Green Bonds

On 12 October 2021, the European Commission (EC) issued its first-ever NextGenerationEU green bond, raising a total of €12 billion used exclusively to fund green and sustainable investments across the EU.

IN DEPTH

Adopted in September 2021 and fully compliant with the Green Bond Principles of the International Capital Market Association (ICMA), the NextGenerationEU Green Bond framework is designed to achieve the following goals, among others:
Confirm the EU’s commitment to sustainable finance
Strengthen the EU’s role in sustainable finance markets
Provide a wide range of investors with access to new, highly rated and liquid green assets that can diversify their portfolios
Determine the benefit to issuers from a green bond labelling/certification, by gaining access to significantly lower cost of capital as compared to non-green-labelled bond issuances.
Develop global, standardized green definitions and a set of global taxonomies, disclosures and principles, such as the EU Green Bond Standards (EUGBS), that will help “commoditise” these transactions to grow market confidence, identify responsible financial structures and ensure legal consistency of transaction terms.
Establish independent certification of alignment and compliance that will become a requirement for purposes of labelling a bond instrument as “green.”
Define representations and warranties, covenants, and events of default relating to alignment and compliance with principles, reporting obligations and other undertakings that will become standard in green bond documentation.

Development of some or all of the above will be key to supporting a sustainable and more rapid growth of the green bond market in furtherance of the fulfilment of global climate objectives. To achieve climate neutrality by 2050, issuers, investors, regulators and the legal community will be required to coordinate extensively over the coming years in catalysing the growth of the market. While the EC’s green bond transaction is a clear sign of its commitment and ambition, a difficult transition may lie ahead. At the same time, there are clear opportunities, particularly as European governments and central banks look to drive public- and private-sector investment into new and emerging technologies.