ESMA paves the way for green bond transparency with new draft standards

April 9, 2024

The ESMA has embarked on an initiative aimed at bolstering the transparency and reliability of the European Green Bond market.

According to ESG News, ESMA unveiled a consultation on Draft Regulatory Technical Standards (RTS) concerning the registration and oversight of external entities tasked with reviewing EU Green Bonds under the nascent EU Green Bond Regulation (EuGB).

This pivotal development is poised to reshape the landscape of sustainable finance within the EU. By proposing a harmonised framework for the registration and supervision of external reviewers, ESMA is addressing a critical gap in the burgeoning green bond market. The standards outlined in the consultation aim to ensure that entities responsible for reviewing green bonds possess the necessary expertise, avoid conflicts of interest, and uphold the principles of sound and prudent management. This initiative is particularly targeted at levelling the playing field by reducing the entry barriers for prospective reviewers through more accessible registration requirements.

The consultation, which draws interest from a wide array of stakeholders including potential external reviewers, sustainability assurance providers, investors, issuers, and trade associations, signifies a concerted effort to standardise the green bond review process. This standardisation is expected to foster a more transparent, reliable, and efficient market for green bonds, ultimately facilitating the flow of capital towards sustainable projects.

Notably, the EuGB, which officially came into effect on December 21, 2023, will start applying from December 21 of this year, marking a significant milestone in the EU’s commitment to sustainable finance. The feedback garnered from this consultation will guide ESMA in refining the draft RTS and Implementing Technical Standards (ITSs), which are slated for submission to the European Commission by December 21, 2024.

In essence, ESMA’s consultation represents a critical step forward in the EU’s journey towards a more sustainable and transparent financial ecosystem. It underscores the importance of rigorous and uniform standards for the review of green bonds, ensuring that these financial instruments genuinely contribute to environmental objectives.