I. Questions on the EU Green Bond Standard
Questions on the potential need for an official / formalised EU GBS
Q1: In your view, which of the problems mentioned below is negatively affecting the EU green bond market today? How important are they?
Please select and rate the extent of the impact on a scale of 1 to 5 (1 no impact, 5 very strong impact).
Multiple answers are possible.
1 (No impact)
Other (if so, please specify)
Q2: To what extent do you agree that an EU GBS as proposed by the TEG would address the problems and barriers mentioned above in question 1?
Please indicate which specific barriers it would address on a scale of 1 to 5 (1 negative impact, 3 no impact, 5 positive impact). Multiple answers are possible.
1 (Negative impact)
Questions on the proposed content of the standard
Q3: To what extent do you agree with the proposed core components of the EU GBS as recommended by the TEG?
Please express your views using the scale from 1-5 (1 strongly disagree, 3 neutral, 5 strongly agree).
1 (Strongly disagree)
Please specify the reasons for your answer
By introducing a market wide and uniform green standard market participants will be forced to apply same principles and procedures across industries, issuer and product classes. It will eventually create a market environment in which practices like green washing won´t be supported by any kind of investors.
Q4: Do you agree with the proposed content of the (a) Green Bond Framework, (b) Green Bond allocation report, and (c) Green Bond impact report as recommended by the TEG?
Select which elements you agree with. Multiple answers are possible.
If you disagree with the proposed content for some or all of these documents by the TEG, please specify the reasons for your answer
Q5: Do you expect that the requirement to have the Green Bond Framework and the Final Allocation report verified (instead of alternatives such as a second-party opinion) will create a disproportionate market barrier for third party opinion providers that currently assess the alignment of EU green bonds with current market standards or other evaluation criteria?
If yes, please specify the reasons for your answer
Questions on the use of proceeds and the link to the EU Taxonomy
Q6: Do you agree that 100% of the use of proceeds of green bonds should be used to finance or refinance physical or financial assets or green expenditures that are green as defined by the Taxonomy?
Please specify the reasons for your answer. If you selected b., please indicate what thresholds you would suggest, and why.
Flexibility should be granted to activities not yet defined in the Taxonomy, as long as it can be demonstrated that the activities could be considered green based on the taxonomy principles, and if all other requirements are met (DNSH, minimum safeguards and verification by a qualified external party).
With some flexbility, the EU GBS can be more aligned to ICMA's princples which states a 95% alignment ofthe use of proceeds. Also, it is a way to boost transitional activities that are working towards a Taxonomy alignment.
There should also be some flexibility for covered bonds and other dynamic portfolios. It would be difficult and risky to issue green bonds on such portfolios if there is no flexibility, as there is a risk of breach of contract if the requirements are 100 % green portfolio, and because these portfolios could be subject to large movements within short timeframes.
Q7: The TEG proposes that in cases where (1) the technical screening criteria have not yet been developed for a specific sector or a specific environmental objective or (2) where the developed technical screening criteria are considered not directly applicable due to the innovative nature, complexity, and/or the location of the green projects, the issuer should be allowed to rely on the fundamentals of the Taxonomy to verify the alignment of their green projects with the Taxonomy. This would mean that the verifier confirms that the green projects would nevertheless (i) substantially contribute to one of the six environmental objectives as set out in the Taxonomy Regulation, (ii) do no significant harm to any of these objectives, and (iii) meet the minimum safeguards of the Taxonomy Regulation.
Do you agree with this approach?
Please specify the reasons for your answer. Do you see any other reasons to deviate from the technical screening criteria when devising the conditions that Green Bond eligible projects or assets need to meet? If so, please clearly specify the reason for your answer and, where applicable, the respective area or (taxonomy-defined) activity.
The potential of a Green Bond no longer being defined as green in the future would cause many issuers to refrain from issuing Green Bonds and investors reluctant to invest in these instruments.
This approach is suitable for more exotic sectors with unique business operations because not every single operation can feasibly be covered by a general framework like the Taxonomy. However, inclusion of verifier is essential in this case.
Q8: As part of the alignment with the EU Taxonomy, issuers of EU Green Bonds would need to demonstrate that the investments funded by the bond meet the requirements on do-no-significant-harm (DNSH) and minimum safeguards. The TEG has provided guidance in both its Taxonomy Final Report and the EU GBS user guide on how issuers could show this alignment. Do you foresee any problems in the practical application of the DNSH and minimum safeguards for the purpose of issuing EU green bonds?
Please specify the reasons for your answer.
Q9: Research and Development (R&D) plays a crucial role in the transition to a more sustainable economy, and the proposed EU GBS by the TEG explicitly includes such expenditure as eligible use of proceeds. Do you think the EU GBS should provide further guidance on these types of activities, to either solve specific issues with green R&D or further boost investment in green R&D? If so, please identity the relevant issues or incentives.
Questions on grandfathering and new investments
Q10: Should specific changes be made to the TEG's proposed standard to ensure that green bonds lead to more new green investments?
Please specify the reasons for your answer. If you are in favour of changes, please explain what changes should be made.
Q11: The EU Taxonomy technical screening criteria will be periodically reviewed. This may cause a change in the status of issued green bonds if the projects or assets that they finance are no longer eligible under the recalibrated taxonomy. In your opinion, should an EU Green Bond maintain its status for the entire term to maturity regardless of newly adapted taxonomy criteria?
Firstly, major green eligibility criteria shouldn't shift that significantly so they classify a former green asset as brown. Secondly, such changes could trigger dramatic sell-offs of bonds if e.g. asset managers can no longer put into their dedicated green portfolios.
EU authorities should ensure that subsequent changes to the EU taxonomy will not apply to outstanding EU Green Bonds. Failing to do so would lead to uncertainty for investors, borrowers and the issuers, thus hampering the issuance of these instruments.
Green bonds based on (/secured by) activities not yet defined should also be subject to grandfathering, in the same way as other green bonds, to ensure that the issuance of green bonds based on these activities is not hampered.
If you select b, what should the maximum amount of years for grandfathering?
Different approach all together, please specify reasons for your answer.
Question on incentives
Q12: Stakeholders have noted that the issuance process for a green bond is often more costly than for a corresponding plain vanilla bond. Which elements of issuing green bonds do you believe lead to extra costs, if any?
Please use the scale from 1 (no additional costs) to 5 (very high extra cost). Multiple answers are possible.
1 (No additional costs)
(very high extra cost)
Please explain and specify the reasons for your answer.
If possible, please provide the estimated percentage and monetary increase in costs from issuing using the EU GBS, or – ideally – the costs (or cost ranges) for issuing green bonds under the current market regimes and the estimated costs (or cost range) for issuing under the EU GBS.
Q13: In your view, how would the costs of an official standard as proposed by the TEG compare to existing market standards?
Please rate on a scale of 1 to 5 (1 substantially smaller, 3 approximately the same, 5 substantially higher).
Q13.1: Please specify the reasons for your answer to question 13:
Q14: Do you believe that specific financial or alternative incentives are necessary to support the uptake of EU green bonds (green bonds following the EU GBS), and at which level should such incentives be applied (issuer and/or investor)?
Please express your view on the potential impact by using the scale from 1 (not strong at all) to 5 (extremely strong) – multiple answers possible.
1 (No strong at all)
Please specify the reasons for your answer, in particular if you have chosen “other incentives or alternative incentives"
Issuers will go green if this is the investors demand. Thus, on the one hand, we should incentivise the investor side. However, on the other hand, a crucial support for the green bond market can be created via increasing the supply of green bonds in the market (e.g. by showing issuers benefits or incentives of why they should go green).
In regards to alleviations from prudential requirements, we support incentives of lower capital consumption for issues that are identified as green conditioned to follow a risk-based approach.
Other questions related to the EU GBS
Q15: Do you foresee any issues for public sector issuers in following the Standard as proposed by the TEG?
Q16: Do you consider that green bonds considerably increase the overall funding available to or improve the cost of financing for green projects or assets?
Please specify the reasons for your answer. If possible, please provide estimates as to additional funds raised or current preferential funding conditions.
II. Questions on Social Bonds and Covid-19 Q17: To what extent do you agree with the following statements?
Please use the scale from 1 (strongly disagreeing) to 5 (strongly agreeing) – multiple answers possible.
1 (strongly disagreeing)
Q18: The Commission is keen on supporting financial markets in meeting social investment needs. Please select one option below and explain your choice:
Q19: In your view, to what extent would financial incentives for issuing a social bond help increase the issuance of such bonds?
Please use the scale from 1 (very strong increase) to 5 (no increase at all).
Please explain what kind of financial incentives would be needed, if any.
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Published by ESBG. September 2020