 
report. Source: Nordea, 2020 

4.  MSCI assessment 

MSCI’s assessment combined an assessment of Taxonomy eligibility with an approximation 
for meeting DNSH criteria and minimum social standards. The study nevertheless did not test 
whether substantial contribution criteria are met, hence the results are hard to compare with 
the  other  studies  at  our  disposal.  MSCI  used  revenue  estimation  from  MSCI  Sustainable 
Impact  Metrics  and  used  their  data  on  controversial  events  and  business  involvement  data 

98 The assessment of substantial contribution to climate change adaptation was limited to several activities such 
as insurance products, infrastructure, IT companies. 
99 Information considered in the assessment mostly came from 2018 accounts.   

113 

 
 
 
                                                 
from  MSCI  ESG  Controversies  and  MSCI  Business  Involvement  Screening  Research  as  a 
proxy for meeting DNSH criteria.  

Using  this  approach,  MSCI  estimated  that  27%  of  the  constituents  of  the  MSCI  ACWI 
Investable  Market  Index  (with  approximately  9000  companies)  had  some  degree  of 
involvement in activities listed in the TEG report while avoiding major controversies. Of this 
group,  15%  generated  at  least  5%  of  their  revenue  from  activities  likely  to  address  one  or 
more  of  the  six  environmental  objectives  of  the  EU  Taxonomy  and  were  not  involved  in 
controversial  practices  that  could  indicate  breach  of  the  Taxonomy’s  minimum  social 
safeguards and DNSH criteria.  

The  chart  below  shows  the  results  across  of  2,425  issuers  with  potentially  EU  Taxonomy 
eligible  revenues.  As  figure  34  shows,  the  number  of  companies  per  sector  with  such 
activities is relatively high for at least five sectors – ranging from industrials to information 
technology and real estate. While the final conclusion would depend on company size, this is 
likely  to  allow  construction  of  well-diversified  portfolios  focused  on  EU  taxonomy 
alignment.      

Figure 17 - Issuers by potentially aligned revenue share (MSCI, 2020) 

Figure 18 - Number of relevant companies per sector within MSCI ACWI IMI Index (MSCI, 2020) 

5.  Goldman Sachs study Mapping stocks to the Taxonomy (2020) 

A June 2020 study by Goldman Sachs screened large and mid-cap  global companies  in  the 
MSCI ACWI index and found that around 1200, or 41%, have at least some revenue (more 
than 5%) that is potentially eligible under the Taxonomy. 957 companies were found to have 
more than 50% potentially eligible revenue, while 602 companies were found to have 100% 
potentially eligible revenue.  

114 

 
 
 
 
 
 
High rates of potential eligibility are notably seen in  Japan and the rest  of Asia, due to  the 
broad  potential  application  of  the  Taxonomy  to  industrial  companies,  and  notably  the 
manufacture of low carbon technologies (see exhibit-tables from the study below). The study 
highlights  however  that  actual  rates  of  Taxonomy-alignment  will  be  far  lower,  once 
compliance with the technical screening criteria and social safeguards are checked. 

115 

 
Ecolabel  study 
company et al., 2020) 

(Climate  & 

Nordea 
publically available) 

(March  2020,  not 

MSCI  (2019,  not  publically 
available) 

Scope 

of 

Level 
Taxonomy-
relevant 
assessment  
Main 
results 
on  Taxonomy 
eligibility 

results 
Main 
on  Taxonomy 
alignment 

Sample of “green” UCITS equity 
funds domiciled in the EU (101 
funds,  of  which  51 
are 
currently  labelled,  with  1831 
investee companies) 
NACE codes + SC criteria of the 
underlying  companies  (climate 
mitigation only) 

total  net  assets 
~11%  of 
in  companies  with 
invested 
least 
“green” 
economic  activities  based  on 
SC criteria;   

from 

50% 

Nordic equities (sample of 257 
companies) 

NACE  codes  +   SC  criteria  + 
limited DNSH assessment 

  ~30% of companies had 
some eligible revenues 

  ~60% of companies in the 
sample were in scope of 
the EU Taxonomy 

  ~6.5% of potentially 
taxonomy-aligned 
revenues;  

Other 
important 
findings  and 
caveats 

Many  holdings  could  not  be 
clearly  categorised  in  the  draft 
due 
Ecolabel 
to 
pockets 
significant  data 
issues  and 
ambiguous  mapping  between 
classification systems  

Substantial 
contribution 
assessed  based  on  Nordea’s 
estimation  using  available 
information; 
limited 
verification of the results with 
companies 

(around 

Global  equities  and  green 
bonds (Assessment was made 
IMI 
based  on  MSCI  ACWI 
9000 
index 
constituents). 
Equity:  NACE  codes  +  DNSH 
and  minimum  social  criteria  
based  on  proxies  (not  actual 
criteria) 

Equity:  ~  9%  of  MSCI  ACWI 
IMI 
likely 
constituents 
involved  in  eligible  activities 
and meet DNSH;  
Green  bonds: 
~17%  of 
Bloomberg  Barclays  MSCI 
Green Bond Index  (by market 
value)  
NACE  activity  mapping  + 
proxy for DNSH and minimum 
social criteria compliance 

not 

(June 
publically 

Goldman  Sachs 
2020, 
available) 
Medium  and 
large-cap 
equities from MSCI ACWI 
index (~2900 companies) 

Adelphi and ISS ESG European Sustainable 
Finance Survey (2020). 

75  companies  on  three  main  EU  equity 
indices 

checking  NACE 
only (eligibility) 

codes 

NACE  +  SC  +  DNSH  criteria  (climate 
mitigation and adaptation) 

41%, of global companies 
in MSCI ACWI index 
(26%  of  market  cap), 
have  revenue  exposure 
(>5%)  that  is  potentially 
Taxonomy-eligible. 

Between  1.2%  and  2.1%  of  total  revenue 
across  the  indices  estimated  to  be  fully 
Taxonomy-aligned  (or  between  4.6%  and 
10.6% of Taxonomy-relevant revenue). 

Companies 
with 
Taxonomy-eligible  share 
>5%  tend  to  be  smaller 
on average 

While revenue shares  signal  a  low level of 
potential alignment today, the study found 
that  94.7%  of  the  companies  analysed 
invest  in  climate  change  mitigation,  but 
that  data  for  checking  for  Taxonomy-
compliance  based  on  capital  expenditure 
(CapEx)  and/or  operational  expenditure 
(OpEx) was not possible.  

Table 27 - High-level comparison of studies on Taxonomy alignment and eligibility 

116 

 
 
  
 
 
 
6.  EY study: A Green Covid-19 Recovery and Resilience Plan for Europe 

In  a  report  released  in  September  2020,  the  consultancy  EY  analysed  five  sectors  (energy, 
transport,  buildings,  industry,  and  land  use)  to  identify  shovel-ready  projects  with  the 
potential  to  create  social,  environmental,  and  economic  value  over  the  next  two  years.  The 
analysis  was  carried  out  identifying  suitable  investments  in  the  context  of  the  EU’s  Next 
Generation  EU  recovery  effort,  but  it  also  shows  the  vast  potential  for  Taxonomy-aligned 
green investments.  

In  their  summary  report,  EY  identify  over  1000  such  projects  across  the  EU27,  which  are 
developed  and  only  need  a  last  push  (which  could  be  additional  financing,  or  overcoming 
other  barriers)  to  be  realised.  Together,  these  projects  represent  an  aggregate  investment  of 
€200 billion, distributed evenly in all EU27 countries. However, EY estimates that this list of 
1000  projects  only  captures  about  10%  of  green  projects  currently  under  development, 
meaning that the potential is much larger. According to EY, the entire EU pipeline of green 
projects could be as high as €1 trillion.  

EY used the TEG’s final  report and technical  annex on the Taxonomy from  March 2020 to 
evaluate the climate benefits of the projects. Accordingly, EY applied a “rigorous use” of the 
taxonomy to differentiate projects into two groups, with one group being those aligned with 
EU taxonomy and having a clear climate benefit, while the other group being those projects 
with  clear  environmental  benefits  but  for  which  EY  could  not  check  compliance  with  EU 
taxonomy using available information. 

As can be seen from the examples below, EY identified over € 20.6 billion worth of projects 
falling  into  the  first  category  (Taxonomy  aligned),  spread  over  several  sectors.  This  figure 
should  be  interpreted  as  a  lower  bound,  as  the  total  share  or  number  of  projects  clearly 
identified by EY to be Taxonomy-aligned as part of their study is not known.  

MS  Project Developer 
Cy-
EL 
EE 
FI 
DE 

EuroAsiainterconnector 
Limited 
Tuuletraal 
Valorem 
EcofinConceptGmbH 

EL 

EI 

Power  Transmission  Operator 
(IPTO or ADMIE) 
CodlingWind Park Ltd 

Energy sector 

Investment  Project Description 
 €  2,5 Bn   Euro asia Interconnector, Israel -Greece –Cyprus -Stage I 

 €   553 Mn   Tuuletraal Offshore Wind Power Project (380MW) 
 €   300 Mn   Viiatti onshore wind power project (250-300MW) 
 €  98 Mn   70  MWp  floating  solar  system  on  an  open-cast  lake  (formerly  used  for 

 €  1 Bn  

brown coal mining) 
Interconnection Athens –Crete 

 €  1,962 Bn  The  1,100MW  Codling  Wind  Park  is  an  offshore  wind  farm  located 

16.7km off the coast of Ireland 

SK 

Energy Development GmbH 

 € 12 Mn   Development  of  PV  power  plants  in  Slovakia,  revitalization  of  brown 

ES 
SE 

Iberdrola 
Skanska Sweden & Gothenburg 
Energy 

fields and former mining areas 
 €  300 Mn   590 MWpsolar PV project located in Cáceres 
 €   60 Mn   Skanska  TES  is  a  thermal  seasonal  energy  storage  solution  that  can 

balance energy systems in a city or district 

MS  Project Developer 
Sofia municipality 
BU 
iCat d.o.o. 
HR 
City of Hradec Kralove 
CZ 

 Investment   Project Description 
 €   50 Mn   Acquisition of e-buses 
 €     5 Mn  
 €     26 Mn   Replacement of fleet of buses by electro buses 

SolarCat-self-sustaining solar passenger ship 

Transportation sector 

117 

 
 
 
 
FR 

FM Logistics 

DE  Munich City 
HU  NKM MobilitásKft. 
Comunedi Milano 
IT 

 €    20 Mn  

H2HUB project is aimed at the production of green hydrogen from on-site 
solar PV panels in order to fuel trucks and heavy-duty vehicles 

 €    700 Mn   Munich U-Bahn Line 5 Extension Project, Laimer Platz - Pasing, Bayern 
 €      70 Mn   Development of an alternative charging station network 
 €    1,5 Bn   Acquisition of new electric buses to replace diesel fleet 

PL 

SK 
ES 
SE 

Cracow Municipality / ZIKIT 

 €    110 Mn  

4.5  km  fast  tramline  between  Czyżyny  and  Mistrzejowice,  in  the  city  of 
CraCow 

Region BanskaBystrica 
Iberdrola 
KatlaAero  

 €       40 Mn  Modernization of public transportation, 100 electric buses 
 €     150 Mn  Deployment infrastructure for electric vehicle recharging 
 €         9 Mn  Developing drone network for electrical air distribution. 

Buildings sector 

MS  Project Developer 
City of Prague 
CZ 

 Investment   Project Description 
 €  111 Mn   Accelerated reduction of energy intensity of Prague buildings 

FR 

Eiffage 

 €       50 Mn  

DE 

KMLS GmbH 

 €    100 Mn  

New  process  developed  by  research  facilities  at  EiffageRoute,  represents  a 
low carbon innovation on two level.  
Replacement  of  gas  consumption  from  heating  and  processes  in  Siemens 
facilities Germany to electricity from renewable sources 

HU 

The  Municipality  of  the 
City of Budapest 

 €   350 Mn   Boosting energy performance of residential buildings in Budapest 

IT 

Comune di Milano 

 €  1 Mn  

NL 

City of Amsterdam 

 €     5 Mn  

EnergieSprongis  a  project  for  public  buildings  in  Milan  which  will  use 
"disruptive" 
deep 
and 
renovatonpackages 
Resilioproject 
adapativerOoftops 

industrialized 

-Resilience 

Innovative 

nEtworkof 

"market 

cLImate-

building 

ready" 

Smart 

Lubelskie 
przedsiebiorstwo 
eneretyk icieplnej SA 
Čiernohronská  železnica, 
n.o. 

 €    45 Mn  

Inditex 

 €     100 Mn  

Skanska Sweden AB 

 €     3 Mn  

PL 

SK 

ES 

SE 

 €     25 Mn  

Retrofit  and  extension  of  the  district  heating  (DH)  network  in  the  city  of 
Lublin 

Construction  of  the  electrified  narrow  gauge  line  to  the  tourist  center 
Chopok-south. 
Construction  of  a  new  building  in  Inditex  headquarters,  with  the  highest 
standards in terms of energy efficiency and performance 
Build a climate neutral office building producing energy 

MS  Project Developer 
AT  Verbund 

Sector: Industry 
Investment  Project Description 
 €     6 Mn   Demonstration of a 6MW electrolysis power plant to produce steel 

BE 

Calix limited 

 €    20 Mn  

FR  H2V Product 

 €   98 Mn  

DE  Meyer Burger  

 €    170 Mn  

Hydro2Power SRL 

 €      1 Mn  

Intensity  Lime  And  Cement)  will  pilot  a 
LEILAC  (Low  Emissions 
breakthrough technology that has the potential to enable both Europe’s 
cement and lime industries to reduce their emissions 
Green hydrogen production plant on land in the industrial zone of Port-
Jérôme 
Build-up  of  a  GW  scale  European  solar  PV  cell  and  module 
manufacturing plant in Germany 
Creating a new generation of effective hydrogen storage devices at low 
pressure,  safe  and  very  efficient  and  easy  absorption  and  desorption 
profiles 

Enel Green Power and partners   €   403 Mn  Italian Photovoltaic Giga Factory 
Port  of  Rotterdam,  Energie 
Beheer  Nederland  B.V.  (EBN) 
andN.V. Nederlandse Gasunie 
LG  Chem  Wroclaw  Energy  SP 
ZOO 
Iberdrola 
LKAB, SSAB, Vattenfall 

 €   50 Mn   Rotterdam CCUS project Porthos 

EV battery Gigafactory 

 €    1 Bn  

 €4,8 Bn  
 €   1,7 Bn   Develop and commercialise a fossil free value chain for steel production. 

Sines Green Hydrogen Plant (1GW electrolysis) 

118 

IT 

IT 

NL 

PL 

PO 
SE 

 
 
 
 
 
 
MS  Project Developer 

HR  Agrivid.o.o. 

Land use sector 
 Investment   Project Description 

 €     300,000  

facade  design  with  vertical  greenery 

Agrivi  Agriculture  sustainable  practices  based  on  the  deployment  of 
Farm Management  Software (FMS), which factors  in a carbon emission 
calculator 
A  pioneering 
microclimate 
Innovative  afforestation  project  in  urban  context,  with  the  final  aim  of 
planting 3 million trees within the Metropolitan City of Milan by 2030 
Cooperative  development  and  management  of  at  least  200  hectares 
new  natural  areas  consisting  of  food  forests  in  the  province  of  North-
Braban 

improving 

DE 

City of Munich 

 Confd  

IT 

Comune di Milano  

 €  2 Bn  

Stichting 
Nederland  

Voedselbosbouw 

 €    65 Mn  

NL 

PL 

ES 

Regionalny Zarząd Gospodarki 
Wodnej w Krakowie 
Madrid City Council, Ferrovial, 
Universidad  Politécnica  de 
Madrid 

 €    10 Mn   Restoration of ecological continuity of flowing surface waters 

 €  15 Mn  

Green infrastructure and health co-benefits of urban greening in the city 
of Madrid. 

Overall results 

Results  diverge,  but  generally  suggest  relatively  low  levels  of  alignment  today  across  the 
chosen samples. Considering the Nordea and adelphi studies as the most comparable in their 
scope to EU capital markets, it is realistic to expect that the percentage of taxonomy-aligned 
activities would likely be in lower single digit number (probably below 5%) for companies in 
the  EU  today.  There  is  a  however  a  notable  degree  of  uncertainty  around  these  results,  as 
availability of data for assessing EU taxonomy alignment is still limited at this stage. 

Notably, the study by adelphi, which looked at potential Taxonomy-alignment in the revenues 
of 75 European companies listed on three main European indices (EURO STOXX 50, DAX 
30 and CAC 40), found levels of alignment between 1.2% and 2.1% of total revenue across 
the indices. Meanwhile, the study by Nordea, which looked at Nordic equity markets, found 
~6.5%  of  potentially  taxonomy-aligned  revenues  in  their  sample,  using  a  more  limited 
estimation  of  DNSH  criteria.  It  is  worth  noting  that  the  potential  alignment  seems  to  be 
heavily influenced by the application of DNSH criteria.  

As  noted  previously,  it  is  important  to  keep  in  mind  that  the  studies  listed  here  focus  on 
revenue,  whereas  the  EU  GBS  will  require  use  of  proceeds  to  be  dedicated  to  Taxonomy-
aligned assets and expenditure, and in particular capital expenditure. This means that use of 
the EU GBS will depend not just on the Taxonomy-alignment of existing assets, but also on 
the  potential  for  future  Taxonomy-aligned  capital  expenditure.  In  this  respect,  the  study  by 
EY,  where  a  group  of  consultants  identified  over  €200  of  shovel-  ready  green  investment 
projects  across  the  EU,  is  an  interesting  indication.  While  the  study  does  not  give  a 
comprehensive  overview  of  the  potential  for  Taxonomy-aligned  investments  in  Europe,  it 
does give an indication of the sheer scale of green and Taxonomy-aligned potentially in the 
pipeline, and which could be funded using EU GBS bonds.  

119 

 
 
 
CASE STUDY: ENERGY INTENSIVE INDUSTRY AND HARD-TO-ABATE MANUFACTURING 

5. 
SECTORS 

The following section will focus on the Taxonomy’s coverage of certain industries where the 
potential for reducing emissions is very high, but which are not covered by any of the existing 
market-based Taxonomies. It will further argue that the EU Green Bond Standard, thanks to 
its  link  with  the  EU  Taxonomy,  can  help  companies  in  this  sector  enter  the  green  bond 
market, thereby helping them raise the necessary funds for emission reducing investment.  

As indicated in Table 25, the manufacturing sector overall is the second largest contributor to 
Europe’s CO2e emissions, and this is in large part due to the sectors of cement, aluminium, 
steel  and iron, chemicals, fertiliser, and plastics. Although in  most cases, carrying out  these 
activities in a climate-neutral way is technologically difficult or costly, the fact remains that in 
most  cases  there  is  no  carbon-neutral  alternative  to  replace  these  activities.  For  this  reason, 
setting  these  industries  on  a  pathway  to  climate  neutrality  remains  an  important  part  of 
reaching the Paris agreement targets.   

Under  the  Taxonomy  Regulation,  such  activities  may  qualify  as  “transitional”,  under  the 
following criteria:  

1.  The  activity  must  have  no  technologically  and  economically  feasible  low-carbon 

alternative.  

2.  The  activity  must  support  the  transition  to  a  climate-neutral  economy  consistent  with  a 

pathway to limit the temperature increase to 1,5 C above pre- industrial levels. 

3.  The  activity  must  have  greenhouse  gas  emission  levels  that  correspond  to  the  best 
performance  in  the  sector  or  industry,  while  not  hampering  the  development  and 
deployment  of  low-carbon  alternatives;  and  not  leading  to  a  lock-in  of  carbon-intensive 
assets, considering the economic lifetime of those assets.  

The  Taxonomy  Delegated  Acts  will  set  out  the  screening  criteria  for  each  of  the  relevant 
technologies to be considered such a transitional activity.  

The existence of such activities in the Taxonomy is relevant for the EU GBS, because energy-
intensive industry is one of the sectors which have seen the least issuance of green bonds. As 
can be seen from Figure 19 below, only a few percent at most of green bonds have come from 
the industry sector. According to Climate Bonds Initiative100, the reason that green finance for 
high-emitting activities has so far been limited is arguably due to a lack of provision of robust 
eligibility criteria - not because they are a priori incompatible with the green bond market or 
by extension a green label. In general, transition goals, pathways, metrics and indicators have 
been established for transitional activities relating to buildings (construction and retrofits) and 
to  land-based  transport  (manufacture  and  operation  of  road  vehicles,  trains  and  associated 
infrastructure), but have been much less frequently addressed for aviation, shipping and heavy 
industry.  

In  particular,  none  of  the  existing  taxonomies  or  standards  set  out  criteria  for  how  high-
emitting industry (including cement, aluminium, iron and steel, and hydrogen) can transition 

100 CBI: “Financing Credible Transitions”, 2020 (Link) 

120 

 
 
 
                                                 
and  thereby  qualify  for  green  bond  issuance101.  The  most  commonly  used  market-based 
Taxonomy, the Climate Bonds Taxonomy, provides guidance for the industry sector but does 
not  set  out  any  detailed  criteria  for  the  sector  (see  annex  6).  As  for  ICMA’s  GBPs,  they 
identify  eligible  use  of  proceeds  categories,  which  could  potentially  include  high-emitting 
industry,  but  the  standard  doe  not  set  out  any  screening  criteria  or  equivalent  for  these 
categories.  

Figure 19 - Global green bond issuance broken down by sector (source: Climate Bonds Initiative) 

In  their  2019  report  on  the  EU  Green  Bond  Standard,  the  TEG  finds  that  the  risk  of 
reputational risk may be holding back some companies from issuing green bonds, in particular 
in transitional sectors  where the identification of green assets and 
projects  is  not  straightforward.  As  the  report    explains,  “issuers 
will only proceed with green bonds if they do not create additional 
risks or liabilities compared to the alternatives. In a limited number 
of  cases,  issuers  have  experienced  reputational  issues  from 
negative market  comments  from  media, NGOs,  shareholders, etc. 
As a result, the fear of such adverse publicity for example because 
a deal is deemed “insufficiently green” has prevented some issuers 
from tapping the market.”102 

Energy intensive industry and 
hard-to-abate  manufacturing 
sectors include: 
-  Cement 
-  Aluminium 
- 
-  Chemicals 
- 
- 

Fertiliser 
plastics 

Iron and steel 

A  fear  often  cited  by  stakeholders  is  that  investors  would  challenge  the  greenness  of  bonds 
issued by such corporates  based on their overall corporate activities rather than focusing on 
the asset or project financed as per the use-of-proceeds approach.  In addition, the issuer of a 
green  bond  could  come  under  criticism  should  the  proceeds  of  the  bond  finance  an  activity 
with questionable social practices that do not meet minimum social safeguards. 

101 According to the OECD, none of the existing taxonomies (the CBI Taxonomy, as well as definitions of green 
economic  activities  employed  by  China,  Japan,  France,  or  the  Netherlands)  include  criteria  for  these 
manufacturing activities.  Source: OECD: Developing Sustainable Finance Definitions and Taxonomies (2020) 
102  For  example:  https://www.bloomberg.com/news/articles/2016-03-07/bond-market-asking-what-is-green-
curbs-climate-friendly-debt  and  https://www.climate2020.org.uk/wp-content/uploads/2016/09/BRIGHTWELL-
CLIMATE2020.pdf .  

121 

 
 
 
 
                                                 
 
The fact that the Taxonomy sets out clear criteria for the definition of green in traditionally 
hard-to-abate  sectors  may  therefore  be  a  game-changer  for  these  sectors,  in  terms  of  their 
ability  to  issue  green  bonds.  According  to  the  TEG’s  draft  Taxonomy,  investments  in  the 
energy-intensive  and  hard-to-abate  manufacturing  sectors  can  be  considered  taxonomy-
aligned if they are new investment in a production facility or process that meets the technical 
screening criteria, or if they consist of mitigation measures that are incorporated into a single 
investment plan within a determined time frame (5 or 10 years) that outlines how each of the 
measures  in  combination  with  others  will  in  combination  enable  the  activity  to  meet  the 
threshold  defined  below  actions.  In  other  words,  companies  operating  in  these  industries 
should be able to issue EU GBS-aligned green bonds for their investments to become greener, 
provided that they plan to fulfil the Taxonomy criteria within a certain time-frame.  

How were the criteria specified? 

In order to set most of the criteria for these manufacturing activities, the TEG made use of the 
2021-2026  benchmarks  of  the  Emissions  Trading  Scheme  Directive.  The  criteria  focus  on 
reducing  the  GHG  emissions  caused  by  manufacturing  activities  up  to  the  levels  of 
performance achieved by best performers.  For this reason, the limit for GHG emissions was 
set according to the average value of the top 10% performing installations, based on the data 
collected in the context of establishing the EU Emissions Trading System (EU ETS) industrial 
benchmark  for  the  period  of  2021-2026.  For  each  company,  the  emissions  should  be 
calculated in accordance with the methodology for setting the benchmarks set out in the ETS 
Directive.103 

Provided  that  the  Taxonomy  retains  this  relationship  with  the  ETS  Directive  in  the  future, 
these  specific  limits  would  normally  remain  until  2026.  The  benchmarks  are  periodically 
updated approximately every 5 years, meaning that the thresholds that refer to them will not 
be static over time but automatically continue to represent the performance of the 10% best 
performing plants.  

Calculating the criteria using the EU ETS methodology has several advantages:  

-  The five-year cycle should give companies predictability and a sufficient timespan to plan 
the necessary investments and issue the corresponding green bonds, should they wish to 
do so.  

-  The predictable pace of updates should allow companies some possibility to foresee future 

changes to the criteria and thereby plan ahead, also beyond the next five years. 

-  The  methodology  is  robust  and  already  established  in  Europe:  EU  ETS  benchmarks  are 
the most robust benchmarks available and the data calculated according to the boundaries 
set  are  readily  available  for  all  installations  within  the  EU  that  are  part  of  the  EU  ETS 
scheme.   

-  The limits are set based on actual rather than theoretical criteria and performances.  

In addition, since the EU ETS benchmarks do not consider the full lifecycle of a process or 
product,  the  TEG  has  in  some  cases  added  criteria  linked  to  recycling  or  improvement  in 
upstream emissions. 

Table  28  presents  the  relevant  sectors,  gives  information  on  the  size  of  their  potential 
contribution to  reducing overall GHG emissions, lists the criteria for substantial contribution 

103 EU: “Directive 2018/410”, 2018 (Link) 

122 

 
 
 
                                                 
to the climate mitigation objective in the draft Delegated Acts of the Taxonomy , and explains 
sector. 
how 

reductions  may 

emission 

obtained 

such 

each 

for 

be 

123 

 
 
Manufacture  Contribution 
Cement  and 
cement 
clinker 
Aluminium  

The  manufacturing  of  cement  is  associated  with 
significant CO2 emissions. 

The manufacturing of aluminium is a highly energy 
intensive process. 

Criteria for Taxonomy-alignment 
GHG 
limits 
installations. 

reflect 

top  10%  of  current 

Primary  aluminium:  GHG  limits  reflect  top  10% 
of  current  installations  based  on  combined  direct 
and indirect emissions. 

limits 

Secondary aluminium: complies automatically.  
GHG 
top  10%  of  current 
installations,  or  at  least  90%  of  iron  content  in 
final product sourced from scrap steel.  

reflect 

Iron and Steel  

Other 
inorganic 
basic 
chemicals  

Other organic 
basic 
chemicals  

Fertilizers 
and  nitrogen 
compounds  

Manufacture 
of  plastics  in 
primary form  

The  manufacturing  processes  of  carbon  black  and 
soda ash together account for approximately 4.9% of 
the GHG emissions from the chemical sector. 
The manufacturing process of chlorine is extremely 
energy-intensive,  accounting  for  17%  of 
total 
electricity  use  of 
the  European  chemical  and 
petrochemical industry. 
The  manufacturing  of  high  value  chemicals, 
aromatics, 
chloride, 
ethylbenzene, 
styrene,  ethylene  oxide,  mono 
ethylene glycol and methanol accounts for more than 
35% of the emissions from the chemical sector.  
The  manufacturing  of  ammonia  and  nitric  acid  is 
highly 
for 
approximately  23%  of  emissions  coming  from  the 
chemical sector. 

carbon-intensive, 

chloride,  vinyl 

accounting 

ethylene 

Carbon  black  and  soda  ash:  GHG  limits  reflect 
top 10% of current installations. 

reflect 

Chlorine: Electricity consumption for electrolysis 
and chlorine treatment is equal or lower than 2.45 
MWh  per  tonne  of  chlorine.  Average  life-cycle 
GHG emissions lower than 100g CO2e/kWh. 
GHG 
limits 
installations. 
OR:  when  produced  from  renewable  feedstock, 
life-cycle GHG emissions are lower than those of 
the equivalent fossil fuel-based chemical. 
GHG limits set at top 10% of current installations 
(based on ETS data). 

top  10%  of  current 

Plastics  production  has  been  sharply  growing  over 
the last years and emissions from the plastics sector 
are  expected 
increase,  not  only  because 
consumption  -  and  therefore  manufacturing  -  is 
expected to increase but also because plastics release 
CO2 when incinerated. 

to 

Fully  manufactured  by  mechanical  recycling, 
fully  manufactured  by  chemical  recycling,  or 
derived  from  renewable  feedstock.  In  the  latter 
two  cases,  life-cycle  GHG  emissions  must  be 
lower than for fossil-fuel based equivalent. 

How GHG emission reductions can be obtained 
Minimising  process  emissions 
through  energy  efficiency 
improvements  and  switching  to  alternative  fuels,  reducing  the 
clinker to cement ratio and using alternative clinkers and binder. 
Emissions from manufacturing aluminium are primarily related to 
the  use  of  electricity,  which  contributes  to  over  50%  of  the 
production costs. Consequently, there is a strong incentive for the 
aluminium  industry to improve energy efficiency.  All aluminium 
recycling is eligible due to significantly lower emissions.  
The  level  of  performance  achieved  by  best  performing  plants  is 
considered  to  make  a  substantial  contribution  to  climate  change 
mitigation. Furthermore, secondary production of steel (i.e. using 
scrap  steel)  is  considered  eligible  due  to  significantly  lower 
emissions than primary steel production.  
Reducing  the  emissions  from  the  manufacturing  of  carbon  black 
and  soda  ash  and  improving  energy  efficiency  and  switching  to 
low  carbon  electricity  in  the  manufacturing  of  chlorine  can 
positively contribute to the climate change mitigation objective.  

Minimizing  process  emissions  and  promoting  the  manufacturing 
of  organic  chemicals  with  renewable  feedstock  can  contribute  to 
the  mitigation  objective.  Reducing  the  emissions  from  the 
therefore 
manufacturing  process  of  organic  chemicals  can 
positively contribute to the mitigation objective.  
The  ammonia  sector  is  expected  to  substantially  contribute  to 
GHG  emissions  reduction,  notably  by  using  hydrogen  produced 
from  electrolysis.  During  the  manufacturing  of  nitric  acid,  the 
main type of GHG generated is nitrous oxide and by applying the 
available technologies it is possible to reduce emissions by  more 
than 80%. 
Plastic  manufacturing  is  only  eligible  when  at  least  90%  of  the 
final  plastic  is  not  used  for  single  use  consumer  products  and  is 
recycled.  

Table 28 - Technical Screening Criteria for selected manufacturing activities under the EU Taxonomy 

124 

 
 
 
 
 
 
 
 
 
 
Annex 9: External review 

Transparency  is  an  important  element  of  any  green  investment  to  enable  investors  to  make 
better  informed  decisions  about  the  sustainability  impact  of  their  investment  decisions. 
Providing accurate information on the environmental performance of their investments allows 
prospective  investors  to  more  efficiently  compare  different  assets  and  mitigates  against  the 
risk of green washing.  

In order to boost investor confidence in the environmental data provided, green bond issuers 
started to engage with third parties that provide independent third-party services and advice 
regarding their ESG impact. External review is a commonly used umbrella term that covers 
this  wide  range  of  third-party  services  such  as  environmental  consultancy,  provision  of  a 
second  opinion  on  a  green  financial  instrument’s  alignment  with  a  particular  standard  or 
audits on the use of proceeds through post-issuance and impact reporting. 

External  reviews  have  become  common  market  practice  in  the  EU  green  bond  market.104 
Independent  third  parties  guarantee  that  the  proceeds  are  used  to  finance  green  projects. 
Research  conducted  by  the  Luxembourg  Stock  Exchange  (LuxSE)105  for  the  TEG  indicated 
that  more  than  85%  of  issuers  use  some  form  of  pre-issuance  review  (also  referred  to  as 
‘validation’  in  ISO  standards  to  confirm  that  requirements  for  a  specific  intended  use  are 
fulfilled), out of which almost all take the form of external reviews (98%).  

Recent  research  by  the  Climate  Bond  Initiative  (CBI)  has  also  found  that  post-issuance 
external  reviews  and  reporting  are  positively  correlated.  An  issuer’s  commitment  to  post-
issuance external reviews seems to go hand-in-hand with post-issuance reporting106 and post-
issuance  disclosure  provides  further  transparency,  ensures  accountability  and  underpins  the 
credibility of green bonds. This in its turn provides reassurance to investors and supports their 
involvement in the market.  

Another  analysis  conducted  by  Natixis107  of  97  global  issuer  and  reporting  profiles  showed 
that 64% of issuers had provided some sort of third-party opinion and impact measurements 
were included in the scope of the external verification for 27%. Most of these post-issuance 
verification statements (85%) were deemed to meet (or exceed) related professional standards 
for the auditing profession (i.e., IFAC/ISAE 3000).   

A  report  by  Baker  McKenzie108  highlighted  key  issues  impacting  on  the  integrity  of  the 
market  and  undermining  investor  trust,  including  a  lack  of  contractual  protections  for 
investors  or  ‘greenwashing’,  the  quality  and  transparency  of  reporting  metrics  and  issuer 
confusion  and  fatigue.  External  reviewers  can  play  an  important  role  in  mitigating  these 
issues  by  providing  reassurance  to  investors  and  guidance  to  issuers  on  the  green 
characteristics of their investments.  

The  TEG  highlighted  a  number  of  challenges  in  this  sector  in  its  report  including  variable 
quality  of  reporting,  potential  lack  of  independence  or  management  of  potential  and  actual 
conflicts  of  interest  and  the  handling  of  potentially  price  sensitive  information.  The  TEG 

104 Natixis Green Bonds 3:0, January 2017. 
105  Luxembourg  Green  Exchange:  “Report  on  the  analysis  of  green  bond  external  reviews  and  reporting  – 
European Issuers”, draft paper prepared for EC TEG, 11 September 2018  (unpublished) 
106 CBI: “Post-issuance reporting in the green bond market”, 2019 (Link)   
107 Natixis Green Bonds 4.0, January 2018 
108 Baker McKenzie, ‘Critical challenges facing the green bond market’ 

125 

 
 
                                                 
recommended  the  establishment  of  an  external  reviewer  framework  to  help  address  these 
challenges.  The  TEG  also  noted  the  important  role  of  external  reviewers  in  reducing 
informational asymmetries and mitigating the risk of greenwashing.  

What do external reviewers do? 

In  its  Guidelines  for  External  Reviews109,  ICMA  describes  four  main  categories  of  external 
review services: 

1)  a  second  party  opinion  (‘SPO’)  is  an  assessment  of  the  issuer’s  Green,  Social  and 
Sustainability  Bond  issuance,  framework  or  programme  with  the  relevant  Principles 
with alignment assessed against all of the core components of the selected framework.  
A  second  party  opinion  can  also  include  an  assessment  of  the  issuer’s  overarching 
objectives,  strategy,  policy  and/or  processes  relating  to  environmental  and/or  social 
sustainability  and  an  evaluation  of  the  environmental  and/or  social  features  of  the 
types of Projects intended for the Use of Proceeds. 

2)  verification  the  provision  of  an  independent  assessment  of  an  issuers’  compliance 
against a designated set of criteria, typically related to business processes and/or ESG 
criteria.    Verification  can  focus  on  alignment  with  internal  or  external  standard  or 
claims made by the issuer.  Evaluation of the environmentally or socially sustainable 
features of underlying assets can also be termed verification. Assurance or attestation 
regrading an issuer’s internal tracking method for use of proceeds, allocation of funds 
from  ESG  Bond  proceeds,  statement  of  environmental  and  or  social  impact  or 
alignment with reporting requirements may also be defined as verification. 

3)  certification is when an issuer seeks to have its ESG Bond or associated framework 
or Use of Proceeds  certified against a recognised external  ESG standard  or label.  A 
standard or label defines specific criteria and alignment with these criteria is normally 
tested  by  qualified,  accredited  third  parties,  which  may  verify  consistency  with  the 
certification criteria. A common type of certification in the green bond market is the 
CBI certification, which checks alignment with the Climate Bonds Standard to ensure 
that it is consistent with the goals of the Paris Climate Agreement to limit warming to 
under 2 degrees.110 

4)  ESG  Bond  Scoring/Rating  is  when  an  issuer  has  its  ESG  bond  or  associated 
framework  or  a  key  feature  such  as  Use  of  Proceeds  evaluated  or  assessed  by 
qualified  third  parties  such  as  specialised  research  providers  or  rating  agencies 
according  to  an  established  scoring  or  rating  methodology.  The  assessment  may 
include  a  focus  on  environmental  and/or  social  performance  data,  relative  to  a 
specified benchmark such as a 2-degree climate change scenario.  Such a scoring or 
rating is distinct from credit ratings. 

Another way of categorising the types of review is according to its timing with regards to the 
bond issuance event. According to this system, the two main types of external review are pre-
issuance  and  post-issuance.  Pre-issuance  review  covers  SPOs  (as  explained  above),  third 
party assurance (similar to an SPO but performed by an accounting or audit firm), green bond 
rating  (similar  to  an  SPO  but  performed  by  a  rating  agency),  or  pre-issuance  verification, 

109 ICMA: “Guidelines for green, social and sustainability bonds external reviews”, 2018 (Link) 
110 CBI: “Certification under the Climate Bonds Standard”, 2020 (Link) 

126 

 
 
 
 
 
 
                                                 
which  is  necessary  to  be  certified  according  to  the  Climate  Bonds  standard.  Post-issuance 
review covers second- or third-party review of allocation reports, review of impact reports, 
and post-issuance verification, which is an assurance against the climate bonds standard.  

Recent research by CBI shows a changing profile of external reviews in 2020, with Second 
Party Opinions (SPO) clearly gaining share. They accounted for 83% of issuance in H1 2020 
versus 60% in 2019 – itself a relatively high share – as they become the norm in a market that 
increasingly ‘demands’ some form of external review. 

Figure 20 - SPO at highest share yet111 

Type of review  What it covers 
Third party 
Assurance 

Service providers 
Accounting / audit firms  KPMG Assurance Report 

Examples 

commissioned by IDBI 
Bank 
Deloitte’s Assurance Report 
commissioned by CGN 

Second Party 
Opinion (SPO) 

Assurance reports state 
whether the green issuance 
is aligned with a reputable 
international framework, 
such as the Green Bond 
Principles (GBP) or Green 
Loan Principles (GLP) 
SPOs provide an assessment 
of the issuer’s green bond 
framework, analysing the 
“greenness” of eligible 
projects/assets. Some also 
provide a sustainability 
"rating", giving a qualitative 
indication of aspects of the 
issuer's framework and 
planned allocation of 
proceeds 

Environmental Social 
Governance (ESG) service 
providers (such as Oekom, 
Sustainalytics, Vigeo 
Eiris, DNV GL) and 
scientific experts (such as 
CICERO, CECEP 
Consulting). Other 
environmental consultants 
and assessment 
organisations. 

DNV GL 
SPO commissioned by Arise 
AB 
Sustainalytics’ SPO 
commissioned by the 
Development Bank of Japan 
Kestrel Verifier's 
SPO commissioned by the 
Sacramento Municipal 
Utility District ("SMUD") 

111 CBI: “Sustainable debt – global state of the market H1 2020”, 2020 (Link) 

127 

 
 
 
 
                                                 
Green Bond 
Rating 

A number of rating agencies 
assess the bond’s alignment 
with the Green Bond 
Principles and the integrity 
of its green credentials 

Rating agencies such as 
Moody’s, S&P Global 
Ratings, JCRA, 
R&I, RAM Holdings  

Confirms that the use of 
proceeds adhere to the 
Climate Bonds Standard and 
sector specific criteria (e.g. 
Low Carbon Transport) 

Verifiers approved by the 
Climate Bonds Standard 
and Certification Scheme 

Pre-issuance 
verification of 
the Climate 
Bonds 
Certification 
according to 
the Climate 
Bonds Standard 

Moody’s Green Bond 
Rating assigned to Banco 
Nacional de Costa Rica’s 
USD500m green bond 
S&P’s Green Evaluation 
assigned to Province of La 
Rioja’s USD200m green 
bond 
Oekom (now known as ISS 
ESG) ’s independent 
verification statement of 
ABN Amro’s EUR500m 
green bond 

First Environment’s 
independent verification 
statement of Los Angeles 
County MTA’s USD471m 
green bond 

  Table 29: Examples of pre-issuance review (source: Climate Bonds Initiative) 

Type of review 
Second party or third 
party assurance report 

Impact reporting 

What it covers 
Assurance of allocation of 
proceeds to eligible green 
projects. 

Reporting that seeks to 
quantify the climate or 
environmental impact of a 
project/asset numerically 

Service providers 
Audit firms, ESG 
research service 
providers (Oekom, 
Sustainalytics) and 
scientific experts 
Issuer, Audit firms, 
ESG research service 
providers (Oekom, 
Sustainalytics) and 
scientific experts 

Post-issuance 
verification of the 
Climate Bonds 
Certification according 
to the Climate Bonds 
Standard 

Assurance against the 
Climate Bonds Standard, 
including the allocation of 
proceeds to eligible green 
projects and types of 
green projects 

Verifiers approved by 
the Climate Bonds 
Standard and 
Certification Scheme 

Examples 
DNV GL 2018 Assurance 
report for NAB’s 
AUD300m 2014 green 
bond 

HSBC’s green bond report 
Iberdola’s Sustainability 
Report 2016 and PWC’s 
independent Assurance 
report (pg. 266) 
Berlin Hyp Green Bonds 
Impact Report (June 2016) 
EY’s post-issuance 
report for Westpac’s 
AUD500m 2016 green 
bond 

KPMG’s post-issuance 
report for Axis Bank’s 
USD500m 2016 green bond 

Table 30: Examples of post-issuance review (source: Climate Bonds Initiative) 

Current Market Makeup: 

Research  suggests  that  external  reviews  can  help  reduce  informational  asymmetries  for 
market  participants.  For  issuers  to  have  a  green  bond  voluntarily  verified  by  an  external 
reviewer has become common practice with the relevant reports typically made available to 
investors  before  or  at  the  time  of  issuance.  Guidance  on  voluntary  verification  has  been 
issued by ICMA (Guidelines for External Reviews) as well as CBI (Assurance Framework) 

128 

 
 
  
  
 
which  both  allow  for  the  certification  of  green  bonds  with  their  respective  standard.  Yet, 
harmonisation of concepts and definitions of what is ‘green’ are also important prerequisites 
for mainstreaming green financing.  

Currently  the  voluntary  external  review  market  is  divided  between  four  types  of 
organisations:   

1)  Non-financial  rating  agencies  and  sustainability  consultancies  specialised  in  second 
party  opinions:  Vigéo-Eiris  (recently  acquired  by  Moody’s),  Sustainalytics,  ISS-oekom 
and the research organisation CICERO; 

2)  Big-four audit firms providing mostly post-issuance verification or “assurance” services: 

Deloitte, KPMG, PwC, EY;  

3)  Credit Rating Agencies: Moody’s, S&P Global Ratings, Fitch, as well as more recently 

Beyond Ratings112; and, 

4)  Global  technical  inspection  and  certification  bodies:  e.g.  DNV-GL,  Bureau  Veritas, 

TÜV, etc. 

According to research conducted by CBI in 2018, the external review market was dominated 
by  a  group  of  mainly  European  service  providers  currently  holding  more  than  90%  of  the 
market  and  six  specific  providers  account  for  almost  75%  of  the  market  –  CICERO, 
Sustainalytics, Vigeo Eiris, EY, ISS-oekom and DNV GL.113 (see  Figure 21). 

Figure 21 - Breakdown of green bond issuance in Europe according to external reviewer (EUR bn) 

112 ESMA  has registered Beyond Ratings SAS as  Credit Rating  Agency in March 2019. Beyond  Ratings  was 
acquired by London Stock Exchange Group in June 2019.   
113 CICERO: “Milestones 2018. A practitioner's perspective on the Green Bond Market”, 2018 (Link) 

129 

 
 
 
 
 
 
 
                                                 
The tables  below114  list  the current  pool  of external review service providers in  Europe and 
maps  their  relationship  with  existing  accreditation,  approval  and/or  supervisory  regimes  in 
areas related to the green bond external review market that could be used as a model/template 
for the accreditation of verifiers. The top 5 players in the external review market in Europe in 
2017 (according to CBI data) are highlighted in bold.   

114 From June 2019 TEG report Annex 5, p. 72-73 

130 

 
 
 
 
                                                 
Table  31 -  External  review  service  providers  in  Europe.  Source:  TEG  report  on  an  EU  GBS  (June 
2019) 

TEG Report: 

According to the TEG, while post-issuance external reviews can be perceived as costly and of 
variable  quality  or  added  value  to  the  issuer  and/or  investor,  they  can  also  strengthen  the 
credibility  of  information  published  by  the  issuer,  protect  the  integrity  of  the  market  and 
reduce the risk of green washing. 

The  TEG  report  also  highlighted  a  number  of  other  issues  regarding  existing  market 
practices: 

a)  Relatively high(er) transaction costs for issuers (if not offset by a pricing advantage); 
b)  Potential lack of independence in perceived or actual conflicts of interest; 
c)  Limited disclosure of environmental performance criteria; 
d)  Time  consuming  and  resource  intensive  process  to  develop  robust  sector-specific 

criteria for certification schemes; 

e)  Ambitious certification standards might make it difficult to promote adoption; 
f)  Post-issuance  assurance  statements  do  not  systematically  cover  the  environmental 

impacts of the projects funded by the bond; 

g)  Post-issuance verification might result in requalification of the green bonds and there 

is a risk for investors that their investments are no longer deemed green; and, 

h)  Post-issuance verification can give rise to confidential price sensitive information that 

must be managed with due consideration.  

131 

 
 
 
 
TEG Recommendation: 

The TEG recommended the EU GBS incorporate an external review component to encourage 
standardisation  of  the  process  to  determine  alignment  with  the  EU  GBS  and  to  accredit 
external reviewers under ESMA’s supervision. This is intended to promote the development 
of  the  European  green  bond  market  by  improving  the  quality  and  standardisation  of  the 
review process for the EU GBS while ensuring a level playing field across the Union.  

Under this regime, external reviewers would be subject to registration/authorization including 
requirements covering (i) professional codes of conduct related to business ethics, conflicts of 
interest  and  independence;  (ii)  professional  minimum  qualifications  and  quality  assurance 
and control; and (iii) standardised procedures for external reviews.  

By requiring the issuing of a second opinion and post-issuance reporting by an independent 
third  party,  the  EU  Green  Bond  Standard  (EU-GBS)  aligns  with  best  market  practices  and 
provides  assurance  to  both  issuers  and  investors  that  their  investments  are  aligned  with  the 
EU Taxonomy, in  particular assessing investments’ compliance with  the Do No Significant 
Harm (DNSH) criteria.    

Third Country Reviewers: 

Prudential concerns, in particular in terms of investor protection and market integrity, yield to 
consider  certain  conditions  for  third  country  reviewers  seeking  to  offer  external  review 
services for any future EU GBS regime.  

The EU GBS will establish a new standard of excellence for green bonds, with a requirement 
for  pre-  and  post  issuance  review  by  an  independent  external  reviewer.    While  section  5.4 
addresses  the  regulatory  treatment  of  such  reviewers,  it  is  nonetheless  clear  it  would  be 
important for both market integrity and investor protection to ensure that external reviewers 
are  sufficiently  qualified,  objective  and  reliable  when  providing  their  services.    For  this 
reason,  any  registration  requirement  for  such  reviewers  would  form  an  integral  part  of 
securing the market’s trust and facilitating the usability of such a standard.  Both issuers and 
investors would rely on such an independent evaluation of the bond’s alignment with the EU 
Taxonomy to price and invest in these bonds.  

In the event an external reviewer engages in misconduct and the relevant bonds lose their EU 
GBS  status,  not  only  would  investor  trust  in  the  EU  GBS  be  undermined,  investors  could 
incur  financial  losses  as  they  may  be  forced  to  sell  the  bonds  because  they  are  no  longer 
considered green investments. This could also endanger overall market integrity if a number 
of  bond  issuances  were  impacted  with  potential  implications  for  the  broader  green  bond 
market.  The  diversion  of  capital  from  legitimate  green  investments  would  also  reduce  the 
effectiveness of the EU’s policy interventions to support the achievement of its goals under 
the European Green Deal. 

The  considerations  above  hold  true  whether  the  reviewer  is  based  in  the  EU  or  in  a  third 
country. For this reason, any regime for external reviewers from third countries would need 
to ensure that the supervisor of these entities (which in the EU will be ESMA) can effectively 
fulfil their supervisory role with respect to those third country entities, in particular to ensure 

132 

 
 
 
 
 
 
 
that  the  external  reviewers  conduct  themselves  in  a  way  that  does  not  damage  market 
integrity and confidence in the EU GBS or negatively impacts on the interests of investors in 
EU  GBS  bonds.  The  importance  of  this  requirement  will  increase  proportionately  with  the 
size of the market, as the impact of a hit to market integrity will increase with the extent of 
usage of the EU GBS.  

While  the  majority  of  existing  external  reviewers  are  based  in  the  EU  or  the  European 
Economic  Area,  provision  should  be  made  in  the  proposed  framework  to  facilitate  third 
country reviewers that wish to assess compliance with the EU GBS. Existing EU frameworks 
contain a number of third country mechanisms such as recognition or endorsement. 

At the same time, it is  important  to  ensure that  ESMA can effectively  fulfil  its supervisory 
role with respect to third country entities, in particular to ensure that the external reviewers 
conduct themselves in a way that does not damage market integrity and confidence in the EU 
GBS or negatively impacts on the interests of investors in EU GBS bonds. The importance of 
this requirement will increase proportionately with the size of the market, as the impact of a 
hit to market integrity will increase with the extent of usage of the EU GBS.  

Allowing a third country reviewer to designate a legal representative in the Union or allowing 
an EU based external reviewer to endorse the work of the third country reviewer are viable 
options  that  could  be  implemented  in  the  proposed  regulation  while  still  maintaining  the 
effectiveness of ESMA’s supervisory function and an adequate degree of investor protection. 

133 

 
 
 
 
 
 
 
 
 
Annex 10: Sovereign bonds 

1.  MARKET SITUATION 

Sovereign  green  bond  issuance  in  the  EU  started  in  December  2016  with  the  issuance  by 
Poland  of  an  inaugural  green  bond  to  the  value  of  €750  million.  This  was  followed  by 
France’s  issue  of  a  €7  billion  green  bond  in  January  2017,  and  since  then  many  other 
countries have followed suit, in Europe and worldwide. To date, 10 EU Member States have 
issued  sovereign  green  or  sustainability  bonds,  including  Belgium,  Netherlands,  Ireland, 
Germany, Sweden, Lithuania, Luxembourg, Hungary, as well as France and Poland.  

Figure 22- Sovereign green bond issuance (source: OECD) 

Worldwide, according to the OECD, 16 sovereigns have now issued green bonds to finance 
green projects in governments’ budgets, exceeding USD 80 billion. Euro area issuers account 
around  75%  of  the  total  issuance.  Amid  the  COVID-19  pandemic,  sovereign  green-bond 
issuers  have  kept  the  issuance  momentum  in  2020  with  several  re-openings  and  a  few 
inaugural issuances, including Germany and Sweden. 

Despite its rapid growth, the size of the sovereign green bond market is quite small compared 
to traditional bonds. For example, in the OECD area, sovereign green bonds account for only 
0.1% of all government debt securities115. However, the sovereign green bond market can be 
expected to keep growing over the longer horizon, as an increasing number of governments 
assess green bond issuance as a valuable tool. 

Why do sovereigns issue green bonds? 

A sovereign may decide to issue a green bond for a range of reasons: 

115 OECD: “Sovereign Borrowing Outlook for OECD Countries”, 2020 (Link) 

134 

 
 
  
 
 
                                                 
  Display leadership on climate change and sustainability. 
  Signal commitment to sustainable, low-carbon growth strategies, which will have a 

positive impact on the private sector investment case for green sectors.  

  Support the local sustainable finance ecosystem.  
  Fund climate-related investments at a cheaper cost116 
  Encourage collaboration between different departments in government (traditionally 

treasury and sustainability), and improve government tracking of climate-related and 
sustainable expenditure, to support a long-term low-carbon growth strategy.  

The specificities of sovereign green bonds 

The  process  of  issuing  a  sovereign  green  bond  is  similar  to  that  of  issuing  a  conventional 
green bond. However, there are some additional steps, given the more complex organisational 
nature of governments, the type of expenditures they can entail, and their debt’s benchmark 
role in domestic capital markets. 

While the green bond market to date has largely focused on financing tangible green assets, 
such  as  wind  farms,  low-carbon  buildings  and  railways  through  direct  expenditures, 
sovereign  green  bonds  have  introduced  indirect  expenditures,  such  as  subsidies  and 
operational  expenditures,  into  the  mix.  For  example,  Poland’s  green  bond  framework 
includes  expenditures  in  the  form  of  “budget  allocation”  (for  example  for  excise  tax 
exemption  for  renewable  energy)  and  subsidies  for  all  eligible  sectors.  The  French  green 
bond  has  for  the  large  part  gone  to  financing  operational  and  subsidy  and  tax-related 
expenditures connected to the six eligible categories identified (see section 5 of this annex for 
more detail).  

Intangible assets, such as research and innovation, also appear more frequently in  sovereign 
bonds. These may be areas of investment that the private sector is less willing to undertake or 
they may include public goods, such as research and data collection. 

In addition,  the following specificities  of  Sovereign  green bond issuers,  which might  affect 
their use of the EU GBS, have been mentioned by stakeholders: 

  Lack of project level  overview of impacts:  It  may be difficult  for a sovereign to  state 
with certainty that all items funded are aligned with the Taxonomy, in particular the Do 
No Significant Harm (DNSH) criterion. Sovereigns typically fund grant schemes, and are 
not always in the supply chain for individual projects. Energy efficiency grants which are 
distributed to firms in many different industries were mentioned as a potential example.  

  A preference for state auditors: public issuers may prefer to use existing state agencies 
specialised in government accounts rather than external third parties for the review of the 
allocation of bond proceeds.  

  Legal restrictions on committing unspent proceeds: In some cases, a forward-looking 
approach to the allocation of green funds is not possible. This could be for example if the 

116 For example, Belgium reported that they achieved a 2.5 basis point discount compared to regular sovereign 
bonds  at  similar  maturities,  resulting  in  annual  savings  of  €1.125  million.  According  to  media  reports,  the 
French  green  sovereign  bond  due  in  June  2039  priced  at  13  basis  points  over  the  1.25%  May  2036  French 
sovereign bond. CBI: “Sovereign Green Bonds Briefing”, 2018 (Link) 

135 

 
 
 
                                                 
 
Green  Bond  Framework  of  a  sovereign  issuer  cannot  commit  a  Parliament  or  pre-empt 
the final decision on the allocation of state funds. 

  Problems for smaller countries: issuing EU GBS-aligned green bonds separately from 
conventional  bonds  may  result  in  reduced  average  issue  size,  and  thereby  reduced 
liquidity  for  sovereign  bonds,  which  contributes  to  higher  costs  of  funding  for  the 
sovereign.  

This means that two types of flexibility may be relevant for Member States wishing to apply 
the EU GBS: flexibility linked to the EU Taxonomy (i.e. on use of proceeds) and flexibility 
linked to other requirements. These two will now be discussed in this order. 

2.  POTENTIAL FLEXIBILITY 

The EU GBS as proposed by the TEG requires use of proceeds to be 100% aligned with the 
EU Taxonomy. Member States that responded to the targeted consultation on the EU Green 
Bond Standard, either through their finance ministries or DMOs, were in general supportive 
of the core components of the EU GBS as proposed by the TEG, and especially to alignment 
with the Taxonomy, which they see as the main strength of the standard. At the same time, a 
number of Member States agreed that a small amount of flexibility could be given to deviate 
from the criterion of Taxonomy alignment for 100% of use of proceeds.  

Although  the  EU  is  not  legally  allowed  to  deviate  from  the  Taxonomy  Regulation  when 
setting out standards for green bonds issued by corporates117, this restriction does not apply in 
the  case  of  Sovereign  issuers.  Accordingly,  there  is  legal  scope  for  affording  a  degree  of 
flexibility around the definition of eligible green proceeds in the case of potential sovereign 
issuers of EU GBS green bonds. Several approaches are possible: 

1)  The TEG approach: applying the Taxonomy by relying on its fundamental principles 

One potential approach would have been to follow the TEG, which proposed to rely on the 
fundamental principles of the Taxonomy Regulation to verify that investments align with the 
Taxonomy, instead of the Technical Screening Criteria, in certain cases. But in practice this 
approach would have had certain paradoxical outcomes. Given that sovereigns and corporates 
often  ultimately  fund  the  same  economic  activities,  flexibility  in  the  application  of  the 
Taxonomy could lead to inconsistencies.  

In  particular,  such  flexibility  could  lead  to  the  exact  same  economic  activity  being  judged 
differently based on the source of its funding. This could lead to unwanted outcomes, such as 
allowing public actors to crowd out private actors by being able to offer Taxonomy-aligned 
funding  where  the  private  sector  is  not.  In  order  to  avoid  this  inconsistency,  it  is  not 
recommended to give sovereigns the flexibility to interpret or apply the Taxonomy differently 
to corporates.  

2)  “Flexibility pocket” approach 

Another potential approach is to allow Sovereign issuers to include as proceeds in their EU 
GBS-aligned  bond  expenditure  that  has  a  positive  environmental  impact,  but  is  not 
Taxonomy  aligned.    Under  such  a  “flexibility  pocket”  approach,  the  proceeds  of  the 

117 Cf. Article 4 of the Taxonomy Regulation, see discarded options 

136 

 
 
 
 
 
 
 
 
                                                 
sovereign  EU  GBS  bond  would  be  clearly  divided  into  two  parts:  one  part  that  would  be 
100% aligned with the criteria of Article 3 of the Taxonomy Regulation, and a second part 
(the “pocket”) where there would be flexibility to diverge from the Taxonomy.  

The size of this pocket would be capped, and subject to some minimum criteria: for example, 
only economic activities not covered by existing Technical Screening Criteria under the EU 
Taxonomy, for example because those criteria are not yet developed for a specific sector or a 
specific  environmental  objective,  would  be  eligible  for  the  flexibility  pocket.  Furthermore, 
economic  activities  would  still  need  to  (i)  substantially  contribute  to  one  of  the  six 
environmental objectives as set out in the Taxonomy Regulation, (ii) do no significant harm 
to  any  of  these  objectives,  and  (iii)  meet  the  minimum  safeguards  of  the  Taxonomy 
Regulation.  

The separation into two parts would facilitate the task for financial institutions holding these 
bonds  of  disclosing  Taxonomy-alignment  under  the  Sustainable  Finance  Disclosures 
Regulation.118  Any  use  of  flexibility  would  be  accompanied  by  appropriate  disclosures,  to 
ensure that investors are fully aware of its extent, and can discount the Taxonomy-alignment 
of the bond accordingly.  

Member  States  were  consulted  on  the  flexibility  pocket  approach  using  a  targeted 
questionnaire (see the next sub-section for full results). 

Taxonomy-aligned  part  of 
bond 

the 

Flexibility pocket 

100 minus X percent 

X percent 

Share  of  the  total 
proceeds  of 
the 
bond 

Taxonomy Article 3: 
-  Substantial  Contribution, 

as 

Eligibility criteria 

defined by TSCs. 

-  DNSH, as defined by TSCs 
-  Minimum safeguards 

(X = the size of the flexibility pocket) 

More  flexible  criteria  (see 
proposals above) 

Table 32 - Illustrative Model of use of proceeds of sovereign EU GBS-aligned green bond 

Flexibility regarding reporting and review requirements 

Taking  into  account  the  issues  mentioned  by  sovereign  respondents  to  the  consultation, 
potential  flexibility  for  sovereign  green  bond  issuers  could  also  be  possible  with  regards  to 
other aspects, such as the reporting and review requirements of the EU GBS. In particular, 
the following types of flexibility could be considered for sovereign issuers of EU GBS-
aligned green bonds:  

118  Regulation  (EU)  2019/2088  of  the  European  Parliament  and  of  the  Council  of  27  November  2019  on 
sustainability‐ related disclosures in the financial services sector (Link) 

137 

 
 
 
 
 
 
 
 
                                                 
  Allowing  sovereign  issuers  to  rely  on  internal  state  auditors  instead  of  external  third 

parties for the review of the allocation of proceeds.  

  Allowing, if necessary, sovereign issuers and the reviewers of their EU GBS-aligned green 
bonds to assess the alignment with the criteria of the Taxonomy Regulation based on the 
terms and conditions of funding programmes, rather than at project level.  

  Exempting  Sovereigns  from  some  of  the  potential  restrictions  on  the  use  of  refinancing 
(such  as  short  look-back  periods  for  eligible  expenditure  and  potential  bans  or  other 
restrictions on refinancing). 

3. 

SUMMARY OF RESPONSES TO QUESTIONNAIRE ON SOVEREIGN GREEN BONDS  

Between  2/12  and  23/12  DG  FISMA  carried  out  a  short  consultation  of  members  of  the 
Council’s Economic and Financial Committee (EFC) subgroup on European Sovereign Debt 
Markets (ESDM) green bonds working group. The survey was also circulated to Members of 
the  Member  States  Expert  Group  on  Sustainable  Finance  (MSEG),  and  respondents  were 
asked to coordinate their responses for each country.  

The  intention  of  the  survey  was  to  gauge  the  need  and  appetite  for  introducing  flexibility 
within  the  EU  Green  Bond  Standard  targeted  specifically  at  sovereign  issuers  who  wish  to 
make use of the Standard. Four types of flexibility were consulted about:  

1.  Flexibility around the use of proceeds: the questionnaire outline a proposal for a so-called 
flexibility  pocket  which  would  allow  MS  issuers  of  EU  GBS  bonds  to  also  include 
Taxonomy non-aligned green expenditure in their use of proceeds, provided that certain 
conditions were fulfilled, and within a limited percentage of total proceeds.  

2.  Flexibility  to  use  state  auditors  instead  of  third  party  reviewers  for  external  review  of 

allocation reports of the EU GBS proceeds.  

3.  Flexibility  to  assess  (for  the  purposes  of  the  EU  GBS)  the  Taxonomy-alignment  of 
government  funding  programmes  based  on  terms  and  conditions  of  the  programmes 
rather than the underlying projects. 

4.  Flexibility to operate with fewer restrictions on refinancing than in the corporate sector. 

The consultation also  asked Member States about their green bond issuance plans and their 
estimates around the Taxonomy-alignment their previous and future green bonds issuance.  

These responses should be interpreted in light of the fact that at the time of the consultation, 
the  delegated  Acts  for  the  Technical  Screening  Criteria  of  the  Taxonomy  for  the  climate 
objectives were not yet adopted (i.e. their final form was not yet known), and the respective 
delegated  acts  for  the  other  four  environmental  objectives  were  not  even  available  in  draft 
form yet.  

The  results  should  also  be  interpreted  in  light  of  the  fact  that  while  respondents  were 
answering  questions  about  their  actual  or  potential  green  bond  issuance  programmes  in 
December  2020,  the  estimated  adoption  date  for  a  potential  EU  Green  Bond  Standard 
initiative would be much later (potentially 2022, due to the need for co-legislators to reach an 
agreement). It seems that not all respondents took this fact fully into account when providing 
their responses.  

138 

 
 
 
Respondents:  17  Member  States  responded  to  the  consultation119,  by  providing  feedback 
either through their Ministries of  Finance or through debt  or financial agencies.  In 7  cases, 
Member  States  explicitly  indicated  that  the  Member  State’s  representatives  in  the  Member 
States Expert Group on Sustainable Finance had been consulted or were responsible for the 
response.  

Summary of answers: 

Question 1: Have you issued or do you plan to issue green bonds? 

Overall,  a  large  majority  of  Member  States  were  planning  to  issue  or  considering  issuing 
green bonds in the future:  

  Out of the 7 which had previously issued green bonds (NL, DE, LU, BE, FR, LT, IE), 4 

were certain that they would reissue, 2 would potentially reissue by tapping their existing 
framework, while 1 had no plans to reissue green bonds.  

  Among the 10 remaining respondents which had not yet issued green bonds, 2 were 

actively preparing issuance, while 6 were considering issuing, and 2 stated they would not 
issue green bonds.  

Question  2:  Were  your  previous  green  bond  issuances  Taxonomy-aligned?  Will  your 
potential future green bonds be Taxonomy aligned? 

A majority of green bonds issuers estimated that their bonds were potentially partially or fully 
Taxonomy-aligned.  Out  of  the  7  previous  green  bond  issuers,  2  estimated  that  their  green 
bonds were potentially partially Taxonomy-aligned, 2 estimated that their green bonds were 
almost or fully Taxonomy-aligned, while 2 respondents could not yet give an answer. Those 
who could not  yet answer cited the unfinalised status of the Taxonomy Delegated Acts and 
the lack of time needed to perform the estimation (MS were only given about two weeks to 
respond  to  the  consultation,  although  additional  time  was  given  to  those  respondents  who 
asked for it). 1 previous issuer did not answer the question.  

Summary of relevant responses to the survey:  

7 (100%) 
MS having previously issued green bonds  
green bonds were considered to be almost or fully Taxonomy-aligned 
2 (28%) 
green bonds were considered to be potentially partially Taxonomy-aligned  2 (28%) 
2 (28%) 
could not yet give an answer 
1 (14%) 
who did not answer the question 

A  majority  of  future  green  bond  issuers  were  aiming  for  Taxonomy  alignment  or  indicated 
that their bonds would be Taxonomy-aligned. Of the 9 respondents who gave an indication of 
the  Taxonomy-alignment  of  their  future  green  bonds,  3  were  considering  Taxonomy-
alignment,  3  were  aiming  for  Taxonomy-alignment,  and  3  indicated  that  their  green  bonds 
would be fully Taxonomy-aligned.  

119 CY, NL, DE, DK, IT, ES, AT, LU, BE, FR, PT, LT, EE, IE, SI, RO, MT 

139 

 
 
 
 
 
 
                                                 
Summary of relevant responses to the survey:  

MS  answering  the  question  of  Taxonomy-alignment  of  their  future  green 
bonds 
MS considering issuing Taxonomy-aligned green bonds 
MS aiming to issue Taxonomy-aligned green bonds 
MS indicating that their green bonds would be Taxonomy-aligned 

9 
(100%) 
3 (33%) 
3 (33%) 
3 (33%) 

Question  3:  Are  there  economic  activities  that  you  would  wish  to  include  in  a  green 
bond which are not currently covered by the Taxonomy? 

Respondents listed a number of economic activities which they believed were not covered by 
the current draft Taxonomy Delegated Acts and should be included in these acts.  

  The  most  commonly  cited  activity  was  basic  research  on  the  environment  and 
innovation, with one MS specifying that they wanted subsidies to innovative companies 
to be included in the Taxonomy. (3 respondents). For this activity, it is possible that the 
three respondents were not aware that the most recent draft of the Taxonomy Delegated 
includes  research, 
Acts  from 
development, and innovation linked to the reduction of GHG emissions.  

the  Commission  (published 

in  November  2020) 

  The  two  second  most  commonly  cited  activity  (by  2  respondents  each)  were  flood 

defences and climate finance. 

  The  following  activities  were  cited  by  1  respondent  each:  space  technology  for  earth 
observation,  subsidies  for  public  transport,  fisheries,  agricultural  land,  urban 
greening, waste management facilities. It is unclear to what extent these activities will 
be covered, or not, by the Taxonomy Delegated Acts. 

  One respondents  also  mentioned that it is  unclear to  what  extent  tax expenditures and 

grants will be covered.  

  1  respondent  complained  that  in  general,  SMEs  are  insufficiently  covered  by  the 
Taxonomy Regulation. The respondent is interested in issuing small-sized green bonds to 
help SMEs issue debt instruments. 

Questions  4-6:  Need  for  flexibility  for  sovereign  users  of  the  EU  GBS?  What  do  you 
think  of  the  idea  of  a  flexibility  pocket  as  explained  in  the  consultation  document? 
Would you prefer an alternative approach? 

MS that answered the question regarding the flexibility pocket 
MS in favour of flexibility pocket 
MS potentially in favour of the flexibility pocket 
MS not in favour of the flexibility pocket, but in favour of general flexibility 
for public and private sector 
MS not in favour or sceptical to the flexibility pocket 
While  questions  4  to  6  asked  about  the  Flexibility  pocket  approach  specifically,  many 
respondents  also  provided  their  views  on  other  forms  of  flexibility,  including  forms  of 
flexibility that were not  covered by the consultation questions for due to  legal reasons (e.g. 
flexibility  which  would  also  apply  to  private  issuers)  or  a  lack  of  practical  feasibility  (e.g. 
allowing  public  and  private  actors  to  apply  different  technical  Screening  Criteria  under  the 

16 (100%) 
4 (25%) 
3 (19%) 
3 (19%) 

6 (38%) 

140 

 
 
 
 
EU GBS). The summary below focuses on the responses given with regards to the flexibility 
pocket itself.  

The following arguments were given in favour of the flexibility pocket: 

-  The flexibility pocket could extend the Taxonomy by covering activities that enable those 
in the Taxonomy, or those not yet included in the taxonomy, such as those linked to new 
technologies.  

-  Flexibility could simplify issuance. 
-  Flexibility pockets are not desirable but seem necessary given that the Taxonomy criteria 
are not published for all Green expenditure or may not be appropriate for sovereigns. 
-  Some flexibility will be necessary if Taxonomy application to sovereigns is not clarified. 
-  Activities  that  are  Taxonomy  aligned  in  principle  but  without  TSCs  should  still  be 

covered, this is crucial with regards to principle of technological neutrality. 

-  MS may not be able to fully implement the Taxonomy for reasons beyond its control. 

The following arguments were given against the flexibility pocket: 

-  The flexibility pocket implies a risk of being negatively perceived by investors. Investors 
may  doubt  whether  the  flexibility  pocket  is  truly  green,  and  may  therefore  delete  the 
flexibility  pocket  from  their  own  green  reporting  or  refrain  from  buying  the  bond 
altogether.  Alternatively,  the  ‘pocket’  approach  could  create  a  bifurcated  market  for 
sovereign  green  bonds,  with  some  being  considered  green  and  others  ‘almost’  green, 
which is not desirable.  

-  Sovereigns should set the bar for the use of the green bond standard for other issuers to 

- 
- 

follow. Favouritism towards Sovereigns could damage the credibility of the GBS. 
It would reduce clarity over use of proceeds, and introduce more complexity.  
It  could  undermine  the  legal  certainty  and  transparency  of  the  EU  GBS.  By  damaging 
these attributes of the EU GBS, which are two of its main intended benefits  and key to 
avoid greenwashing, the flexibility pocket would risk making the EU GBS an undesirable 
standard and thereby reduce its take-up by markets.  

-  The added value is small or non-existent, as issuers would likely seek to limit the size of 

their flexibility pocket for signalling purposes. 

-  Rather than have an extensive use of pockets it might be better for Sovereigns not to use 

the voluntary standards until they are better aligned with sovereign issuance. 

Question 7: Whether sovereigns should be given flexibility to rely on State auditors or 
another  state  agency  specialised  in  reviewing  government  accounts  and  public 
expenditure  when  preparing  their  allocation  report,  instead  of  an  independent  third 
party? 

In  favour:  MS  were  broadly  in  favour  of  such  flexibility,  as  they  deemed  it  important  to 
allow smaller sovereign issuers to cut costs  and to use available national expertise, as State 
auditors have good knowledge of state accounts, and as this is current practice among some 
MS that have issued green bonds (e.g. NL). Among those in favour, a significant minority of 
MS expressed the view that such flexibility should only be afforded under certain conditions, 
such  as  making  sure  the  state  party  has  the  required  knowledge  and  skills,  and  that  they 
would have to be guaranteed independent.  

141 

 
 
 
Against:  A  small  minority  of  MS  were  against  such  flexibility,  arguing  that  the  use  of  an 
impartial  third  party  expert  is  a  healthy  principal,  and  that  there  could  be  some  bias  in  the 
analysis by state auditors.  

Question 8: Whether sovereigns should be allowed to demonstrate Taxonomy alignment 
by assessing only the terms and conditions of a given programme or grant, rather than 
the individual projects funded under those terms? 

In favour: Overall, there was a large majority in favour of allowing Member States to use the 
terms  and  conditions  of  a  funding  or  spending  programme  to  demonstrate  Taxonomy-
alignment for the purposes of eligible expenditure for the EU GBS, as opposed to project-by-
project information.  

Respondents explained that if the terms and conditions of a given program were adequately 
taxonomy aligned, then the grants or projects in the program would be as well, as States are 
responsible for having their policy measures properly implemented. They also argued that a 
certain  degree  of  reliance  on  terms  and  conditions  and  existing  audits  and  controls  is 
unavoidable, as the nature of sovereign expenditure activity is broad and is generally viewed 
by the debt capital markets in that way. Among those who were in favour, about half argued 
that Taxonomy-alignment on project-level should still be followed as a goal, and flexibility 
should only be used when project-level info is not available and the terms and conditions are 
well-developed.  

Against:  Only  a  very  small  minority  of  MS  were  sceptical  to  such  flexibility,  citing  a 
reluctance to differentiate public and private sectors within the EU GBS.  

Question  9:  Whether  sovereigns  should  be  exempt  from  potential  restrictions  on 
refinancing that would apply to corporate issuers? The question also asked for general 
views on refinancing and look-back periods. 

Member States answered this question in various ways, and often by giving their views on the 
broader issue of how to deal with refinancing and look-back periods of assets or expenditure, 
rather than expressing a view on the subject of specific flexibility for sovereign issuers.  

MS  were  divided,  or  unsure,  on  the  issue  of  whether  flexibility  was  needed.  This  may  be 
because  the  question  did  not  specify  the  type  of  rules  that  were  foreseen  for  look-back 
periods and refinancing, so MS did not know against what rules the hypothetical flexibility 
would apply.  

Overall, MS indicated that they were not in favour of a ban on refinancing, but believed there 
should  be  a  cap  on  the  look-back  period  for  operating  expenditure  to  be  eligible,  and  this 
should be about 2-3 years.  

142 

 
 
 
 
 
 
 
ANALYSIS:  COMPARISON  OF  KEY  EU  SOVEREIGN  GREEN  BONDS  AND  THE  EU  GREEN  BOND 

4. 
STANDARD 

Overview of selection of EU Sovereign bonds issued so far 

Member State 

Issuance date and amount 

Poland 

France 

Belgium 
Netherlands 

Ireland 

Germany 

1st issue €750M (Dec 2016) maturity 2021  
2nd issue €1 bn (2018) maturity 2026 
3rd issue €2 bn (Mar 2019) (two tranches - 
maturity 2029 and 2049) 
1st issue €7 bn (Jan 2017). 
Regular  taps  since  creation  to  ensure  the 
same  liquidity  as  for  other  OAT.  In  Feb 
2020,  the  outstanding  stands  at  €22,659 
million. 
1st issue €4.5 bn (Feb 2018) tenor: 15 years 
1st  issue  €  5,985  million  (May  2019) 
2nd  issue  (reopening)  €  1,370  million  (Jan 
2020) 
1st 
bn 
2nd issue € 2 bn (Oct 2019) 

2018) 

issue 

(Oct 

3 

€ 

Additional standard used 

Standard 
used 
ICMA GBP 

ICMA GBP  TEEC/greenfin 

label,  which 
“inspired by” the CBI taxonomy 

is 

ICMA GBP 
ICMA GBP  CBI 

Taxonomy  
(obtained  external  certification  of 
bond’s alignment with CBI). 

ICMA GBP 

ICMA GBP  “designed  to  be  in  compliance  with 

Luxembourg 

1st issue €1.5 bn (Sep 2020) 

ICMA GBP 

important elements of the EU GBS”. 
-  TEG  draft  Taxonomy 
(“fully 
aligned”)  -  -  EU  Taxonomy  (aligned 
on 
basis”).  
- Designed to comply with TEG’s EU 
GBS. 

effort 

“best 

The  following  table  compares  the  key  aspects  of  the  sovereign  green  bonds  issued  so  far  with  the 
requirements of the EU Green Bond Standard, and assesses the gap.  

Eligible 
expenditures 
and  screening 
criteria  (%  of 
eligible  green 
expenditures 
indicated 
when 
available) 

MS green bonds 

include 

tangible  assets  (real  estate, 

investment  (7%),  operating 
intervention  expenditures 

FR:  
-  Tax  credits  (33%), 
expenditures  (33%),  and 
(27%).  
land, 
Assets 
intangible  assets  (systems  and 
infrastructure)  and 
organisation, applied research and innovation, scientific 
knowledge).  
-  Can  be  directed  at  state  agencies,  local  authorities, 
companies, and households.  
-  Inter-ministerial  working  group  selects  eligible  green 
expenditures.  
- TEEC label120 has been used as a reference 

NL:  
-  Direct  investment  expenditures,  subsidies,  fiscal 
measures (tax credits), and selected opex. 

Analysis and comparison with draft EU 
GBS 

Economic  activities  shall be  aligned  with 
EU Taxonomy: 

5.  Substantial contribution to one out 
of six environmental objectives 
Demonstrate that expenditure is 
aligned with sector-specific technical 
screening criteria for substantial 
contribution, as set out in the 
Taxonomy Delegated Regulation121. 
6.  Ensure that economic activities do-
no-significant harm to five other 
environmental objectives 
Demonstrate  that  expenditure  does 
not  breach  sector-specific  screening 
criteria  for  Do-No-Significant-harm, 

120 The French “Transition Energetique et Ecologique pour le climat“ (TEEC) label from 2015 is inspired by ICMA’s Green Bond 
Principles and the Climate Bond Taxonomy (Link) 
121 These criteria represent at least 93.5% of direct climate based emissions. 

143 

 
 
 
 
 
 
 
 
 
 
 
 
                                                 
- For each category, eligible central government budget 
articles are listed.  
-  Expenditure  outside  these  articles  can  be  eligible, 
provided that CBI taxonomy is met.  

LU:  
in  Appendix  1  of 
Detailed  “eligibility  criteria” 
framework,  which  are  aligned  with  EU  Taxonomy 
TSCs. 

DE:  
No  screening  criteria.  An  Inter-Ministerial  Working 
Group (IMWG) will select eligible green expenditures. 

PL: 
- Budget allocations (including excise tax 
exemptions), subsidies and projects. 

as set out in the Taxonomy Delegated 
Regulation. 

7.  Ensure compliance with minimum 

in 

social safeguards 
Ensure compliance with the principles 
and  rights  set  out 
the  eight 
fundamental conventions identified in 
the ILO’s declaration on Fundamental 
Rights  and  Principles  at  Work.  EU 
Member  States  have  ratified  these 
conventions.   

The  question  of  specific  flexibility  with 
respect 
to  Taxonomy-alignment  was 
asked  to  MS  in  the  context  of  the 
questionnaire on sovereign bonds and the 
EU GBS. See section 4.4 of this annex.   

Financing and 
refinancing 

Alignment 
with 
Taxonomy 
and 
environmental 
objectives 
supported 

Investment 

expenditures 

(66%),  operating 

BE: 
expenditures (26%) and tax expenditures (8%). 
FR:  
- Expenditures from the previous year, current year and 
potentially  future  years  are  included;  the  percentage  of 
allocation is disclosed. 
- More than 50% should be related to current or future 
budget. 

NL: Finance or refinance expenditures which contribute 
to climate mitigation and/or adaptation. At least 50% of 
proceeds for current or future budget years.  

LU: Financing of eligible expenditure, and refinancing 
of eligible expenditure with a 3-year look back period to 
avoid refinancing old assets. 

DE:  100%  refinancing:  An  amount  equal  to  yearly 
proceeds  will  be  fully  allocated  to  the  previous  years’ 
eligible  expenditures.  In  any  given  year,  green  bonds 
can  only  be  issued  once  sufficient  amount  of  eligible 
expenditure from the previous year is known. 

PL: Financing and re-financing of eligible 
projects is allowed. 

BE:  Proceeds  can  be  used  for  expenditures  in  the 
current  budget,  expenditures  from  the  budget  the  year 
preceding the green bond issuance/tap date, and 
investments in green investment funds made maximum 
2 years before the issuance/tap date. 
FR: Bond framework predates the Taxonomy 
Four objectives:  
- climate adaptation 
- 
- 
- Reduction of air/water/soil pollution 

mitigation 
biodiversity 

protection 

climate 

of 

NL: Bond framework predates the Taxonomy 

144 

Draft  EU  Green  Bond  Standard 
is 
designed to allow financing or refinancing 
of eligible green expenditures.  

There  would  be  specific  requirements 
related  to  capital/operating  expenditures 
and look-back periods. 

state 

Most  Member 
bond 
frameworks impose stricter restrictions on 
refinancing than the draft EU Green Bond 
Standard.  

green 

The  question  of  specific  flexibility  with 
respect to refinancing was asked to MS in 
the  context  of 
the  questionnaire  on 
sovereign  bonds  and  the  EU  GBS.  See 
section 4.4 of this annex.   

The  question  of  specific  flexibility  with 
respect 
to  Taxonomy-alignment  was 
asked  to  MS  in  the  context  of  the 
questionnaire on sovereign bonds and the 
EU GBS. See section 4.4 of this annex.   

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Two objectives:  
- Climate adaptation 
- Climate mitigation 

LU:  Complies  “when  applicable”  with  TEG’s 
taxonomy,  “or  any  updated  version,  on  best  effort 
basis”.  (see separate case study) 

Sustainalytics  assessed  the  compliance  of  the  LU 
sustainable bond framework with the EU Taxonomy: 
-  19/23  categories  of  spending  listed  in  the  eligibility 
criteria  comply  with  applicable  TSCs  for  “significant 
contribution” 
-  20  align  or  partially  align  with  Do-No-Significant-
Harm TSCs. 

DE:  Categories  of  eligible  green  expenditures  are 
mapped  with  the  six  environmental  objectives  of  the 
in  compliance  with 
to  be 
Taxonomy.  “Designed 
GBS” 
EU 
draft 
of 
elements 
important 

PL: 
IE: 

of 

(96% 

eligible 

available 

BE:  focusing  on  climate  change  mitigation  and 
adaptation 
green 
expenditures),  natural  resource  protection  (3%)  and 
biodiversity (1%). 
FR: 
1. buildings 
2. Transport 
3. Energy (incl. smart grid) 
4.  living  resources  (org.  farming,  biodiversity,  env. 
protection) 
5. Climate adaptation 
6.  Pollution  &  eco-efficiency  (monitoring,  research, 
circular 
econ.) 
7. (Transversal) 

NL: 
1. Renewable energy (all spending to be in line with 
CBI Taxonomy.) 
2. Energy efficiency 
3. Transport (rail) 
4. Climate adaptation & Water management 

LU:  
1. Transport 
2. Energy transition 
3. Green buildings 
4. Climate finance and R&D 
5. Protecting the environment 
6. Waste & wastewater management 

DE: 
1. Transport 

145 

Categories  of 
eligible 
expenditure &  
Technical 
screening 
criteria 

The  question  of  specific  flexibility  with 
to  Taxonomy-alignment  was 
respect 
asked  to  MS  in  the  context  of  the 
questionnaire on sovereign bonds and the 
EU GBS. See section 4.4 of this annex.   

 
 
 
 
 
 
 
 
 
 
 
The  EU  Green  Bond  Standard  would 
likely  require  the  publication  of  yearly 
allocation  reports,  and  at  least  one  report 
on  environmental 
the 
lifetime of the bond.  

impact  during 

This  is  already  common  practice  for  all 
EU Member state green bonds.   

Assessment:  EU  Member  States  would 
be able to align with this requirement. 

Reporting 

2. Energy and industry 
3. International Cooperation 
4. Research, innovation, and awareness-raising 
5. Agriculture, forestry, biodiversity 

PL: 
1.  Renewable energy 
2.  Clean transportation 
3.  Sustainable agriculture operations 
4.  Afforestation 
5.  National parks 
6.  Reclamation of heaps 

BE: 
1. Energy Efficiency 
2. Clean Transportation 
3. Renewable Energy (excluding hydro > 25MW) 
4. Circular Economy 
5. Living Resources and Land Use. 
Allocation reporting : 
FR,  NL,  LU,  DE,  PL,  IE,  BE :  publish  yearly 
reports 
allocation 

IE’s  allocation  reports  include  details  on  the  total 
amount  allocated  to  eligible  green  projects,  the  total 
amount  allocated  per  eligible  green  category  and  the 
remaining unallocated total amount. 

NL’s  allocation  report  contains  an  overview  of  the 
allocation  of  the  issued  green  bond  to  the  main 
categories  of  eligible  green  expenditures,  a  breakdown 
of  allocated  proceeds  per  main  category  of  eligible 
green  expenditures,  a  breakdown  of  allocated  proceeds 
per  type  of  expenditure,  the  amount  of  unallocated 
proceeds. 

Impact reporting: 
reporting  on 
report  and  ex-post 
FR:  Output 
environmental  impact,  prepared  by  a  Green  Bond 
Evaluation  Council.  The  evaluation  council  issued  two 
reports: one is the evaluation of the credit tax for energy 
transition  and  another  on  the  subsidies  granted  to  the 
French waterway network. 

NL: Yearly impact report, starting in issuance year +1, 
based  on  existing  publicly  available  reporting  of  the 
results  and  impact  of  eligible  green  expenditures, 
including where feasible on specific results (ex: number 
of  projects)  and  environmental  impact  indicators  (ex: 
avoided  CO2  emission)  related  to  the  green  eligible 
expenditures.  Also  provides  information  on  climate 
change  related  impact  indicators  for  the  NL  (ex: 
percentage of renewable energy production).  

LU:  Impact  report,  with  examples  of  metrics  listed  in 
framework 
DE: Sectorial impact reporting (published at least once 

146 

 
 
 
 
 
 
 
 
 
 
 
External 
review 

in each bond lifetime). 
PL: Impact reporting is included in the allocation report 
where possible.  
IE: Intends to publish impact report in summer 2020  
BE: Impact report published the year after issuance.  

Second Party Opinion: 
LU, PL, BE, and IE: SPO by Sustainalytics 
FR:  SPO  and  compliance  review  by  Vigeo-Eiris 
(checking 
label) 
DE: SPO by ISS ESG 
NL: SPO by Sustainalytics and Formal certification by 
CBI 

alignment 

TEEC 

with 

Review of allocation report  
IE  and  NL  rely  on  independent  internal  auditor  of  the 
State for the verification of the allocation of the use of 
the proceeds. 
FR: Allocation report reviewed by internal auditor and 
KPMG 
NL:  Verification  of  conformity  of  allocation  with  CBI 
taxonomy by Sustainalytics. 
LU: Yearly external review of allocation report  
DE: Yearly external review of allocation report 
PL:  Moody’s  to  give  an  opinion  of  the  allocation  of 
proceeds, the reporting, the organisational approach and 
the environmental impact. 
BE:  Independent  audit  firm  to  review  annually  the 
allocation report.  

Review of impact report 
FR:  “Green  bond  evaluation  council”  will  evaluate 
impact reports (with Paris agreement as reference)   

Exclusions 
and 
safeguards  

FR:  Nuclear  activities,  armament,  any  expenditure 
mainly related to fossil fuel. 

NL:  Fossil  fuel  production,  power  generation,  nuclear, 
defence sector.  

power 

generation. 

LU:  Nuclear 
Production, 
transportation,  and  power  production  from  fossil  fuels. 
Weapons,  strong  alcohol,  tobacco,  gambling,  other 
illegal 
Safeguards:  Pre-existing  social  and  env.  safeguards  in 
national law 

147 

The  EU  Green  Bond  Standard  would 
likely require that: 
-  The  alignment  of  green  bonds  with 
EU  GBS  standard  should  be  verified 
by an external company.  

-  The  final  allocation  report  should  be 

verified by external auditor.  
-  External reviewers are registered.  

Under the EU GBS, external review of the 
impact  report  would  not  be  required,  but 
recommended.  
registering  external 
The  system 
reviewers does not yet exist. See Annex 8 
for an assessment of this.  

for 

Most Member States already comply with 
the two first requirements listed  above in 
their  green  bonds.    However,  there  are 
some exceptions: 
NL  and  IE  use  their  own  internal auditor 
instead  of  an  external  third  party  to 
review the allocation report.  

Assessment:  EU  Member  States  would 
be  able  to  align  with  this  requirement. 
However there may be a need for some 
flexibility  with  regards  to  the  entities 
that  can  review  the  allocation  report, 
by  allowing  Member  States  to  use 
internal state auditors for this purpose. 

review  of 

to  external 

The  question  of  specific  flexibility  with 
respect 
the 
allocation  report  was  asked  to  MS  in  the 
context of the questionnaire on sovereign 
bonds and the EU GBS. See section 4.4 of 
this annex.    
The  question  of  specific  flexibility  with 
to  Taxonomy-alignment  was 
respect 
asked  to  MS  in  the  context  of  the 
questionnaire on sovereign bonds and the 
EU GBS. See section 4.4 of this annex.   

 
 
 
 
 
 
 
 
 
 
 
 
DE: 
Armaments, defence, tobacco, alcohol, gambling. Fossil 
fuels  (including  coal).  Nuclear  (production,  transport, 
storage, power generation, …) 
Already excluded from Federal budget: any expenditure 
violating EU Charter of Fundamental Rights 

PL: 
Fossil fuel for power generation and transportation, rail 
dedicated to transportation of fossil fuels, nuclear power 
operations, 
generation, 
weapons/alcohol/gambling/adult  entertainment, 
large 
scale  hydro  projects  (>20MW),  transmission  systems 
where  >25%  of  electricity  transmitted  is  fossil-fuel 
generated, use of biomass in cogeneration coal plants. 

palm 

oil 

BE:  Nuclear,  armament  and  any  expenditure  mainly 
related to fossil fuel. 

148 

 
 
 
 
 
 
 
5. 

CASE STUDY: LUXEMBOURG’S SUSTAINABILITY BOND FRAMEWORK 

On 2 September 2020, Luxembourg published its Sustainability Bond Framework, Europe’s first for a 
sovereign.  A  few  days  later  it  sold  its  first  Sustainability  Bond  for  €1.5  billion.  The  issue  of  a 
Sustainability  bond,  rather  than  a  green  bond,  allows  Luxembourg  to  combine  green  and  eligible 
socially  beneficial  expenditure  as  proceeds  for  the  bond.  The  sovereign  bond  was  aligned  with 
ICMA’s Sustainability bond principles.  

Taxonomy alignment 
Luxembourg also claims that its sustainability bond is fully in line with the recommendations of the 
final report of the Technical Expert Group (TEG) on the EU Taxonomy, and states that the framework 
has  been  designed  to  comply  with  the  TEG’s  draft  European  Green  Bonds  Standard.  As  part  of its 
alignment  with  the  Taxonomy,  Luxembourg’s  sustainability  bond  framework  makes  use  of  the 
Taxonomy’s  draft  technical  screening  criteria  developed  by  the  TEG  (which  form  the  basis  for  the 
final criteria adopted by the Commission). The framework also states that the bonds would comply 
with the updated criteria, as they evolve from draft to final adoption, on a best effort basis.  

In its annex 3, the bond framework lists the eligibility criteria for green expenditure, which cover the 
following sectors: Construction, Energy, Transport, Waste, Water management, Climate finance and 
R&D. Along the framework, Luxembourg published a report by external reviewer Sustainalytics that 
assesses the eligibility criteria in Luxembourg’s framework against the draft Taxonomy.  

The results of the Taxonomy assessment for the framework were as follows: 
-  On  Substantial  contribution  to  climate  mitigation/adaptation:  Of  the  eligibility  criteria 
assessed  for  23  different  use  of  proceed  categories,  19  were  found  to  be  in  line  with  the  EU 
Taxonomy TSCs, whereas four could not be assessed as no corresponding TSCs exist (yet).  No 
categories were determined to be not aligned. 

-  On  Do  No  Significant  Harm  (DNSH)  to  the  six  environmental  objectives:  Among  20 
categories  of  spending  where  Sustainalytics  was  able  to  map  directly  to  DNSH  TSCs:  10  are 
aligned and 10 partially aligned with the applicable DNSH criteria. 

-  Minimum safeguards: Sustainalytics also stated its opinion that the activities and projects to be 
financed  under  the  Framework  will  be  carried  out  in  alignment  with  the  EU  Taxonomy’s 
Minimum Safeguards. 

Categories that could not be assessed either cannot be mapped to NACE activities in the Taxonomy 
and/or are designed primarily to advance an environmental objective for which TSCs do not exist yet 
in  the  Taxonomy.  For  substantial  contribution,  these  four  were:  (1)  production  and  restoration  of 
terrestrial and inland freshwater ecosystems, biodiversity, habitats, and soil, (2) development of water 
and wastewater management systems, (3) international climate finance, and (4) research, development 
and innovation focusing on climate mitigation and adaptation. For DNSH, the category of waste and 
wastewater management could be assessed, but not the three others. 

For more information, see Table 33 below. 

149 

 
 
 
 
 
 
 
 
 
 
 
 
Table  33  -  Alignment  of  eligibility  criteria  with  draft  EU  Taxonomy  (extract  from  Sustainalytics 
report on Luxembourg’s Sustainability bond framework) 

150 

 
 
 
 
 
 
Annex 11: ESG Disclosure obligations 

This  annex  covers  the  existing  and  future  disclosure  and  reporting  requirements  related  to 
sustainable  activities,  and  in  particular  alignment  with  the  EU  Taxonomy,  and  which  are 
relevant for the EU GBS: 

-  The Non-Financial Reporting Directive 
-  The Ecolabel Regulation  
-  The Sustainable Finance Disclosures Regulation  
-  The EU Climate Benchmarks Regulation 

Title  
Legislative  or 
non-
legislative?  
Brief 
description  of 
policy 
or 
legislation  

The Non-Financial Reporting Directive 
Legislative  

In  2014  the  EU  agreed  the  Non-Financial  Reporting  Directive  (Directive 
2014/95/EU), which amended the Accounting Directive (Directive 2013/34/EU). 
The  Non-Financial  Reporting  Directive  (NFRD) 
imposed  new  reporting 
requirements  on  certain  large  companies.  Companies  under  the  scope  of  the 
NFRD  had  to  report  according  to  its  provisions  for  the  first  time  in  2018,  for 
information covering financial year 2017. As required by the NFRD, in 2017 the 
Commission published non-binding guidelines for companies under the scope of 
the  Directive.  In  2019,  the  Commission  published  additional  guidelines, 
specifically on reporting climate-related information. If companies use reporting 
frameworks,  then  they  have  to  specify  which  frameworks  they  have  used.  The 
NFRD does not, however, require the use of a reporting framework or standard.  
The  NFRD  applies  to  large  public  interest  entities  with  more  than  500 
employees.10  In  practice this  means  that  it  applies  to  large  EU  companies  with 
securities listed in EU regulated markets, large banks (whether listed or not) and 
large insurance companies (whether listed or not) – all provided they have more 
than  500  employees.  The  NFRD  exempts  the  subsidiaries  of  parent  companies 
from the reporting obligation, if the parent company  itself reports the necessary 
information  on  a  consolidated  basis.  We  estimate  that  approximately  11  700 
companies are subject to the reporting requirements of the NFRD. 

The  NFRD  identifies  four  non-financial  ‘matters’:  environment,  social  and 
employee  matters,  human  rights,  and  anti-corruption  and  anti-bribery.  With 
regard to those four matters, it requires companies to disclose information about 
five  business  concepts:  business  model,  policies  (including  due  diligence 
processes 
those  policies,  risks  and  risk 
management, and key performance indicators (KPIs) relevant to the business.12 
Annex 8 provides illustrative examples of the kind of information that companies 
could be expected to disclose under the NFRD.  

the  outcome  of 

implemented), 

Companies under the scope of the NFRD are required to disclose information “to 
the  extent  necessary  for  an  understanding  of  [their]  development,  performance, 
position and impact of [their] activity.” The reference to “impact” represented a 
significant  innovation:  it  introduced  a  double  materiality  perspective,  whereby 
companies have to report information not only on how non-financial issues affect 
the  company  (“outside-in”  perspective),  but  also  regarding  the  impact  of  the 
company itself on society and the environment (“inside-out” perspective).  

151 

 
 
 
 
 
Interaction 
with 
Green 
Standard  

the  EU 
Bond 

The  NFRD  requires  the  auditor  to  check  that the company  has  provided a  non-
financial statement, but does not require the auditor to assure the content of the 
information.  However,  Member  States  may  require  assurance  on  the  content  of 
the information reported and three Member States (Italy, Spain and France) have 
used this option. 

Furthermore, on 21 April 2021 the Commission adopted a proposal to review the 
NFRD,  which  currently  imposes reporting  requirements  on  large  public interest 
entities with more than 500 employees. It is expected that this review will expand 
the scope of companies falling under the NFRD from 11 700 to close to 50 000 
companies. The Commission also proposed that companies subject to the NFRD 
should  be  required  to  obtain  limited  assurance  on  their  non-financial  reporting. 
This would substantially increase the availability of information on the share of 
Taxonomy-aligned assets of EU companies, and should help facilitate and reduce 
the costs of issuing Taxonomy-aligned green bonds. 

The  future EU GBS will likely require full alignment of the  use of proceeds of 
the bond with the EU Taxonomy.  

Article  8  of  the  EU  Taxonomy  Regulation  requires  financial  and  non-financial 
undertakings  under  the  scope  of  the  NFRD  to  include  in  their  non-financial 
statements  or  consolidated  non-financial  statements  information  on  how  and  to 
what extent their activities are associated with economic activities that qualify as 
environmentally  sustainable.  Therefore,  entities  subject  to  the  NFRD  will  be 
required  to  disclose  certain  information  on  the  way  they  operate  and  manage 
social and environmental challenges.  

Against this backdrop, issuers of future EU Green Bonds, which also fall under 
the NFRD scope, would have to fulfil this disclosure requirement. However, the 
TEG recommended in its usability guide that especially when entities are subject 
to  NFRD  and  they  wish  to  issue  an  EU  Green  Bond,  they  should  include  their 
overall EU Taxonomy alignment in the Green Bond Framework as well.  

Finally, the information disclosed according to the NFRD will provide additional 
information to investors, including green bond investors, allowing them to better 
assess the overall non-financial performance of companies. 

Title  

Legislative  or 
non-
legislative?  
Brief 
description  of 
policy 
or 
legislation  

Sustainable  Finance  Disclosure  Regulation  (Regulation  EU  2019/2088  on 
Sustainability-related disclosure in the financial services sector) (SFDR)  
Legislative  

The  SFDR  was  adopted  by  co-legislators  in spring  2019  and  was  published  on  9 
December  in  the  Official  Journal.  It  is  already  in  force  but  will  apply  from  10 
March 2021. The SFDR aims to increase transparency towards end-investors and 
thus  their  increased  protection  with  respect  to  sustainability  of  investments 
undertaken  on  their  behalf  by  manufacturers  of  investment  products.  The  SFDR 
also includes rules for financial and insurance advisers.  
The  SFDR  lays  down  rules  for  sustainability-related  disclosures  toward  end-
investors,  for  both  outside-in  sustainability  risks  and 
inside-out  adverse 
sustainability impacts.  

It does so in relation to:  
  the  integration  of  sustainability  risks  by  financial  market  participants  and 

152 

 
 
 
 
 
financial advisers in all investment processes,  

  financial  products  that  pursue  the  objective  of  sustainable  investment  or  have 

environmental or social characteristics, and  

  adverse impacts on sustainability matters at entity and financial products levels, 
i.e.  whether  financial  market  participants  and  financial  advisers  consider 
negative  externalities  on  environment  and  social  justice  of  the  investment 
decisions/advice and, if so, how this is reflected at the product level. 

These obligations have considerable behavioural implications.  
In  terms  of  legal  technique,  the  SFDR  is  a  directly  applicable  Regulation  which 
introduces  additional  disclosure requirements to  the existing  elements  of  relevant 
sectoral legislations (AIFMD, UCITS, Solvency II, IORP II, national pension rules, 
IDD  and  MiFID  II),  via  a  self-standing  text  (lex  specialis)  providing  full 
harmonization,  cross-sectoral  consistency  and  regulatory  neutrality  as  well  as 
convergence by ESMA, EIOPA and EBA.  Instead of amending all these existing 
directives in identical way, the SFDR comes on “top” of existing rules in order to 
impose  sustainability  disclosure  obligations. This  way  consistency  and  regulatory 
neutrality across all relevant institutional investors' sectors is ensured.  

Interaction 
with 
Green 
Standard  

the  EU 
Bond 

Under  this  Regulation,  financial  market  participants will  be  required to  report on 
the  share  of  Taxonomy-alignment  of  the  assets  in  which  they  invest,  including 
potentially, green bonds. Investors may find that holding EU GBS-aligned bonds, 
which  would  normally  by  definition  be  100%  Taxonomy-aligned,  may  simplify 
this process, and contribute to increase their disclosed share of Taxonomy-aligned 
assets.  

Title  

Legislative  or 
non-
legislative?  

Brief 
description  of 
policy 
or 
legislation  

Regulation (EC) No 66/2010 of the European Parliament and of the Council 
of 25 November 2009 on the EU Ecolabel  
Legislative.  
According to the EU Ecolabel Regulation, the criteria developed for products to 
be  awarded  the  Ecolabel  are  adopted  by  a  Commission  Decision  and  have  a 
limited validity in time (revision clause in the Commission Decision).  
Established  in  1992,  the  EU  Ecolabel  is  a  symbol  of  environmental  excellence 
awarded to products and services that meet environmental standards throughout 
their  life  cycle  and  provides  guidance  to  companies  on  environmental  best 
practices. Minimum social, ethical, governance safeguards are also considered.  
In  the  2018  Action  Plan  on  Sustainable  Finance,  the  Commission  saw  the 
potential  merit  in  the  application  of  the  EU  Ecolabel  Regulation  to  specific 
financial  products  offered  to  retail  investors,  including  Packaged  Retail 
Investment  and  Insurance  Products  (PRIIPs).  The  lack  of  labelled  financial 
products may in fact prevent investors from directly channelling their funds into 
sustainable investments.  

The objective  of  introducing  the  EU  Ecolabel  for  financial  products is  to  allow 
retail  investors  concerned  with  the  environmental  impact  of  their  investment  to 
rely  upon  a  trusted  and  verified  label  to  make  informed  investment  decisions 
while  incentivising  financial  markets to develop  more  products  with  reduced  or 
positive environmental impacts. Thanks to the use of an existing framework, the 
EU Ecolabel Regulation, it is possible to achieve a quick establishment of an EU 
label for financial products and improve the currently confusing situation on the 
different  types  of  green  products  for  end-investors,  contributing  in  this  way  to 
avoid "greenwashing".  

153 

 
 
 
 
 
 
 
The EU Ecolabel Regulation:  
  defines 

the  general  principles 

 

 

and 

for 
labelling  awarding  mechanisms  and 

the  procedures 

rules, 

the 

developing/revising  criteria, 
promotional activities;  
requires  Members  States  to  designate  competent  bodies  in  charge  of  the 
verification  of  the  product’s  compliance  with  the  EU  Ecolabel  criteria  on  a 
regular basis;  
foresees a governance structure around the work on developing EU Ecolabel 
criteria  for  products  and  services.  This  includes  setting  up  the  EU 
Ecolabelling  Board  (EUEB)  that  has  an  advisory  role;  the  involvement  of 
stakeholders  (NGOS,  consumers  organisations,  ESAs,  etc…)  in  criteria 
development process via two rounds of consultations and ad-hoc stakeholders 
meetings;  the  final  vote  on  the  criteria  by  the  Regulatory  Committee, 
composed  by  Members  States,  and  their  adoption  via  a  Commission 
Decision.  

The ongoing work on the EU Ecolabel for retail financial products is co-lead by 
DG  ENV  and  DG  FISMA  at  political  level.  The  Joint  Research  Centre  (JRC) 
provides the environmental, economic analysis and scientific support to develop 
the criteria that financial products would have to fulfil in order to be awarded the 
EU  Ecolabel.  The  JRC  has  analysed  scientific/academic  research  in  order  to 
inform the philosophy and rationale for criteria structure and the comprehension 
of what environmental impact means for financial products.  

Interaction 
with 
Green 
Standard 

the  EU 
Bond 

The  strong  link  with  the  EU  Taxonomy  in  the  draft  criterion  1  ensures  that 
investments  are,  to  an  important  extent,  made  in  economic  activities  that  are 
defined  (by  EU  taxonomy)  as  being  green.  Along  the  same  lines,  a  strong  link 
with the Green Bond Standard is also foreseen, ensuring that investments go, to a 
large extent, into projects which are EU Green Bond Standards compliant.  

Title  

Legislative  or 
non-
legislative?  
Brief 
description  of 
or 
policy 
legislation  

EU  Climate  Benchmarks:  Regulation  (EU)  2016/1011  as  amended  by 
Regulation (EU) 2019/2089 and the respective Delegated Regulations  
Legislative  

Regulation  (EU)  2016/1011  as  amended  by  Regulation  (EU)  2019/2089  creates 
two new types of EU climate benchmarks (EU Climate Transition and EU Paris-
to  disclose 
aligned  benchmarks)  and  requires  benchmark  administrators 
Environmental, Social and Governance (ESG) information for those benchmarks 
that pursue ESG objectives.  

The minimum standards for the construction of the EU Climate Benchmarks and 
the exact scope and content of the ESG disclosure requirements have been further 
specified in the three delegated acts that were published in the Official Journal on 
3 December 2020. 

On  the  disclosure  front,  the  delegated  acts  require  benchmark  administrators  to 
explain,  using  a  set  template,  which  ESG  factors  they  have  taken  into  account 

154 

 
 
 
 
 
 
 
 
 
 
Interaction 
with 
Green 
Standard  

the  EU 
Bond 

when designing their benchmark methodology. They shall also explain how those 
factors  are  reflected  in the  key  elements  of  that  methodology,  including  for  the 
selection of underlying assets, weighting factors, metrics and proxies.  

In addition, benchmark administrators shall explain in the benchmark statement, 
using a standard template, how ESG factors are reflected in each benchmark or 
family of benchmarks they provide and publish.  

Finally,  benchmark  administrators  shall  disclose  information  on  the  alignment 
with the objectives of the Paris Agreement.  
The  Delegated  Regulations  lay  down  a  list  of  ESG  factors  to  be  disclosed  by 
benchmark administrators depending on the type of underlying assets concerned 
(e.g. equity, fixed income, sovereign). Information on the ESG factors should be 
made at an aggregated weighted value of the benchmark, not for each individual 
constituent  (company).  However,  in  order  for  benchmark  administrators  to  be 
able  to  disclose  such  information,  they  will  have  to  source  the  information 
directly  from  companies  (e.g.  via  their  annual  reports)  or  to  obtain  this 
information from external data providers. 

In  addition,  in  order  to  decide  on  the  inclusion  of  companies  in  the  two  EU 
Climate  Benchmarks,  benchmark  administrators  would  need  to  have  some 
information  on  such  as  on  their  level  of  GHG  emissions,  or  on  whether  a 
percentage of their revenues is derived from fossil fuel activities. 

155 

 
 
 
 
 
 
Annex 12: Legal basis 

1.  LEGAL BASIS  

The  legal  basis  for  this  initiative  is  Article  114  of  the  Treaty  on  the  Functioning  of  the 
European Union  (TFEU), which confers to  the European institutions the competence to  lay 
down appropriate provisions that have as their objective the establishment and functioning of 
the internal market.  

The policy options presented in section 5 would justify the use of Article 114 TFEU, as the 
aim and content of the act would be to ensure the establishment and well-functioning of the 
internal market.  In particular, the adoption of an EU GBS would aim to ensure harmonised 
requirements for an EU green bond that could be used across Member States by public and 
private green bonds issuers. 

Given the criteria set out in the Vodafone case (C-58/08), Article 114 TFEU allows the EU 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,  as  issuers  of  green 
bonds  or  investors,  to  take  full  advantage  of  the  benefits  of  the  internal  market.  Issuers  of 
green  bonds  within  the  EU  may  decide  to  align  themselves  with  any  number  of  market-
organised  standards  to  aid  investors  in  the  identification  and  assessment  of  the  bonds 
greenness and other relevant attributes (see Annex 6).  

These  standards,  being  market-based,  are  based  around  high-level  process-based  guidelines 
or recommendations. The most common standard, ICMA’s Green Bond Principles, does not 
operate with a common definition of green, and recommends but does not require the use of 
external review to confirm alignment with the standard or provide assurance to investors on 
the  green  credentials.  For  this  reason,  it  allows  various  practices  to  co-exist  and  does  not 
allow  investors  to  sufficiently  identify  genuine  green  bonds.  As  set  out  in  this  impact 
assessment, it may also facilitate an incident of real or perceived “green washing”.  

Although  other  national  legislation  exists  stipulating  a  framework  for  green  bond  issuance 
(e.g. in  China), no EU Member State has  yet  established an official green bond standard at 
national  level.  The  current  EU  market  for  green  bonds  is  therefore  entirely  based  around 
market-defined  standards  and  practices,  which  are  used  on  a  voluntary  basis.  Assurance  to 
investors is provided by companies acting as external reviewers, and issuers of green bonds 
within the EU may decide to align themselves with any number of market-based standards to 
aid investors in the identification and assessment of the bonds greenness  and other relevant 
attributes. 

This  means  that  a  number  of  roles  typically  performed  by  regulation  and  public  authorities 
are  carried  out  by  private  actors  and  through  market-based  standards.  These  market-based 
standards  set  out  high-level  process-based  guidelines  or  recommendations,  which  are 
insufficiently standardised, insufficiently rigorous, and insufficiently complete to permit the 
market for green bonds to grow according to its potential. For this reason, various practices 
co-exist, which makes it costly for investors to identify genuine green bonds.  

In light of the continued growth of the green bond market and its role in funding low-carbon 
infrastructure projects, and given the shortcomings of existing standards and the broad span 
that  exists  in  market  practices  (even  within  a  single  standard  such  as  the  dominant  ICMA 
Green Bond Principles), it is likely that one or several Member States would be interested in 
creating a standard at national level, or establish national guidelines.  

156 

 
Such a standard would likely seek to address the same problems that the proposed EU GBS 
initiative aims to address, but the results may be divergence across EU Member States. There 
are already examples of Member States operating with significantly diverging frameworks in 
their  issuance  of  sovereign  green  bonds.  For  example,  several  Member  States  have  already 
issued  sovereign  green  bonds,  and  although  most  have  followed  the  ICMA  Green  Bond 
Principles,  some  have  also  chosen  to  follow  other  secondary  frameworks  (e.g.  CBI 
certification for Netherlands, TEEC Label for France). 

There are also numerous examples of diverging frameworks in the area of labels for green/ 
environmentally  sustainable  financial  products  (See  Table  34  below).  Already  today,  there 
exist  a  number  of  voluntary  labels  for  green/  environmentally  sustainable  funds  at  national 
level,  but  they  are  diverse  and  fragmented  in  their  scope,  coverage,  strategies  as  well  as 
mechanisms for assessing and mitigating environmental, social and governance factors. Due 
to this, the use of such labels is largely fragmented among national/regional lines in the EU. It 
is  therefore  not  impossible  that  similar  fragmentation  may  emerge  with  regards  to  green 
bonds.  

For this reason, it is likely that disparities between national laws would emerge that obstruct 
the fundamental freedoms and undermine a European level playing field. Therefore there is 
an identifiable need for a harmonized green bond standard to be applied across the EU-27. 

However,  as  the  green  bond  market  is  growing  and  given  the  shortcomings  of  existing 
market-based  standards,  and  the  broad  span  that  exists  in  practices  even  within  a  single 
standard,  it  is  very  likely  that  a  Member  State  may  see  fit,  at  some  point,  to  create  such  a 
standard at national level, or at the very least establish guidelines for green bond issuers.  

Through feedback received in the targeted consultation on the EU GBS, many Member States 
have been calling for a harmonized standard at EU level. Overall, against this background, it 
is therefore likely that in the absence of a harmonized standard at EU level, Member States 
will  come  forward  with  own  legislation  in  the  area  of  green  bonds.  Disparities  between 
national  laws  would  then  emerge  that  obstruct  the  fundamental  freedoms  and  undermine  a 
European level playing field.   

In addition, the absence of a non-harmonized standard on green bonds will also hamper the 
proper  functioning  of  the  internal  market  in  the  context  of  sustainable  investments.  Article 
3(3)  of  the  Treaty  on  the  European  Union  (TEU)  stipulates:  ‘The  Union  shall  establish  an 
internal market. It shall work for the sustainable development of Europe [...] and a high level 
of protection and improvement of the quality of the environment.” Article 114 of the TFEU 
gives the EU the legal basis to address the current fragmentation and lack of clarity, adding 
that proposals that concern environmental protection and consumer protection have to take as 
a  base  a  high  level  of  protection.  Green  bonds  issued  according  to  diverse  standards  by 
private initiatives at  national  level  do not  offer a suitable and uniform basis to  enhance the 
issuance of and investments into green bonds as to further grow sustainable investments.  

2. 

 SUBSIDIARITY: NECESSITY OF EU ACTION 

According to the principle of subsidiarity, laid down in Article 5 of the TFEU, the EU should 
act  where it can provide better results than intervention at  Member State level.  In addition, 
EU action should be limited to what is necessary in order to attain the objectives, and comply 
with the principle of proportionality.  

The current dominating green bond issuance framework, the ICMA Green Bond Principles,  
was first published by a market-based initiative in 2014, and helped to standardise the process 

157 

 
of issuing a  green bond, and thereby facilitating the rise of the green bond market. However, 
this standard does not refer to a set comprehensive and detailed definitions of green projects, 
nor  does  it  set  out  any  requirements  for  the  companies  acting  as  external  reviewers  on  the 
green bond market.  

As outlined in the problem definition (section 4 of this impact assessment), the EU market for 
green bonds suffers from a lack of clear and comparable information on green projects, due to 
a  lack  of  common  definitions  of  such  projects.  This  makes  it  more  difficult  and  therefore 
costly for investors to identify green bonds with a genuinely positive environmental impact. 
In  order  to  address  this  issue,  the  present  initiative  will  seek  to  establish  a  green  bond 
standard based on the classification of environmentally contributing activities set  out  in the 
EU Taxonomy.  

Given  the  international  nature  of  the  green  bond  market,  coordinated  action  at  EU  level  is 
needed. Issuers and investors of financial products require common metrics and definitions to 
determine  which  projects  and  activities  are  environmentally  sustainable.  These  common 
requirements  will  enhance  market  efficiency,  investor  confidence  and  facilitate  increased 
green bond issuance across the EU.  

Without EU action regarding green bonds, the most likely outcome would be the continued 
development  of  market-based  standards  for  green  bonds  or  new  legislative  initiatives  at 
national  level,  especially  in  a  constantly  growing  green  bond  market.  Such  uncoordinated 
actions  at  national  level  may  lead  to  a  proliferation  of  diverging  green  bond  standards, 
incentive schemes, and verification regimes, which would fragment the green bond market in 
the  EU  and  potentially  hamper  cross-border  investment  flows.  Moreover,  it  could  hinder 
economies of scale, and making green bond issuance more costly and less lucrative. And it 
could 
increased  “green-washing”,  since  market-based  standards  might  be 
insufficiently  rigorous  and  verifiable,  which  could  potentially  create  reputational  problems 
for the whole green bond market.  

lead 

to 

Next to that, the problems this initiative aims to tackle is directly related with other initiatives 
on  sustainable  finance  at  European  level,  such  as  the  EU  Regulation  on  a  classification 
system  of  economic  activities  (so-called  ‘EU  Taxonomy’)  and  the  EU  Regulation  on 
sustainability  disclosures  in  the  financial  services  sector.  Furthermore,  to  address  certain 
regulatory barriers, e.g. regarding possible financial incentives that could be linked to the EU 
GBS  or  the  set-up  of  a  centralised  registration/supervision  regime  for  verifiers  at  European 
level  with  tasking  ESMA  as  competent  authority,  it  might  be  necessary  to  amend  already 
existing EU legislation.  

The EU GBS will ensure a level playing field and reduce the potential scope for disparities 
across  the  EU  while  supporting  the  attainment  of  the  EU’s  sustainable  finance  policy 
objectives and has the potential to become a leading global standard for green bonds. Given 
its  focus  on  a  robust  framework  for  structuring  and  verifying  investments,  it  will  facilitate 
increased financial flows to green projects while building issuer, investor and asset manager 
confidence in the sector. 

Responses to the call for feedback of the Technical Expert Group on Sustainable Finance as 
well  as  to  the  targeted  consultation  on  the  EU  GBS  largely  support  an  intervention  at  EU 
level, when calling for setting up a harmonized green bond standard at EU level and a proper 
registration/supervision  process  of  verifiers  coordinated  by  ESMA.  This  feedback  clearly 
indicates that legislative Action at EU level is appropriate to address the identified problems 
(see section 2).  

158 

 
Given the international nature of the green bond market, the objectives of this initiative can 
be better achieved at EU level. Member States acting alone are not able to put in place such a 
harmonized standard applicable across the EU. The comparability of EU Green Bonds, based 
on  the  same  green  bond  requirements  and  a  proper  verification  process  enables  potential 
investors to better compare EU Green Bonds across national borders and provides clarity to 
relevant  entities.  Divergences  in  green  bond  standards  erect  additional  barriers  to  a  Single 
Market in financial services and products and for the free movement of capital.  It increases 
costs and uncertainties for issuers and investors, who normally operate across borders. These 
divergences represent an obstacle to the further cross-border development of the market and 
to the establishment and smooth functioning of the Single Market. 

Only an intervention at EU level can define consistent standard requirements for the internal 
market and prevent market distortions. Therefore, if the impact assessment demonstrates that 
action  at  EU  level  would  produce  greater  benefits  over  costs  compared  with  action  only  at 
Member State level, the Commission will propose legislative measures (based on Article 114 
TFEU) with the aim of further improving the functioning of the Single Market. 

3. 

SUBSIDIARITY: ADDED VALUE OF EU ACTION 

As  part  of  the  European  Green  Deal,  the  EU  is  committed  to  becoming  climate  neutral  by 
2050. Achieving this goal and the interim 2030 climate and energy targets requires significant 
additional  public  and  private  investment  estimated  at  up  to  €260  billion  per  year.  The 
European  Green  Deal  Investment  Plan  (EGDIP)  forms  the  investment  pillar  of  the  Green 
Deal.  The  EGDIP  aims  to  mobilise  capital  funding  for  at  least  €1  trillion  in  sustainable 
investments  over  the  next  decade  while  creating  enabling  frameworks  that  will  facilitate 
further sustainable investments including the establishment of an EU GBS.  

Putting in place a harmonized standard for a green bond at EU level will contribute to the aim 
of Article 3 of the TEU that explicitly refers to the internal market as well as the work for the 
sustainable  development  of  Europe.  Further  market  integration  is  necessary  to  fully  unlock 
public and private investments in green and sustainable projects and to facilitate cross-border 
sustainable investments. The EU GBS initiative will allow canalising capital flows to green 
and sustainable projects and has the potential to promote economies of scale, thereby helping 
the  market  to  grow.  Given  the  risk,  that  inaction  will  lead  to  market  fragmentation  and 
consumer  confusion,  the  EU  GBS  will  provide  for  legal  clarity,  transparency  and 
comparability  of  EU  Green  Bonds  across  the  EU.  It  would  also  significantly  reduce  the 
complexity and the administrative burden, which bring clear benefits to issuers and investors 
of green bonds.  

Therefore,  a  common  standard  for  green  bonds  that  addresses  the  main  barriers  for  green 
bonds  across  the  EU  can  be  most  efficiently  achieved  at  EU  level.  To  address  (parts  of) 
certain  problems  it  might  be  necessary  to  amend  existing  EU  legislation.  Action  should 
therefore  be  coordinated  at  EU  level,  as  EU  instruments  appear  to  be  more  suitable.  A 
possible intervention at EU level therefore complies with the principle of subsidiarity as set 
out in Article 5 of the TFEU.  

159 

 
 
 
Table 34- Overview of labels for funds in Member States122 

GreenFin  /  TEEC  label 
and  Ecological 
(Energy 
Transition for Climate)123 
France  
01/12/2015 
4  green  bonds,  3  equity,  8 
infrastructure  
App. EUR 2 Md 

Member State  
Date of launch  
Number 
of 
labelled  funds  or 
value 

Luxflag  Climate  Finance 
Label 

FNG  Label 
mutual funds)124 

(sustainable 

Nordic Swan Ecolabel125   Austrian 

Ecolabel 
financial 

Green Funds Scheme 

Luxembourg 
01/09/2016 
4 funds 
EUR 450 M 

Germany  
01/05/2015 
5  Environmental 
thematic 
funds (equity and green bonds) 
among. 40 applicants 

Nordic countries 
15/06/2017 
13 ( EUR 3 Md) [All in equity: 
8 focus on Sweden, 3 Global, 1 
Frontier, 1 Energy] 

(sustainable 
products) 
Austria  
Established in 1990 
There 
are 
than100 
products 

labelled 

currently  more 
financial 

Netherlands 
It was implemented in 1995 
Since  the  implementation  of 
than 
program,  more 
the 
234,400 
have 
individuals 
invested,  more  than  EUR  6.8 
funds, 
billion 
financing  more 
than  5.000 
projects. 
N/A 

green 

in 

Time  to  audit  an 
application 

4 to 6 weeks (depending on the 
type of fund) 

1 month 

4 months 

About  30  hours  over  a  6-9 
week  period.  (Can  be  much 
longer  depending  on  the  fund 
companies 
and 
adaptability) 
None 

eagerness 

None  

None 

Legal basis 

Secondary 
legislation 
Eligibility criteria   UCITS/AIFM  (at  least  50% 

tertiary 

& 

invested in Europe) 

Decision  on 
evolution  of 
scheme 

the 
the 

A  multi-stakeholder committee 
chaired by the French Ministry 
of Environment  

Institution 
granting the label  

Accredited  (by  the  National 
Accreditation  body  COFRAC) 
auditors 

Labelling costs 

None  

that 

An  investment  fund  authorised 
by  a  Member  State  or  be 
supervision 
to 
subject 
equivalent 
in  EU 
to 
Member States 
Luxflag  in  conjunction  with  a 
dedicated  multi-stakeholder 
industry  working  group  led  by 
the 
of 
Association 
Luxembourg Fund Industry  
LuxFlag  Board  upon 
of 
recommendations 
Eligibility  Committee 
LuxFlag secretariat  
EUR 3,000 (once labelled) 

the 
the 
and 

UCITS funds 

UCITS funds 

independent 

An 
committee 

expert 

The  Nordic 
Ecolabelling 
Board, an independent external 
organisation. 

None 

None 

Sustainable  Funds/Investment 
Certificates  -  Ethics-Ecology, 
Thematic  Funds 
/Investment 
certificates 

Government 
sponsored: 
Federal Ministry of Agriculture 
and Forestry, Environment and 
Water Management 

The Dutch "Green Fund" is not 
a  label  but  a  tax  scheme.  In 
green savings accounts, 70% of 
deposits  are  invested  in  green 
projects. 
Government 
sponsored 
Ministries  of  the  Environment, 
Finance and Agriculture. 

GNG, the operational labelling 
body  of  FNG,  advised  by  an 
independent  expert  committee, 
who review the audit results 
EUR 3,000 (application) 

Nordic Swan Ecolabel 

Federal Ministry of Agriculture 
and Forestry, Environment and 
Water Management 

Ministries  of  the  Environment, 
Finance and Agriculture. 

To  generalize,  an  application 
fee  of  3,000  EUR  and  an 
annual  license  fee  of  0.0015% 
of  AUM  in  the  fund.  Please 
follow link for all details 

The annual royalties depend on 
the  specific  turnover  of  the 
branch and/or product group of 
the applying enterprise. 

N/A 

122 Table was drawn up by the Commission’s Joint Research Center in the context of the EU Ecolabel for Financial Products initiative. 
123 French Ministry for Ecology and Inclusive Transition: “Greenfin Label. Criteria Guidelines”, 2019 (Link) 
124 FNG: “Label for Sustainable Investment Funds. Rules of Procedure”, 2020 (Link) 
125 Nordic Swan Ecolabel (Link) 

160 

 
 
 
 
 
 
 
 
 
 
                                                 
GreenFin  /  TEEC  label 
(Energy 
and  Ecological 
Transition for Climate)123 
France  
Depending on auditor 

Member State  
Audit costs  
Labelling period  1 year (renewable) 

Luxflag  Climate  Finance 
Label 

FNG  Label 
mutual funds)124 

(sustainable 

Luxembourg 
0 
1 year (renewable) 

Germany  
Included into labelling costs 
1 year (renewable) 

Nordic Swan Ecolabel125   Austrian 

(sustainable 
products) 
Austria  
See labelling costs 
1 year (renewable) 

Nordic countries 
See labelling costs  
Same as the criteria document. 
Current  criteria  are  valid  until 
2020-06-30.  The  criteria  are 
updated every 3-5 years. 

Yes 

Intermediate 
verification  
Green taxonomy  CBI  based,  however  slightly 
national 

reflect 

to 

adjust 
priorities  

None 

CBI based 

Principles 

Compliance  verification  after 
six months  
for 
Common 
Climate Change Mitigation and 
and  Adaptation 
Adaptation 
Finance  Tracking 
IDFC 
( 
Development 
(International 
Finance Club)+MDBs) 

Annual 

None 

Based on ICMA's GBP. 

The  scheme  does  not  stipulate 
the  use  of  specific  external 
taxonomy. 

Ecolabel 
financial 

Green Funds Scheme 

Government 

Netherlands 
N/A 
The 
checks 
whether  the  project  meets  all 
the  conditions  of  the  Green 
Funds  Scheme  and,  if  so,  it 
issues  a  green  certificated  that 
remains valid for ten years. 
None 

contains 

The  scheme  does  not  stipulate 
the  use  of  a  specific  external 
taxonomy. 
a 
It 
definition  of  green  projects 
providing  a  significant  and 
immediate 
environmental 
benefit. 
There 
are 
obligations  

reporting 

no 

The applicant must publish full 
investment  portfolio  at  least 
once  a  year.  Additionally,  it 
its  Climate 
must  describe 
Finance 
objectives 
(environmental  and  financial) 
towards 
and  be 
transparent 
portfolio 
investors 
composition 
and 
documentation  by  providing 
categories 
sub-
categories  of 
its  Climate 
Finance investments 
Compliance  monitoring  at  six 
months 

and/or 

its 

in 

Transparency 
requirements  

Some  of  the  fund's  financial 
management  practises  must  be 
Investor's 
transparent. 
documents  must  present  the 
environmental  strategy  of  the 
fund  

Control 
monitoring  

& 

a 

Control  and  Monitoring  plan 
Guidelines.  
1.Process  of 
certifying 
candidate investment fund 
2.The  methods  for  monitoring 
a certified fund 
3.The  management  of  any 
observations  made  on 
the 
Control and Monitoring Plan 

the  Eurosif 

Signatory 
of 
Transparency Code required 
-  FNG  Matrix  (a  framework 
developed by FNG questioning 
the  RI  approach  of  the  fund) 
required 
-  Impact  reporting  assessed  by 
the  auditor  (Points  are  granted 
depending on the quality of the 
KPIs reported) 

Included  into  the  Label's  rules 
of procedures and FAQs 

161 

sustainability 

Mandatory:  
Annual  Fund 
report 
All holdings, updated quarterly 
Point Score: 
Detailed 
information 
Voting records 

engagement 

on 

the 
Information 
sustainability 
or 
ecological/social  concept  of 
Ecolabelled products should be 
the 
presented 
European 
and 
Responsible 
Investment 
Forum's  Sustainability  Fund 
Transparency Guidelines.  

Sustainable 

line  with 

in 

An on-site visit is performed in 
connection with the application 
and  once  a  year  during  the 
validity  of  the  license.  Sample 
checks  are  made  on  a  regular 
basis. 

The  environmental  and  social 
evaluation 
companies, 
of 
public issuers and real estate is 
carried out by funds or external 
organisations. 

Green  projects  are  subject  to 
the 
economic 
examination  by  banks  as  non-
green projects. 

same 

 
 
 
 
 
Annex 13: Options discarded at an early stage 

The following describes each of these options in detail and the reasons for discarding them at 
an early stage: 

(1) Non-legislative measure: Commission Communication on an EU GBS 

(2) Developing other standards and labels as part of a framework  

(3) Tasking  national  competent  authorities  (NCAs)  with  managing  a  regime  for  external 

reviewers  

(4) Flexibility for corporate issuers with regards to Taxonomy-alignment  

(5) Mandatory standard for sovereign green bond issuers in the EU 

(6) Banning the refinancing of existing green assets and expenditure by EU GBS green bonds 

(7) Options which may imply the loss of green status before the bond matures.  

1.  Non-legislative  EU  Green  Bond  Standard  (e.g.  Commission  Communication  or 

Recommendation) 

The  Commission  could  take  forward  the  EU  GBS  via  a  non-legislative  measure,  such  as  a 
“Commission  Communication”  or  a  “Commission  recommendation”,  based  on  the  core 
elements  for  an  EU  GBS  proposed  by  the  TEG.  After  a  two-year  period,  the  Commission 
could  then  evaluate  the  market  uptake  of  the  EU  GBS,  and  follow  up  with  legislation  if 
needed. Such a standard would automatically be a voluntary standard, and there would not be 
any registration and supervision regime for external reviewers, as this requires legislation.  

A  non-legislative  approach  allow  the  standard  to  be  finalised  more  quickly,  and  it  would 
allow  the  Commission  more  flexibility  in  amending  the  standard.  It  would  also  avoid  the 
costs  to  the  EU  budget  from  drafting,  negotiating,  and  implementing  legislation,  although 
there  would  still  be  costs  involved  in  drafting,  adopting,  and  updating  the  non-legislative 
standard.  

As such a standard would not officially exist in legislation, it would not be enforceable, and 
would  need  to  be  more  principles-based.  Compared  to  a  legislative  approach,  it  would 
provide  less  legal  certainty  to  investors,  and  it  would  not  allow  the  attachment  of  potential 
monetary or regulatory incentives.  

Therefore,  it  would  not  address  all  barriers  in  the  market,  and  could  increase  rather  than 
reduce fragmentation in the market. The added value compared to existing market standards 
would be lower, which means there may be a risk of limited uptake, as issuers may prefer to 
keep using market-based standards.  

For these reasons this option is not recommended.  

2.  Developing other standards and labels as part of a framework 

162 

 
 
 
 
 
As  part  of  the  work  regarding  the  Renewed  Sustainable  Finance  Strategy,  the  Commission 
has  consulted  on  the  need  for  additional  standards  and  labels,  such  as  labels  for  Socially 
Responsible Investment (SRI) funds, a standard for green loans and mortgages, and a social 
impact bond standard.  

Today,  target-linked  sustainability  bonds  are  capturing  a  small  but  growing  share  of  the 
green bond market. While some market actors contest the level of comparability to a use-of-
proceeds green bond, they nonetheless present themselves as alternative vehicles for issuers. 
The reputational effects, often the key reason for issuers to consider a green bond issuance, 
are likely to be comparable.  A dedicated EU standard for such bonds along the model of the 
EU  GBS  could  help  to  ensure  that  issuers  who  wish  to  pursue  ambitious  environmental 
targets,  for  example  by  making  use  of  the  Taxonomy,  would  have  a  standard  to  rely  on.  It 
would also help to standardise the market.  

However, this option was discarded at an early stage due to the lack of development of this 
segment  of  the  market,  and  the  difficulty  of  finding  an  exact  method  for  linking  the 
Taxonomy to such bonds, which typically ignore the use of proceeds.  

In the future, it is possible that the market would be ready for the development of yet more 
EU standards, including for social bonds or sustainability bonds. This would depend on the 
development of an EU Taxonomy for social bonds, which will be considered as part of the 
work of the EU Platform for Sustainable Finance.  

3.  Tasking national competent authorities (NCAs) with managing the regime for external 

reviewers  

Both the stringent and lighter regimes could be implemented at either the Union or national 
level. If implemented at the Union level, the competences would most naturally fit within the 
scope of ESMA’s field of activities, given its current role authorising and supervising credit 
rating  agencies.  In  comparison,  if  implemented  at  the  national  level,  it  would  require  each 
Member  State  to  designate  a  National  Competent  Body  to  register  and  supervise  external 
reviewers.    This  could  lead  to  divergences  in  national  approaches,  and  ESMA  would  still 
have  to  perform  a  coordination  role  to  ensure  harmonisation  between  the  various  national 
frameworks.    This  approach  would  also  lead  to  duplication  of  costs  and  competition  for 
qualified personnel, as each NCA would have to establish its own in-house registration and 
supervision process. 

As a result, it is recommended that ESMA is designated as the registration and supervision 
body  for  external  reviewers.  This  is  the  approach  most  likely  to  ensure  a  harmonised 
approach across the EU, with a single access point for external reviewers seekingregistration 
and a standardised application process and fee structure.  Under this approach, only ESMA 
would be required to build the necessary expertise and allocate resources, thus avoiding any 
duplication  of  costs.    Once  registered  by  ESMA,  it  would  also  be  easier  for  entities  to 
passport their services across the Union, as there would not be any additional national level 
requirements to also comply with.   

4.  Flexibility for corporate issuers with regards to Taxonomy-alignment 

163 

 
 
 
 
In its draft report on the EU GBS, the TEG advocated for the inclusion of a limited degree of 
flexibility  related  to  the  specific  technical  screening  criteria  set  out  in  the  Taxonomy 
Delegated Acts.126 This was justified by the need to handle gaps in the gradual development 
of  the  Taxonomy,  with  full  application  only  foreseen  by  end  2021,  and  given  the  lack  of 
market experience in interpreting the requirements of the Taxonomy. 

However, this flexibility poses a legal problem. The EU Taxonomy Regulation specifies that 
the Union shall apply the EU Taxonomy when setting out the requirements for the marketing 
of corporate bonds that are categorised as environmentally sustainable127. Given that the EU 
GBS initiative will pursue, as its core objective, the aim of delineating the boundaries of what 
shall  constitute  an  ‘environmentally  sustainable’  (or  in  other  words  “green”)  bond,  the  EU 
Taxonomy  will  need  to  be  applied  fully  to  determine  the  eligibility  of  the  proceeds  of  the 
bond  issuance.  This  excludes  the  type  of  flexibility  suggested  by  the  TEG  for  corporate 
bonds. 

Other ways of giving potential flexibility to issuers also come with significant drawbacks. For 
example,  one  alternative  could  have  been  to  allow  the  proceeds  of  the  bond  to  fund  a 
combination of green activities and non-green activities, by setting a threshold for the share 
of non-green, However, this choice would have resulted in an EU GBS with a lower level of 
ambition  than  current  market  standards,  which  tend  to  require  100%  use  of  proceeds  for 
green activities. This would potentially put users of the EU GBS at a disadvantage.  

5.  Mandatory standard for sovereign green bond issuers in the EU 

The  option  of  making  EU  GBS  alignment  mandatory  also  for  sovereign  issuers  of  green 
bonds in the EU (in addition to non-sovereigns) was not assessed, as the chosen legal basis – 
Article 114 TFEU – does not warrant such type of legislative action.  

This  is  also  reflected  in  the  fact  that  the  Taxonomy  Regulation’s  Article  4  only  mentions 
corporate green bond issuers among those for whom an EU standard for green bonds should 
be based on the Taxonomy, not sovereigns.  

6.  Banning the re-financing by the EU GBS of existing green assets 

One of the main  criticisms in  relation to  green  bonds  has  been their lack of ‘additionality’. 
This  refers  to  the  question  of  whether  green  bonds  lead  to  new  (i.e.  additional)  green 
investments.  In  the  current  market,  this  need  not  be  the  case.  Green  bonds  tend  to  finance 
assets and this can include (re-)financing of assets that already exist, within reasonable look-
back  periods  (2-3  years  maximum).  For  example,  a  bank  could  already  be  financing  EUR 
100m  for the construction of  a windmill, and only  afterwards decide to  issue a EUR 100m 
green bond for this. No new green investments will have been created.  

126  Specifically,  the  TEG  proposed  that  in  cases  where  either  the  technical  screening  criteria  have  not  been 
developed  for  a  specific  sector  or  environmental  objective,  or  where  the  developed  screening  criteria  are  not 
considered directly applicable due to the innovative nature, complexity and/or location of the green project, the 
issuer should instead be allowed to rely on the fundamental principles of the Taxonomy Regulation to verify that 
investments align with the Taxonomy, instead of the Technical Screening Criteria. 
127 Article 4 of the EU Taxonomy Regulation: “Member States and the Union shall apply the same criteria set 
out  in  Article  3  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. “ 

164 

 
 
 
 
 
                                                 
However, the fact  that a particular  green bond is  issued after the assets it (re)finances does 
not necessarily imply that there is no causality, as the intention to issue a green bond in the 
future can also be a motivating factor for embarking on a green project today. For example, 
an  issuer  may  decide  to  invest  in  a  green  project  knowing  that  this  investment  may  be 
refinanced by a green bond in the future. The possibility to re-finance a green asset using a 
green bond in the future, with the potential benefits that this brings to the issuer, may be an 
incentive to invest in that green asset today.  

It should also be noted that many sovereign issuers exclusively make use of refinancing, as 
they cannot issue a green bond framework that pre-empts future spending.  

For  these  reasons,  the  option  of  not  allowing  the  refinancing  of  green  proceeds  using  EU 
GBS  bonds  has  been  discarded.  However,  it  is  recommended  to  impose  limits  to  prevent 
issuers  from  indefinitely  refinancing  the  same  expenditure,  for  example  with  time-limits  to 
prevent  expenditure that predate the issuance by more than a certain  number of  years to  be 
used for new green bond issuance. 

7.  Options which may imply the loss of green status before the bond matures, in case the 

Taxonomy criteria change 

The idea of the overall sustainable finance project is to facilitate sustainable investments with 
a broader view of achieving climate neutrality as soon as possible. In order to promote private 
investments further, the risk-payoff of green assets need to be improved, either by improving 
the expected payoff (incentives or disincentives  for brown assets i.e. relative change) or by 
lowering risks.  

Investors  in  bond  markets  are  largely  hold-to-maturity  investors  and  most  bond  markets 
exhibit very slim liquidity on secondary markets. For green bonds, the investor base is largely 
constituted of green institutional investors, many of which face direct fiduciary duties to align 
their  investments  with  their  green  objectives.  This  implies  that  such  investors  should  also 
divest out of assets that are not or are no longer considered green.  

In  the  context  of  the  green  bonds  initiative,  this  is  an  important  consideration  as  concerns 
potential  future  changes  to  the  Taxonomy  Regulation.  If  such  changes  would  entail  that  a 
previously green asset financed by a green bond, is no longer considered green, a significant 
share of the investors in that bond may want to or may even be obliged to sell the bond at that 
point. While there would likely be conventional buyers to step in, it would nonetheless lead 
to a significant price impact given the sudden spike in selling interest. This would present a 
significant  risk  to  investors  in  an  EU  GBS  unless  grandfathering  of  the  taxonomy  criteria 
until maturity of the bond is ensured.  

Without  grandfathering  until  maturity  in  the  case  of  changes  to  the  Taxonomy,  investors 
would face higher risk and would be willing to pay less for an EU GBS i.e. coupon rates for 
issuers would be higher / a possible ‘greenium’ over conventional bonds would be lower. It 
would present an unnecessary hurdle to higher investments and thereby stands contrary to the 
general objective.  

Not  granting  such  grandfathering  rights  would  furthermore  risk  that  issuers  postpone  EU 
GBS  issuance  in  anticipation  of  possible  changes  to  the  taxonomy.  In  effect,  some  green 

165 

 
 
 
 
investments  would  occur  only  at  a  later  stage  implying  a  loss  of  positive  environmental 
impact during that time.  

Given  the  current  environmental  trajectories,  the  ambition  must  be  to  facilitate  green 
investments  as  strongly  and  quickly  as  possible.  While  an  asset  may  no  longer  be  green  at 
some  future  point  in  time,  according  to  the  standards  then,  it  will  have  still  played  a 
significant  role  in  mitigating  climate  change  or  adapting  to  it,  as  per  the  taxonomy.  Debt 
linked to the initial financing should therefore remain green until it matures. This limits risks 
to investors and thereby maximises a possible green spread to conventional bonds. In effect, 
investments are promoted more strongly and sooner in time.       

166 

 
 
 
Annex 14: EU Green Bond Standard as recommended by TEG 

1.  Scope of the EU-GBS  
The  European  Green  Bond  Standard  (EU-GBS)  is  a  voluntary  standard  proposed  to  issuers 
that  wish  to  align  with  leading  best  practices  in  the  market.  It  is  designed  to  be  globally 
relevant and accessible to issuers located in the EU as well as to issuers located outside the 
EU. It builds on market best practices such as the Green Bond Principles (GBP).  

2.  Objective of the EU-GBS  
The EU-GBS is intended to provide a framework of core components for EU Green Bonds, 
thereby  enhancing  transparency,  integrity,  consistency  and  comparability  of  EU  Green 
Bonds.  The  ultimate  objective  is  to  increase  the  flow  of  finance  to  green  and  sustainable 
projects. 

3.  Definition of an EU Green Bond 
An EU Green Bond is any type of listed or unlisted bond or capital market debt instrument 
issued by a European or international issuer that is aligned with the EU-GBS, and is therefore 
meeting the following requirements:  

1.  The issuer’s Green  Bond Framework  shall confirm the alignment of the  green bond 

with the EU-GBS;  

2.  The proceeds shall be exclusively used to finance or re-finance in part of in full new 
and/or existing ‘Green Projects’ as defined in section 4.1, as it shall be described in 
the bond documentation; and  

3.  The alignment of the bond with the EU-GBS shall have been verified by an accredited 

Verifier in accordance with section 4.4.  

An issuer may only use the term ‘EU Green Bond’ if the above criteria are met. European and 
international  issuers  may  decide  to  voluntarily  requalify  their  existing  green  bonds  as  ‘EU 
Green  Bonds’  in  the  same  manner  and,  for  the  avoidance  of  doubt,  after  verification  by  an 
accredited Verifier.  

It is important to note that EU Green Bonds are only fungible with green bonds issued as EU 
Green Bonds or requalified as EU Green Bonds.  

4.  Core components of the EU-GBS  

4.1 Green Projects  

Proceeds from EU Green Bonds, or an amount equal to such proceeds, shall be allocated only 
to finance or refinance Green Projects (‘Green Projects’) defined, subject to confirmation by 
an accredited Verifier (see section 4.4), as  

(a)  contributing substantially to at least one of the Environmental Objectives as defined in 
the EU Taxonomy Regulation128 (‘the Environmental Objectives’), namely (i) climate 
change mitigation, (ii) climate change adaptation, (iii) sustainable use and protection 
of water and marine resources, (iv) transition to a circular economy, waste prevention 

128 Proposal for a Regulation of the European Parliament and of the Council on the establishment of a framework 

to facilitate sustainable investment, COM(2018) 353 final 2018/0178 (COD), 24 May 2018 (link) 

167 

 
 
 
 
 
 
 
 
                                                 
and  recycling;  (v)  pollution  prevention  and  control,  and  (vi)  protection  of  healthy 
ecosystems, while  

(b) not significantly harming any of the other objectives, and  
(c) complying  with  the  minimum  social  safeguards  represented  by  the  principles  and 
rights  set  out  in  the  eight  fundamental  conventions  identified  in  the  International 
Labour Organisation’s declaration on Fundamental Rights and Principles at Work.  

When  the  EU  Taxonomy  will  be  in  force  and  where  Technical  Screening  Criteria  (i.e., 
principles,  metrics,  thresholds)  have  been  developed  in  the  EU  Taxonomy  for  specific 
environmental objectives and sectors, Green Projects shall align with these criteria allowing 
however for specific cases where these may not  be directly applicable as a result of factors 
such as the innovative nature, the complexity, and/or the location of the Green Project(s). An 
accredited  Verifier  shall  either  confirm  alignment  with  the  Technical  Screening  Criteria,  or 
alternatively  in  cases  where  no  technical  screening  criteria  have  been  developed  or  in  the 
above mentioned specific cases, that the projects nonetheless meet the requirements under the 
EU  Taxonomy  framework  i.e.  that  they  (a)  contribute  substantially  to  at  least  one  of  the 
Environmental  Objectives  (b)  do  not  significantly  harm  any  of  the  other  objectives  and  (c) 
comply with the minimum social safeguards.   

The issuer shall provide a description of such Green Projects in their Green Bond Framework 
(see section 4.2) and in the Green Bond legal documentation (for instance in the Prospectus 
or  in  the  Final  Terms).  The  information  provided  in  the  legal  documentation  may  be 
summarised or may be limited to a reference to the Environmental Objectives and the GBF. 
In  case  that  the  Green  Projects  are  not  identified  at  the  date  of  issuance,  the  issuer  shall 
describe the type and sectors and/or environmental objectives of the potential Green Projects. 

Green Projects can include:  

  Physical  assets  and  financial  assets  such  as  loans.  Green  assets  can  be  tangible  or 
intangible, and they can  include the share of working capital  that can  reasonably be 
attributed to their operation. 

  Any  capital  expenditure  and  selected  operating  expenditures  such  as  maintenance 
costs related to green assets that either increase the lifetime or the value of the assets, 
and research and development costs. For the avoidance of doubt, operating costs such 
as purchasing costs and leasing costs would not normally be eligible except in specific 
and/or exceptional cases as may be identified in the EU Taxonomy and future related 
guidance.  

  Relevant public investments and public subsidies for sovereigns and sub-sovereigns.  

Green  assets  shall  qualify  without  a  specific  look-back  period  provided  that  at  the  time  of 
issuance they follow the eligibility criteria listed above. Eligible green operating expenditures 
shall  qualify  for  refinancing  with  a  maximum  three  [3]  years  look-back  period  before  the 
issuance year of the bond.  

For the avoidance of doubt, a specific green asset or expenditure can only qualify as a Green 
Project for direct financing by one or several dedicated green financing instruments (such as 
bonds  or  loans)  up  to  the  combined  equivalent  of  its  full  value.  It  is  understood  that  green 
financing instruments can be refinanced by other green financial products.  

4.2 Green Bond Framework  

168 

 
 
 
 
 
 
 
The  issuer  shall  produce  a  Green  Bond  Framework  (‘GBF’)  which  confirms  the  voluntary 
alignment  of  the  green  bonds  issued  following  this  GBF  with  the  EU-GBS  and  provides 
details on all the key aspects of the proposed use of proceeds and on its green bond strategy 
and processes. The draft standard foresees inclusion of the use of proceeds to be specified in 
the legal documentation.  

The issuer shall indicate the following elements in their GBF:  

1.  The Environmental Objectives of the EU Green Bond or EU Green Bond programme 
and how the issuer’s strategy aligns with such objectives, as well as their rationale for 
issuing; 

2.  The  process  by  which  the  issuer  determines  how  Green  Projects  align  with  the  EU 
Taxonomy  and,  if  applicable,  qualitative  or  quantitative  technical  screening  criteria 
with reference to section 4.1 and the support of an accredited Verifier. Issuers are also 
encouraged  to  disclose  any  green  standards  or  certifications  referenced  in  project 
selection; 

3.  A  description  of  the  Green  Projects  to  be  financed  or  refinanced  by  the  EU  Green 
Bond. In case where the Green Projects are not identified at the date of issuance, the 
issuer  shall  describe,  where  available,  the  type  and  sectors  of  the  potential  Green 
Projects.  Where  confidentiality  agreements,  competitive  considerations,  or  a  large 
number of underlying projects limit the amount of detail that can be made available, 
information can be presented in generic terms or on an aggregated portfolio basis; 
4.  The  process  for  linking  the  issuer’s  lending  or  investment  operations  for  Green 
Projects to the EU Green Bond issued. The issuer shall track the amount allocated to 
Green  Projects  in  an  appropriate  manner  until  such  amount  equals  the  net  proceeds 
and document the allocation through a formal internal process; 

5.  Information on the methodology and assumptions to be used for the calculation of key 
impact  metrics:  (i)  as  described  in  the  EU  Taxonomy,  where  feasible;  and  (ii)  any 
other additional impact metrics that the issuer will define; and  

6.  A description of the Reporting (e.g. envisaged frequency, content, metrics).  

For the avoidance of doubt,  it is understood that subsequent  changes  to  the Taxonomy will 
not apply to outstanding EU Green Bonds (grandfathering). Conversely, new issues shall be 
aligned with the most recent version of the Taxonomy and as relevant to their Green Projects.  
The  GBF  shall  be  published  on  the  issuer’s  website  or  any  other  communication  channel 
before or at the time of the issuance of an EU Green Bond and shall remain available until the 
respective maturity of the EU Green Bond. 

5  Allocation and Impact Reporting 
Two  types  of  reporting  are  required  under  the  EU-GBS:  Allocation  Reporting  and  Impact 
Reporting.  

Allocation Reporting:  Issuers shall report at least  annually, until  full allocation of the bond 
proceeds to Green Projects and thereafter, in case of any material change in this allocation.  

Verification is only required for the Final Allocation Report.  

The Allocation Report shall include: 

  A statement of alignment with the EU-GBS; 
  A breakdown of allocated amounts to Green Projects at least on sector level, however 

more detailed reporting is encouraged; and 

169 

 
 
 
 
 
 
 
  The geographical distribution of Green Projects (recommended on country level).  

For the avoidance of doubt, the Final Allocation Report for an EU Green Bond to be  
published upon full allocation shall comprise information on all allocated amounts to Green 
Projects at least on sector level.  
Impact Reporting: Issuers shall also report on impact of Green Projects at least once during 
bond  lifetime  after  full  allocation  of  the  bond  proceeds  to  Green  Projects  and  thereafter,  in 
case of material changes in this allocation.  

The Impact Report shall include: 

  A description of the Green Projects;  
  The Environmental Objective pursued by the Green Projects; 
  A breakdown of Green Projects by the nature of what is being financed (assets, capital 
expenditures, operating expenditures, etc.), the share of financing (i.e., the amount of 
Green Projects financed after the bond issuance) and refinancing (i.e., the amount of 
Green Projects financed before the bond issuance);  
Information  and,  when  possible  metrics,  about  the  projects’  environmental  impacts, 
which  needs  to  be  in  line  with  the  commitment  and  methodology  described  in  the 
Issuer’s GBF; and 
If  it  hasn’t  been  already  detailed  in  the  GBF,  information  on  the  methodology  and 
assumptions used to evaluate the Green Projects impacts. 

 

 

Verification  of  the  Impact  Reporting  is  not  mandatory,  however  issuers  are  encouraged  to 
have their Impact reporting reviewed by an independent third party. 

Allocation Reporting and Impact Reporting can be either on a project-by-project level or on a 
portfolio  level,  where  confidentiality  agreements,  competitive  considerations,  or  a  large 
number of underlying projects limit the amount of detail that can be made available.  

For  the  avoidance  of  doubt,  the  Allocation  Report  as  well  as  the  Impact  Report  may  cover 
several bond issuances under the same Green Bond Framework. The issuer may also decide 
to  publish  separate  Impact  Reports  for  separate  project  categories.  Allocation  and  Impact 
Reporting can be presented in a combined report or in separate reports. In case full allocation 
and or impact is already determined upon issuance of a bond, issuers may choose to publish 
one report comprising information on allocation and impact at issuance, for the avoidance of 
doubt in case of material change of allocation, further reporting will be required.  

Allocation Reporting and Impact Reporting shall be published on the issuer’s website or any 
other  communication  channel.  The  Final  Allocation  Report  and  Impact  Report  published 
upon  full  allocation  shall  remain  available  until  maturity  of  such  EU  Green  Bonds  unless 
replaced by further reports in case of material changes of allocation. 

5.1 Verification  

Issuers shall appoint an external reviewer to confirm:  

  before or at the time of issuance, through an initial Verification, the alignment of their 
GBF  with  the  EU-GBS,  in  accordance  with  section  4.1  (Green  Projects)  and    4.2 
(Green Bond Framework); and  

  after full allocation of proceeds, through a Verification, the allocation of the proceeds 
to  green  eligible  projects  in  alignment  with  the  Allocation  Reporting  as  outlined  in 
section 4.3 of the EU-GBS.  

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For the avoidance of doubt, an initial verification can be valid for several bonds issued under 
a programme with the same GBF.  

It  is  also  understood  that  for  transactions  that  are  fully  allocated  at  issuance  (e.g.  as  in  the 
case  of  refinancing)  the  verification  of  the  Allocation  Reporting  can  be  incorporated  in  the 
initial Verification.  

Verification(s),  and  any  subsequent  ones,  shall  be  made  publicly  available  on  the  issuer’s 
website  and  through  any  other  accessible  communication  channel  as  appropriate.  The 
verification of the GBF shall be made publicly available before or at the time of the issuance 
of its EU Green Bond(s). Verification of the Final Allocation Report should be made publicly 
available together with the publication of the Final Allocation Report, however at the latest 
one year after the publication.  

Verification  provider(s)  will  be  subject  to  accreditation  including  explicit  requirements 
related to (i) professional codes of conduct related to business ethics, conflicts of interest and 
independence; (ii) professional minimum qualifications and quality assurance and control;  
and (iii) standardised procedures for Verification.  
Verification  providers  shall  also  disclose  their  relevant  credentials  and  expertise  and  the 
scope of the review conducted in the Verification report.  

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Annex 15: Project green bonds to support the green transition 
and the EU Green Deal 

Investment  in  sustainable  infrastructure,  buildings  and  renewable  energy  and  related  green 
bonds should be promoted as more common asset class in order to increase substantially the 
liquidity and the amount of financing available to build sustainable infrastructure, buildings 
and energy generation, and/or to make greener the existing ones. This will also boost the use 
of the Taxonomy itself and promote the EU Green Bond standard, for investments compliant 
with  the  provisions  of  the  EU  Taxonomy,  while  supporting  the  green  transition  and  the 
objectives of the EU Green Deal. 

Project  green  bonds  often  cover  sustainable  investments  (e.g.  in  infrastructure,  buildings, 
renewable energy) which are well within the scope of economic activities covered by the EU 
Taxonomy. Sustainable infrastructure assets are “investable” and can be supported by green 
bonds  through  a)  corporate  bonds  that  are  used  by  companies  to  finance  a  range  of 
sustainable activities and where the yield and risk of the bond is linked to the balance sheet of 
the underlying company. These bonds are likely to make up a large share of green bonds; b) 
project  green  bonds,  which  are  dedicated  to  the  financing  of  specific  sustainable 
infrastructure assets, but are also suitable for supporting sustainable buildings and renewable 
energy  have  additional  advantages  as  compared  with  general  corporate  bonds,  since  the 
proceeds  are  clearly  related  to  the  risk  of  the  assets  supported  and  the  way  it  is  operated. 
Further, the due diligence, which applies to project green bonds, ensures that the criteria and 
benchmarks set in the Taxonomy Delegated Act can be properly assessed and monitored. 

The  scale  up  of  the  project  green  bond  market  for  sustainable  infrastructure,  buildings  and 
renewable energy can be promoted using public guarantee, such as the InvestEU, in particular 
bonds credit enhancing and subordinated debt financing can enhance the use of green bonds 
for green field infrastructure. 

Investment  in  infrastructure  is  considered  as  an  “alternative  investment”  by  institutional 
investors,  but  remains  a  small  fraction  of  their  overall  investment  strategy.  According  to 
Moody’s129,  while  the  cumulative  probability  of  default  for  other  asset  classes  normally 
increases  over  time,  infrastructure  debt  normally  stabilizes  following  an  initial  period. 
Infrastructure  debt  performs  like  an  investment  grade  security  by  year  10  in  high-income 
countries. 

Commercial  and  promotional  banks  can  provide  substantial  support  to  the  infrastructure 
sector. However, while the risk profile of infrastructure investment matches the requirements 
of  long-term  investors,  due  diligence  for  such  projects  is  complex  and  regulatory  risks  are 
often high, which deters institutional investors to engage more with the sector. In some cases, 
private investors also lack the expertise to implement due diligence of infrastructure projects 
and prefer to invest in other financial assets, such as treasury bonds or shares, which are easy 
to assess and more liquid. 

More  broadly,  lack  of  strategic  planning  and  poor  project  preparation,  poor  business  cases 
and  barriers  (state  infrastructure  ownership  and  lack  of  competition)  also  prevent  investors 
from further engaging in infrastructure financing. 

129 Kelhoffer, K. (Moody’s Analytics): “Examining Infrastructure as an Asset Class”, 2020 (Link)  

172 

 
                                                 
In  the  last  decade,  the  debate  about  infrastructure  as  an  asset  has  been  intense  at  European 
and as well international level.  

In  particular  the  Regulation  (EU)  2019/876130  states  that  it  is  essential  to  lay  down  a 
regulatory environment that is able to promote high quality infrastructure projects and reduce 
risks for investors. The text does not include references to green infrastructure. However, it 
states  that  the  European  Commission  should  review  the  provision  on  high  quality 
infrastructure  projects  in  order  to  assess  its  impact  on  the  volume  of  infrastructure 
investments by institutions and the quality of investments having regard to Union’s objectives 
to move towards a low-carbon, climate-resilient and circular economy; and its adequacy from 
a  prudential  standpoint.  The  Commission  should  also  consider  whether  the  scope  of  those 
provisions should be extended to infrastructure investments by corporates. 

The  G20  Infrastructure  Working  Group  (IWG)  also  recognised  the  benefits  of  promoting 
infrastructure  as  an  asset  class,  seeking  ways  to  improve  the  investment  environment  and 
mobilise higher levels of investment through capital markets131. Along this, EIB and OECD 
are  promoting  an  Infrastructure  Data  Initiative  (IDI),  which  promotes  discussion  and  the 
coordination  of  initiatives  led  by  multi-lateral  development  banks  and  international 
organisations,  in  cooperation  with  the  private  sector.  The  G20  Principles  for  Quality 
Infrastructure Investment also emphasise that access to adequate information and data is an 
enabling factor to support investment decision-making, project management and evaluation, 
particularly  when  considering  the  infrastructure  life-cycle  and  cost-benefit  analysis. 

130  Regulation  (EU)  2019/876  of  the  European  Parliament  and  of  the  Council  of  20  May  2019  amending 
Regulation (EU) No 575/2013 as regards the leverage ratio, the net stable funding ratio, requirements for own 
funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures 
to  collective  investment  undertakings,  large  exposures,  reporting  and  disclosure  requirements,  and  Regulation 
(EU) No 648/2012 (Link)  
131 G20/OECD: “Report on the collaboration with institutional investors and Asset Managers on infrastructure”, 
2020 (Link) 

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Annex 16: Summary of responses to stakeholder questions on 
Social bonds 

Question 17)  
To what extent do you agree with the following statements?  
a.  Social  bonds  are  an  important  instrument  for  financial  markets  to  achieve 
social objectives.  
b.  Social  bonds  targeting  COVID19  are  an  important  instrument  for  financial 
markets  in  particular  to  help  fund  public  and  private  response  to  the  socio-
economic impacts of the pandemic.  
c.  Social  bonds  targeting  COVID19  are  mostly  a  marketing  tool  with  limited 
impact on funding public and private responses to the socio-economic impact of 
the pandemic.  
d.  Social  bonds  in  general  are  mostly  a  marketing  tool  with  limited  impact  on 
social objectives.  
e.  Social  bonds  in  general  require  greater  transparency  and  market  integrity  if 
the market is to grow.  

A large majority of respondents agreed or strongly agreed with the statement that social 
bonds  are  an  important  financial  instrument  to  achieve  social  objectives.  From  the  few 
stakeholders that disagreed some nevertheless noted that a social bond standard should be 
developed  (see  Q.18).  This  may  suggest  that  the  aspect  of  ‘importance’  has  been 
understood  differently  across  the  respondents,  for  example  in  terms  of  social  bonds’ 
current market share.  

While  a  majority  of  respondents  equally  agreed  that  social  bonds  are  important  in  the 
context of financing Covid-response measures, there is a significantly higher fraction of 
replies  which  noted  a  neutral  or  disagreeing  opinion  compared  to  sub-question  (a). 
However,  there  is  no  clear  pattern  as  to  the  type  of  stakeholders’  replies.  Neutral  or 
disagreeing  replies  came  from  both  banks  and  asset  managers  but  also  development 
banks and other potential social bond issuers.  

The replies to sub-questions (c) and (d) on the impact on funding and the contribution to 
social  objectives  respectively  were  quite  similar.  Both  questions  saw  a  majority  of 
respondents  disagreeing  that  social  bonds  are  mostly  a  marketing  tool  and  that  they  do 
have  a  positive  impact  on  funding  social  expenditures.  On  sub-question  (c),  the 
percentage of stakeholders disagreeing was somewhat lower than for (d). Approximately 
a third of respondents held a ‘neutral’ opinion on this statement. This indicates that some 
stakeholders  believe  that  social  bonds  may  have  been  used  (or  were  used  more)  as  a 
marketing  tool  in  the  context  of  Covid.  Overall,  however,  the  perception  is  that  these 
instruments carry a real benefit.  

An overwhelming majority of respondents agreed with the statement in sub-question (e). 
More than three-quarters of stakeholders held the opinion that social bonds do require a 
greater  transparency  and  market  integrity  for  the  market  to  grow.  Interestingly,  some 
regulators  as  well  as  market  operators  held  a  neutral  stance  on  this  statement.  This 
suggests that, in their opinion, the current transparency and market integrity frameworks 
are  sufficient  already.  The  statement  did  not  specify  transparency  and  market  integrity 
any  further,  so  it  may  simply  imply  that  these  stakeholders  believe  that  the  existing 
regulatory  frameworks  already  cater  to  high  standards.  In  addition,  there  may  be 

174 

 
 
 
concerns  over  further  regulatory  measures  and  concurrent  administrative  burdens  that 
may arise (see Q 18).  

Question 18) The Commission is keen on supporting financial markets in meeting 
social investment needs. Please select one option below and explain your choice:  
a.  The  Commission  should  develop  separate  non-binding  social  bond  guidance, 
drawing  on  the  lessons  from  the  ongoing  COVID19,  to  ensure  adequate 
transparency and integrity.  
b.  The  Commission  should  develop  an  official  EU  Social  Bond  Standard, 
targeting social objectives. 
c.  The  Commission  should  develop  an  official  “Sustainability  Bond  Standard”, 
covering both environmental and social objectives.  
d. Other Commission action is needed.  
e. No Commission action is needed in terms of social bonds and COVID19.  

The replies to this question were strongly spread out across the options and without any 
patterns  in  terms  of  type  of  stakeholder  replying.  As  noted  by  one  respondent,  the 
suggested actions under (a), (b) and (c) are not exclusive. This means that there may be 
some  non-captured  overlap  in  the  statistics  of  the  stakeholders’  views.  In  terms  of 
statistics,  option  (b)  saw  the  largest  support  with  approximately  a  third  of  respondents 
opting  for  it.  The  second  favoured  option  was  option  (c).  The  other  three  options  saw 
very similar support rates each.  

Regardless  of  the  sub-option  chosen,  a  comment  that  frequently  arose  was  there  is 
currently no social taxonomy. Some respondents noted that it should be developed (and 
could then be applied under a standard) while others stated that capturing social aspects 
would be too complicated to fully regulate and should rather be addressed in the form of 
guidance. There were also comments on both sides as to whether or not there should be 
one  overarching  framework  in  form  of  a  sustainability  bond  standard  or  keeping  them 
separate. One the former, it was noted that equal procedures and transparency applies in 
both  social  and  environmental  areas.  On  the  other  hand,  those  in  favour  of  separate 
standards  noted  that  the  methodologies  for  both  areas  are  very  different  and  that  target 
investor bases for green bonds and social bonds differ significantly (return driven versus 
pure impact investors).  

As  for  the  respondents  opting  for  (a),  some  noted  that  guidance  could  be  a  first  step 
towards formulating a social taxonomy. Others stressed that it is too difficult to quantify 
social aspects, at least in any form similar to the environmental taxonomy. In result, no 
formal  regulation  should  apply.  In  general,  it  was  noted  often  that  having  official 
guidance  would  help  to  further  foster  the  social  bond  market,  generate  increased 
transparency  and  create  more  awareness.  At  the  same  time,  several  stakeholders 
issuers  with  additional 
highlighted 
bureaucracy.  

that  guidance  would  avoid  over-burdening 

As  for  comments  under  option  (b),  stakeholders  often  raised  that  social  aspects  are 
equally important to environmental and should be addressed. Often statements referred to 
the  need  for  the  Commission  to  develop  a  social  taxonomy  which  could  then  form  the 
basis for a standard. It was however also suggested that an SDG-like framework would 
actually make the UN the more logical  actor to  develop  it. Positive aspects  in  terms of 
transparency, comparability and market integrity were frequently given as reasons for an 
official standard.  

175 

 
 
 
 
The respondents supporting option (c) often noted that social and environmental aspects 
should  be  addressed  together.  The  taxonomy  could  achieve  this  but  needs  to  be 
developed  to  cater  to  the  social  area.  Some  put  market  size  and  increased  liquidity 
forward as reasons to combine both bond types. Others noted that a the use-of-proceeds 
approach  as  applied  for  GBs  today  should  actually  move  to  a  full  corporate  approach 
with environmental and social objectives.  

In  terms  of  stakeholders  replying  option  (d),  there  were  no  significant  new  ideas 
presented.  Those  stakeholders  that  provided  additional  comments  often  noted  the  need 
for  increased  flexibility  in  the  market  and  the  danger  of  overregulating  small  niche 
markets.  This  was  equally  a  comment  made  frequently  by  those  opting  for  (e).  Others 
noted again the difficulty and extensive work required to define social objectives. It was 
also stressed that the green taxonomy should be finalized first before undertaking similar 
work  on  the  social  dimension.  Another  frequent  statement,  including  by  one  regulator, 
was  that  market  based  guidance  and  transparency  in  the  market  to  date  is  sufficient 
already.  

Question 19) In your view, to what extent would financial incentives for issuing a 
social bond help increase the issuance of such bonds?  

An overwhelming majority of stakeholders agreed that incentives will increase issuance. 
However,  the  views  as  to  their  effectiveness  varied  strongly  with  options  1,  2,  and  3 
being  close  to  par.  As  pointed  out  by  several  stakeholders,  incentives  will  of  course 
promote issuance; however, the market impact depends strongly on their type and extent. 
Without these insights, no clear judgement can be made on their effectiveness.  

In  terms  of  additional  comments,  a  majority  of  stakeholders  argued  for  incentives  with 
some stating explicitly that issuance costs are higher compared to plain vanilla bonds. In 
terms  of  possible  incentives,  taxation  was  the  most  frequently  raised  topic.  Comments 
ranged from capital gains tax for investors to tax relief for institutional investors. Public 
awareness,  issuance  and  public  guarantees  by  supervisors  concerning  integrity  of 
standards  were  also  often  raised.  Some  respondents  furthermore  suggested  guarantees 
improving the risk profile of the issuer.  

Several  stakeholders  equally  cautioned  against  the  use  of  incentives.  This  includes 
multiple stakeholders, which saw incentives to  increase issuance.  A statement made by 
some  of  these  respondents  was  that  demand  is  already  high  and  no  further  incentive  is 
actually needed. Others noted that any incentives should avoid skewing the relative risk 
of the underlying funding. Similarly, it was stated that prudential  regulation should not 
be used to stimulate certain market behaviour. Lastly, some respondents  stressed that it 
would  be  more  efficient  for  the  EU  or  Member  States  to  target  financial  incentives 
directly at the real economy, rather than at a financial instrument.  

176