Below is an excerpt from ISS ESG’s “A Greener Yardstick?: Navigating the EU Green Bond Standard.” The full paper is available for download from the Institutional Shareholder Services (ISS) online library.
In early March, the Technical Expert Group mandated by the EU Commission published a usability guideline to accompany its proposal for the EU Green Bond Standard (EU GBS) and finalised its EU Taxonomy recommendations. The EU GBS still needs to be formalised. While the proposal has overall received positive market resonance (e.g., see Environmental Finance article here), a number of questions remain: What lessons can be gleaned on how to qualify sustainable assets and strategies? Who should start using it and when? And most importantly, what does it mean for the overall sustainable bond market and will enough room remain for innovation?
The EU GBS lays out requirements for green bond frameworks and transparency around their issuance. Its link to the EU Taxonomy is crucial–to ensure the “greenness” of the selected green projects, they should ideally conform with the requirements of the EU Taxonomy. The EU Taxonomy’s scope is designed to elicit a demanding and holistic analysis of assets, including Technical Screening Criteria and Do No Significant Harm Criteria along with Minimum Social Safeguards (for detailed commentary on the EU Taxonomy, please see here). The taxonomy’s level of ambition has resulted in insecurity in the green bond market, with several commentaries emphasizing that many past bonds recognised as green would fail to meet the criteria. So, who should start using the EU GBS and when?
By: Mélanie Comble, Viola Lutz; ISS ESG