The European Commission today adopted an independently valued framework for green bonds, thus taking a step forward in issuing up to € 250 billion in green bonds, or 30% of the total issue of NextGenerationEU. The framework reassures investors in these bonds that the funds raised will be allocated to environmentally friendly projects and that the Commission will report on their environmental impact.
Following the adoption of the framework, the Commission will soon proceed, in October, to the first issue of green bonds, depending on market conditions.
Johannes Hahn, Commissioner for Budget and Administration, said: The EU’s intention to issue up to € 250 billion in green bonds by the end of 2026 will make us the world’s largest green bond issuer. It is also an expression of our commitment to sustainability and puts sustainable funding at the forefront of the EU’s recovery efforts.
As announced earlier this year, the Commission has also reviewed its plan to finance the 2021 recovery and reaffirmed its intention to issue long-term bonds worth around € 80 billion a year, complemented by tens of billions of euros in short-term treasury bonds. EU vouchers.
The Commission will offer EU treasury bills exclusively through tenders, with its tender program due to start on 15 September. In principle, the Commission will hold two auctions per month for EU Treasury bills on the first and third Wednesday of the month. The tender program will be used for bonds as well as for syndication. According to the issue calendar announced today, the Commission will hold one auction and one syndication per month for its bonds.
Commissioner Johannes Hahn added: The confirmation of our initial funding plan for 2021 is a sign of the excellent planning and preparation work done so far. The launch of our auction platform is another big news that will further increase the attractiveness of EU loans and have a lasting impact on EU capital markets.
NextGenerationEU green bond framework – a state-of-the-art venture
Today’s framework for NextGenerationEU’s green bonds has been developed in line with the International Capital Markets (ICMA) green bond principles, which are the market standard for green bonds. In accordance with standard practice, the framework was examined by a second opinion party, Vigeo Eiris, part of Moody’s ESG Solutions. The conclusion was that the framework is in line with the International Capital Markets Association (ICMA) principles for green bonds, is in line with the wider EU strategy in the field of environment, social sphere and governance and will contribute significantly to sustainability. .
The framework is aligned as far as possible with the European standard for green bonds. The standard EU proposal for green bonds was presented by the Commission in July 2021, followed by a joint decision-making process in the European Parliament and the Council, which will be followed by an implementation period before entry into force. This alignment is reflected, for example, in the fact that part of the eligible investments under the Reconstruction and Sustainability Mechanism – the main instrument for stimulating Europe‘s recovery – have included the technical criteria for checking the EU’s taxonomy.
Ensure that green bonds are used for environmental purposes
Today’s framework shows the investor community how the funds raised through the issue of NextGenerationEU green bonds will be used for environmental purposes.
In particular, the proceeds from NextGenerationEU’s green bonds will finance the share of climate-related expenditure in the Recovery and Sustainability Mechanism. Each Member State must dedicate at least 37% of its national recovery and sustainability plan – the Roadmap for spending on the Reconstruction and Sustainability Mechanism – to climate-related investments and reforms, with many Member States planning to do more than required.
In accordance with the rules of the Mechanism for Recovery and Sustainability, Member States will report to the Commission on their environmental costs. The Commission will use this information to show investors how the proceeds from the green bonds have been used to finance the environmental transition. The reporting will be organized in nine categories, defined in the framework for NextGenerationEU’s green bonds, with the largest share of clean energy, energy efficiency and clean transport.
Reporting
In line with standard practice, the framework will report on both allocation and impact. To account for the allocation, the Commission will use Member States’ data on the cost of environmentally friendly projects. An independent external auditor will verify the reporting of the allocation.
Impact reporting will be an exercise involving different Commission services, drawing on the extensive expertise available at the institution. The reporting will allow investors in NextGenerationEU’s green bonds to assess the positive impact of their investments. To ensure that impact reporting is meaningful, impartial and accurate, the European Commission will rely on independent expert opinions. On this basis, the Commission will disclose how proceeds from NextGenerationEU’s green bonds have been distributed among the various investment categories and Member States.
Next steps
Following the publication of the framework, NextGenerationEU green bonds will be launched, with the first issue already scheduled for October 2021 using the syndicated issue format.
