European Union Green Bonds Regulation

• Publication year: 2024
• Citation: Vol. 1 No. 4

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Nicholas P. Pellicani, Vera Losonci, and John Young ^*

In this article, the authors discuss the EU's Green Bonds Regulation and its use for bonds made available to investors in the European Union.

The EU's Green Bonds Regulation ¹ (the Regulation) entered into force in November 2023 and will apply from December 21, 2024. The Regulation is a voluntary standard for issuers of bonds that wish to use the designation "European Green Bond" or "EuGB" for bonds that are made available to investors in the European Union. The Regulation sets out eligibility criteria for investing the proceeds of bonds in environmentally sustainable projects, standards for pre-issue and post-issue sustainability reporting, and a new framework for external review of those reports, and supervision of the reviewers.

Bonds that are used to finance environmentally sustainable technologies, energy, and resource efficiency, as well as environmentally sustainable transport infrastructure and research infrastructure, subject to certain reporting and requirements under the Regulation, will be eligible under the Regulation to be designated as "European Green Bonds" or "EuGB." Issuers may only use the "European Green Bond" or "EuGB" label if they publish a prospectus under the EU Prospectus Regulation. The Regulation covers financial issuers (which may "on-lend" the proceeds of their bonds to finance other companies' projects) as well as issuers raising finance for commercial projects.

The proceeds of EU Green Bonds are primarily expected to be invested in economic activities that are aligned to the EU Taxonomy Regulation, either directly (through the financing of "real economy" assets and expenditure) or indirectly (through the creation of equity or debt instruments that finance) in Taxonomy Regulation-aligned economic activities. The Taxonomy Regulation is the EU's classification system for environmentally sustainable activities. The Regulation includes an option for bonds that are marketed with a broad commitment to invest in environmentally

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sustainable activities, but are not aligned with the Taxonomy Regulation, voluntarily to opt-in to a number of the Regulation's disclosure requirements.

The Regulation introduces standard forms of disclosure and reporting for European Green Bond issues, requiring disclosure of methodologies and key assumptions used when preparing reports and external review of the information on the use of proceeds of the European Green Bond, in order to facilitate comparability of European Green Bonds issues.

Finally, the Regulation includes specific provisions for European Green Bonds issued by sovereigns, regional or local authorities, and EEA supranationals and introduces a separate regime for bonds issued by securitization vehicles. These provisions are not discussed in this article.

Ways Issuers May Invest the Proceeds of a European Green Bond

The Regulation provides for two ways for an issuer to invest the proceeds of a European Green Bond...