If Europe is to become greener with securitisation, then thoroughness is probably more important than speed. In the negotiations on the European Green Bond Standard (EuGBS), it appears that securitisation issues will only be addressed in the further process. In the course of the discussion on specific transparency requirements for securitisations during previous trilogue meetings, different positions emerged both between and within the European co-legislators Council and Parliament. Against this backdrop, the Commission took up a proposal by the EBA in September and suggested extending the EuGBS to securitisations, but also providing it with additional transparency requirements (see also TSI kompakt of 14.10.2022).
Overview of the agreement
In the now fifth political trilogue on 28 February, the Council and Parliament reached an agreement after two and a half months of negotiations. A final text of the preliminary agreement on the EuGBS is not yet available, but it is already known on which topics the two parties were able to reach agreement:
- Transparency: Those who want to issue green securities should be able to use the EuGBS label, but not have to. Other securities with “green” pledges (such as issuances according to the ICMA Green Bond Principles as well as sustainability-linked instruments) can coexist in the market alongside the EuGBS label.
- Flexibility Pocket: Issuers can use 15 per cent of the proceeds from the issuance of a security under the EuGBS to finance economic activities that are not yet adequately covered by the taxonomy for the time being.
- Grandfathering: A grandfathering period of seven years is to apply to all securities under the EuGBS. Consequently, a further development of the taxonomy does not lead to a loss of the EuGBS label and of 100% taxonomy-eligibility for relevant “green” KPIs.
- Supervision: In order to prevent greenwashing as effectively as possible and to ensure market integrity, the Council and Parliament are creating a registration system and a supervisory framework for external reviewers.
The key points of the agreement sound like practical solutions. What will result from this preliminary agreement regarding the future treatment of securitisations in the context of the EuGBS is still an open question.
The apparently particularly high sensitivity of the Council and Parliament as well as the Commission with regard to issues of transparency and greenwashing leads to the assumption that the EU would like to apply thoroughness before speed in the treatment of securitisations in the EuGBS. Already in November last year, the EBA launched a Call for Evidence on possible types of greenwashing in order to be able to advise the Commission on this issue (see TSI kompakt of 16.01.2023). The EBA is currently consulting on this issue, in particular on the topics of green loans and mortgages.
Outlook
A deeper understanding of potential risks to market transparency through greenwashing could also help to overcome diverging positions within and between co-legislators on specific transparency requirements for securitisations in the EuGBS. This process will take time. It fits in with this that all sides in the trilogue agreed not to apply the EuGBS until one year after its entry into force. That would not be before summer 2024.
We will keep you up to date, especially on the topic of securitisations in the European Green Bond Standard.