EUGBS final text: need to know!

The final text of the EUGBS Regulation has leaked on May 10th, 2023. It means that few days are left before its official adoption as a European law. Entry into application will occur around mid-2024. There is no big surprise compared to drafts. The linkage to the EU Taxonomy cumulative criteria – TSC, DNSH, MS – is strong. Flexibility is limited and three-fold. First, only 15% of proceeds can be ringfenced to not yet eligible activities with safeguards. Second, CAPEX plans allow the earmarking of proceeds not yet aligned (“forward-looking alignment” within 5 years with usability concerns). Lastly, eligible expenditures are adapted for Sovereigns. Two key features of the EUGBS lie in the standardization of information (pre and post issuance templates) as well as in the strict supervision & accountability of external reviewers (real clampdown). The Standard is not mandatory and is purposedly elitist. It sets a “gold standard” but breaks with the binarity of the Taxonomy. The niche effect is softened by welcome optional sustainability disclosure requirements for issuers not willing or unable to fully comply with the Standard. It will encourage any issuer to voluntarily publish proceeds alignment ratios below 100%. We thus anticipate a porous coexistence of different “pockets” of green bonds: ICMA, CBI, full EUGBS and “shades of EUGBS”. We have mapped out potential use cases. Market participants should also wait for the announced release of guidelines and templates by the European Commission and the ESMA.