The insurance industry welcomes the EC’s proposal as a framework to facilitate capital flows to green investments and transition projects, in line with the objectives of the European Green Deal. As Europe’s largest institutional investor, the industry supports measures to stimulate the development of the green bond market.
Some improvements are, however, needed to help ensure the success of the EUGBS:
• Grandfathering — EUGBS requirements can change over time. While this makes sense, it means that, under the current text, a bond which meets all the requirements when it is launched risks losing its status. This in turn creates problems for investors aiming to hold bonds to maturity and can, therefore, undermine the attractiveness of the EUGBS for investors and issuers. The regulation should, therefore, make it clear that, once a bond meets EUGBS requirements and is designated as an EU green bond, regardless of subsequent changes to the screening criteria of the EU taxonomy, it can keep its green bond status.
• Avoid accreditation oligopoly — Limiting the number of authorised accreditation agencies increases issuance costs and could act as a barrier to issuing green bonds. The accreditation criteria and supervision for EUGB reviewers should, therefore, not result in situations in which ESG agencies hold market- and price-setting powers, such as in the credit rating agency market.
• Flexibility pocket — The industry welcomes the added flexibility of having a “flexibility pocket”, given that companies make a reference to their transition plans as required by the Corporate Sustainability Reporting Directive (CSRD) and that general “Do Not Significantly Harm” (DNSH) criteria are applied to scan the non-taxonomy aligned proceeds.
• Use of proceeds for transition — For EU green bonds to support more new green projects and help to achieve the objectives of the European Green Deal, it is vital that European green bonds allow the financing of transitional projects. For this to happen, the EU Taxonomy must be developed to fully embed transitional measures.
• Project Level Taxonomy alignment — The EU Taxonomy is based on criteria at activity level while bond financing is usually at project level. Issuers will need to be able to align projects under a EUGBS using the activity-based screening criteria.
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