The EACB believes that retail investors are the target market which will benefit the most from eco-labels within the EU capital markets union (CMU). The standardisation and harmonisation afforded by such labels combines the defragmentation sought after by the objectives of the CMU, with the improved access and accelerated transition to green investments in the European Union as highlighted in the EU Sustainable Finance Strategy. Labels and standards also help demystify the complexity and overload of disclosures of financial products, especially for retail investors.
The EACB thus welcomes the publication of the Commission’s proposal for a regulation on European Green Bonds which was released as part of the 6 July 2021 sustainable finance package. In particular, the EACB supports the (i) proposed voluntary application of the standard; (ii) requirement for 100% of the use of proceeds to be aligned with the EU Taxonomy Regulation; (iii) close alignment of the proposal with current market practices with respect to the issuer verification process and the alignment with the Taxonomy (also some level of alignment with reporting requirements), as well as, requirements that go beyond market practices.
That said, the EACB foresees certain issues due to the temporary grandfathering proposed under Article 7 of the proposal. As co-operative banks operating under the values of proximity and inclusivity, the members of the EACB are concerned that the temporary grandfathering treats borrowers and issuers unequally depending on their size and business model. It is harder for smaller financial market participants to find new Taxonomy-aligned loans or for a smaller company to change its EuGB financed project every so often, as compared to big multi-operational companies. This should be borne in mind considering that accessibility to green finance opportunities for all company types, is one of the goals of the EU’s sustainable finance strategy. Furthermore, the EACB is also concerned with other issues such as the risk of loss of trust by investors in the case that bonds are issued using the EU green bond (EuGB) label, but then the bond loses its status because of future publication of delegated acts under the Taxonomy, or due to future reviews of the Taxonomy’s technical screening criteria (TSC).
The EACB thus calls for the EU co-legislators to allow for full grandfathering, where the TSC applicable at the time of issuance of the green bond (or alternatively, at the time when the underlying financial asset was created) wound continue to apply over the lifetime of the bond.
In order to further understand the rationale behind our position, and for more information on our proposals to the EU co-legislators, please download our paper here.