(1)

The transition to a climate-neutral, sustainable, energy- and resource-efficient, circular and fair economy is key to ensuring the long-term competitiveness of the economy of the Union and the well-being of its peoples. The Paris Agreement, adopted under the United Nations Framework Convention on Climate Change (the ‘Paris Agreement’), was approved by the Union on 5 October 2016 (3). Article 2(1), point (c), of the Paris Agreement sets out the objective of strengthening the global response to the threat of climate change by, among other means, making finance flows consistent with climate-resilient development. The Union’s target of climate-neutrality by 2050 is consistent with that objective.

(2)

In its communication of 14 January 2020 entitled ‘Sustainable Europe Investment Plan. European Green Deal Investment Plan’, the Commission envisaged the establishment of a standard for environmentally sustainable bonds to further increase investment opportunities and facilitate the identification of environmentally sustainable investments through clear labels. In its conclusions of 11 December 2020, the European Council invited the Commission to put forward a legislative proposal for a green bond standard. In its resolutions of 29 May 2018 on sustainable finance (4) and of 13 November 2020 on the Sustainable Europe Investment Plan – How to finance the Green Deal (5), the European Parliament underlined the need for a European green bond standard.

(3)

Environmentally sustainable bonds are one of the main instruments for financing investment related to environmentally sustainable technologies, energy and resource efficiency as well as environmentally sustainable transport infrastructure and research infrastructure. Financial and non-financial undertakings, as well as non-corporate entities such as sovereigns, can issue such bonds. The various existing initiatives for environmentally sustainable bonds do not contain common definitions of environmentally sustainable economic activities. That prevents investors from easily identifying bonds the proceeds of which are aligned with, or contribute to, the environmental objectives laid down in the Paris Agreement.

(4)

On 8 July 2021, the European Central Bank (ECB) adopted a climate roadmap in order to further incorporate climate change considerations into its monetary policy framework and its operations in the areas of disclosure, risk assessment, collateral framework and corporate sector asset purchases. This Regulation can be useful in that regard.

(5)

Diverging rules on the disclosure of information, on the transparency and accountability of external reviewers of environmentally sustainable bonds, and on the eligibility criteria for environmentally sustainable projects, impede the ability of investors to identify, trust and compare environmentally sustainable bonds, and the ability of issuers to use environmentally sustainable bonds to transition their activities towards more environmentally sustainable business models.

(6)

In ensuring alignment with the objectives of the Paris Agreement, and given existing divergences and the absence of common rules, it is likely that Member States will adopt diverging measures and approaches, which will in turn have a direct negative impact on, and create obstacles to, the proper functioning of the internal market, and be detrimental to issuers of environmentally sustainable bonds. The parallel development of market practices based on commercially driven priorities that produce divergent results may cause market fragmentation, and risks further exacerbating inefficiencies in the functioning of the internal market. Divergent standards and market practices make it difficult to compare different bonds, create uneven market conditions for issuers, cause additional barriers within the internal market and increase the risks of greenwashing and distorting investment decisions.

(7)

The lack of harmonised rules for the procedures used by external reviewers for reviewing environmentally sustainable bonds and diverging definitions of environmentally sustainable activities make it increasingly difficult for investors to effectively compare bonds across the Union with respect to their environmental objectives. The market for environmentally sustainable bonds is inherently international, with market participants trading bonds and making use of external review services from third-party service providers across borders. Action at Union level could reduce the risk of fragmentation of the internal market for environmentally sustainable bonds and bond-related external review services, and aid in the application of Regulation (EU) 2020/852 of the European Parliament and of the Council (6) in the market for such bonds.

(8)

A uniform set of specific requirements should therefore be laid down for bonds issued by financial and non-financial undertakings and sovereigns that wish to use the designation ‘European Green Bond’ or ‘EuGB’ for such bonds. Specifying quality requirements for European Green Bonds in the form of a regulation should ensure that there are uniform conditions for the issuance of such bonds by preventing diverging national requirements that could result from the transposition of a directive, and should also ensure that those conditions are directly applicable to issuers of such bonds. Issuers that wish to use the designation ‘European Green Bond’ or ‘EuGB’ should follow the same rules across the Union in order to increase market efficiency by reducing discrepancies and thereby also reducing the costs for investors of assessing such bonds. To facilitate comparison and address greenwashing, optional sustainability disclosure templates should be provided both for bonds marketed as environmentally sustainable and for sustainability-linked bonds.

(9)

In the bond market, sustainability-linked bonds include any type of bond instrument in respect of which the financial or structural characteristics vary depending on whether the issuer achieves predefined sustainability or environmental, social and governance objectives. Since this Regulation covers only environmental sustainability, the definition of sustainability-linked bonds for the purposes of this Regulation should include only bonds whose financial or structural characteristics vary depending on whether the issuer achieves predefined environmental sustainability objectives.

(10)

Regulation (EU) 2020/852 distinguishes, within environmentally sustainable activities, enabling and transitional activities that qualify as environmentally sustainable under certain conditions. That same distinction should also be made in the disclosures for European Green Bonds as well as bonds marketed as environmentally sustainable and sustainability-linked bonds, with specific transparency requirements for nuclear energy and fossil gas-related activities, where such activities are covered by Commission Delegated Regulation (EU) 2021/2139 (7).

(11)

In accordance with Regulation (EU) 2020/852, and in order to provide investors with clear, quantitative, detailed and common definitions, the criteria set out in that Regulation should be used to determine whether an economic activity qualifies as environmentally sustainable. Proceeds of bonds that use the designation ‘European Green Bond’ or ‘EuGB’ should be allocated to economic activities that are either environmentally sustainable, and therefore aligned with the environmental objectives set out in Regulation (EU) 2020/852, or that contribute to the transformation of activities so that they can fulfil the criteria in order to become environmentally sustainable. Issuers should in any case allocate all the proceeds of their European Green Bonds before the maturity of each bond while being allowed to deduct issuance costs that are directly related to the issuance of the bonds. It should be possible to use the proceeds of those bonds to finance such environmentally sustainable activities both directly through the financing of assets and expenditure that relate to economic activities that meet the criteria for environmentally sustainable economic activities set out in Regulation (EU) 2020/852 (the ‘taxonomy requirements’), and indirectly, under certain conditions, through financial assets that finance economic activities that meet those criteria. It is therefore necessary to specify the categories of assets and expenditure that can be financed with the proceeds of European Green Bonds.

(12)

The proceeds of European Green Bonds should be used to finance economic activities that have a lasting positive impact on the environment. Such lasting positive impact can be attained in several ways. Since fixed assets are typically long-term assets, a first way is to use the proceeds of European Green Bonds to finance fixed tangible or fixed intangible assets that are not financial assets, provided that those fixed assets relate to economic activities that meet the taxonomy requirements. Since financial assets can also be used to finance economic activities with a lasting positive impact on the environment, a second way is to use the proceeds of European Green Bonds to finance financial assets, provided that the proceeds of those financial assets are directly, or indirectly through subsequent financial assets, allocated to economic activities that meet the taxonomy requirements. It should be possible to allocate those financial assets to a maximum of three subsequent financial assets in succession and issuers should ensure that it is possible for external reviewers to review effectively the final allocation of proceeds. Since the assets of households can also have a lasting positive impact on the environment, a third way is to use the proceeds of European Green Bonds to finance the assets and expenditure of households. Moreover, since capital expenditure and selected operating expenditure can be used to acquire, upgrade or maintain fixed assets, a fourth way is to use the proceeds of European Green Bonds to finance capital and operating expenditure that relate to economic activities that meet the taxonomy requirements or that will meet those requirements within a reasonably short period from the issuance of the bond concerned, provided that the issuer has published a plan to expand economic activities that are aligned with Regulation (EU) 2020/852 (‘taxonomy-aligned’) or to allow economic activities to become taxonomy-aligned in accordance with Annex I to Commission Delegated Regulation (EU) 2021/2178 (8) (CapEx plan). Finally, issuers should be able to allocate proceeds from one or more outstanding European Green Bonds to a portfolio of fixed assets or financial assets (‘portfolio approach’), provided that they demonstrate in allocation reports that the total value of fixed assets or financial assets in their portfolio exceeds the total value of their outstanding bonds.

(13)

For certain economic activities in respect of which there are no technical screening criteria under Regulation (EU) 2020/852 in force or for certain economic activities in the context of international support that contribute to the environmental objectives of that Regulation, a degree of flexibility should be provided. Such flexibility should be appropriately limited in size and scope in order to maintain a very high level of ambition for European Green Bonds. The issuer should demonstrate that the economic activities contribute substantially to one or more of those environmental objectives, that they do not significantly harm any of those environmental objectives and that they are carried out in compliance with minimum safeguards. That demonstration should be included in the European Green Bond factsheet and should be validated by an external reviewer by means of a positive opinion in the pre-issuance review.

(14)

To facilitate the issuance of European Green Bonds by smaller undertakings, the requirement to allocate the proceeds of European Green Bonds to environmentally sustainable economic activities should apply only to the net proceeds of such bonds. The net proceeds comprise the difference between the total bond proceeds and the issuance costs that are directly related to the issuance of the bond, which include the costs of financial intermediaries leading the issuance, advisory costs, legal costs, rating costs and the costs related to the external review. Issuers of European Green Bonds should be able to decide to allocate the gross proceeds, without deduction of costs, to environmentally sustainable economic activities.

(15)

Union and third-country sovereigns are frequent issuers of bonds marketed as environmentally sustainable and should therefore also be allowed to issue European Green Bonds. Union and third-country sovereigns should be allowed to issue European Green Bonds to finance public assets or expenditure that meet or are expected to meet the taxonomy requirements within a reasonably short period from the issuance of the bond concerned, such as assets or expenditure relating to tax relief, subsidies, intermediate consumption, current transfers within a general government and current international cooperation.

(16)

Certain undertakings that have one or more European Green Bonds on the liability side of their balance sheet may not be able to identify, for each European Green Bond issue, the distinct assets on their balance sheet to which the proceeds of that bond have been allocated. In such cases, undertakings should be allowed to disclose the allocation of the aggregate proceeds of their portfolio of European Green Bonds to a portfolio of environmentally sustainable assets on their balance sheet. Those undertakings should then demonstrate in annual allocation reports that the related environmentally sustainable assets meet the applicable technical screening criteria. In order to ensure that all proceeds of European Green Bonds are allocated to environmentally sustainable economic activities, the undertakings should also demonstrate that the value of those environmentally sustainable assets exceeds or equals the value of European Green Bonds that have not yet matured. When issuers use the portfolio approach, the requirement that bond proceeds are to be allocated only to financial assets that are created earlier than five years after the bond issuance should not apply. To ensure that the information provided remains complete and up to date, an external reviewer should review the annual allocation reports each year, except in cases where no change in allocation is made in the portfolio of assets. That external reviewer should in particular focus on assets that were not included in the previous annual allocation report.

(17)

Regulation (EU) 2020/852 requires the Union and the Member States to apply the taxonomy requirements to determine whether an economic activity qualifies as environmentally sustainable for the purposes of any measure setting out requirements for financial market participants or issuers in respect of financial products or corporate bonds that are made available as environmentally sustainable. It is therefore logical that the technical screening criteria established by delegated acts adopted pursuant to Regulation (EU) 2020/852 should determine which fixed assets, expenditure and financial assets may be financed with the proceeds of European Green Bonds. In view of the expected technological progress in the field of environmental sustainability, those technical screening criteria are likely to be reviewed and amended over time. Regardless of such changes, in order to provide legal certainty to issuers and investors and prevent amendments to the technical screening criteria from having a negative impact on the price of European Green Bonds that have already been issued, issuers should be able to apply those technical screening criteria that are applicable at the moment of issuance of the relevant European Green Bond when allocating the proceeds of that bond to eligible fixed assets or expenditure. Where the applicable technical screening criteria are amended, the issuer should ensure that unallocated proceeds and proceeds covered by a CapEx plan that have not yet met the taxonomy requirements meet the amended technical screening criteria within seven years. If the issuer considers that an economic activity funded by bond proceeds is at risk of not meeting the amended technical screening criteria within seven years, the issuer should be allowed to publish a plan on how to align the economic activity to the amended technical screening criteria and to mitigate the negative consequences, to the extent possible. That plan should be published before the end of the seven-year period that starts from the amendment of the technical screening criteria and be reviewed by an external reviewer. Under the portfolio approach, issuers should include in their portfolio of fixed assets or financial assets only assets that are aligned with any technical screening criteria applicable at any point during the seven years prior to the publication of the relevant allocation report. Thus, if any asset financed by a European Green Bond is not aligned with the amended technical screening criteria, it should be able to continue to be part of the pool of financed assets for up to seven years.

(18)

The time needed to transform an asset to align the economic activity to which it relates with the taxonomy requirements should be in line with the timeframes laid down in Delegated Regulation (EU) 2021/2178. At present, that Delegated Regulation would require eligible capital expenditure to relate to economic activities that meet or are expected to meet the taxonomy requirements within five years of the issuance of the European Green Bond, unless a longer period of up to 10 years is justified by the specific features of the economic activities and investments concerned. The issuer should include a summary of its CapEx plan in its prospectus drawn up in accordance with Regulation (EU) 2017/1129 of the European Parliament and of the Council (9), as well as report on the progress made in the implementation of its plan in the annual allocation reports. At the end of the timeline announced in its CapEx plan, the issuer should obtain an assessment from an external reviewer about the taxonomy alignment of the expenditure financed by the bond. This Regulation is without prejudice to the requirements of Delegated Regulation (EU) 2021/2178.

(19)

Third-country jurisdictions listed in Annex I to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes or high-risk countries listed in Commission Delegated Regulation (EU) 2016/1675 (10), and issuers established in those jurisdictions or countries, should not be authorised to use the designation ‘European Green Bond’ or ‘EuGB’.

(20)

Union institutions and bodies should adhere to Union standards in the pursuit of sustainability objectives, including those referred to in Regulation (EU) 2020/852. The European Parliament and the Council encourage the use of the European Green Bond standard for the issuance of use-of-proceeds bonds that have environmental sustainability as their objective. The European Investment Bank, as a worldwide leading issuer of green bonds, remains committed to gradually aligning its green bond programme with the European Green Bond standard.

(21)

Investors should be provided with all information that is necessary to evaluate the use of proceeds of European Green Bonds, and to compare such bonds with each other. For that purpose, specific and standardised disclosure requirements should be set out which provide transparency about how the issuer intends to allocate the bond proceeds to eligible fixed assets, expenditure and financial assets and how those proceeds are in fact allocated. Such transparency can best be achieved by means of European Green Bond factsheets and allocation reports. To strengthen the comparability of European Green Bonds and to facilitate the localisation of relevant information, it is necessary to lay down templates for the disclosure of such information.

(22)

The lack of common standardised disclosure templates for issuers of environmentally sustainable bonds or sustainability-linked bonds at Union level makes it difficult for investors in such bonds to easily and reliably locate the information they need, and to compare and aggregate data on such bonds. In particular, the lack of a common methodology for issuers to report on the alignment of bond proceeds with the taxonomy requirements creates administrative difficulties and uncertainty for bond investors that report pursuant to Regulation (EU) 2019/2088 of the European Parliament and of the Council (11). Therefore, public disclosure templates should be established, which issuers of such bonds can choose to complete and publish alongside their other disclosure documentation. Such templates should contain information on the allocation of bond proceeds to taxonomy-aligned activities, while clearly identifying the share of proceeds allocated to gas and nuclear energy. The templates should be developed by the Commission by means of guidelines for voluntary pre-issuance disclosures, which can serve as inspiration for any future sustainability-related disclosures under Union law, and a delegated act for periodic disclosures. Such disclosures should be consistent with the relevant sections of the European Green Bond factsheet and allocation report.

(23)

Investors should benefit from cost-effective access to reliable information about European Green Bonds. Issuers of European Green Bonds should therefore contract an independent external reviewer to provide a pre-issuance review of the European Green Bond factsheet, and a post-issuance review of the European Green Bond annual allocation reports.

(24)

When providing their services under this Regulation, external reviewers should be allowed to use random sampling techniques in line with best market practices for assurance services when assessing the taxonomy alignment of multiple projects, if justified by the complexity, scale and practical unfeasibility of a full assessment of the underlying activities. Such random sampling should allow external reviewers to be confident that such projects, including those financed through tax incentives and subsidies, are carried out in line with the information provided in the Annexes to this Regulation. Such random sampling should be performed by taking into account data privacy measures in order to ensure a high level of protection of personal and other sensitive data that is not relevant for the purposes of the external review.

(25)

In the course of providing services under this Regulation, external reviewers should give an independent opinion on whether the issuer has aligned with the taxonomy requirements. When assessing the alignment with quantitative criteria, external reviewers should verify that any forward-looking estimates are based on reasonable assumptions, without giving guarantees on outcomes. When assessing the alignment with qualitative criteria, external reviewers should verify the existence of appropriate processes and due diligence systems designed to assess, mitigate and remedy risks and other issues that might arise in relation to those criteria.

(26)

To improve transparency, issuers should also disclose the environmental impact of their bonds by publishing, at least once during the lifetime of the bond and after the full allocation of the proceeds of such bonds, an impact report. In order to provide investors with all the relevant information to assess the environmental impact of European Green Bonds, impact reports should clearly specify the metrics, methodologies and assumptions applied in the assessment of the environmental impact. To strengthen the comparability of European Green Bonds and to facilitate the localisation of relevant information, it is necessary to lay down templates for the disclosure of such information. To ensure the accuracy of impact reports and to protect investors from greenwashing, issuers should be able to contract an independent external reviewer to provide an impact report review.

(27)

European Green Bonds, bonds marketed as environmentally sustainable and sustainability-linked bonds can support companies in financing their transition towards becoming sustainable. Issuers of those bonds that are subject to an obligation to publish non-financial information pursuant to Directive 2013/34/EU of the European Parliament and of the Council (12), should state how and to what extent the issuance of the bond increases its proportion of entity-level taxonomy alignment, as provided for in Article 8 of Regulation (EU) 2020/852. That statement could be expressed as a percentage point increase in taxonomy-aligned turnover to be achieved using the bond proceeds. Of those issuers, the ones that are subject to the obligation to publish any plans they may have to ensure that their business model and strategy are compatible with the transition to a sustainable economy pursuant to Directive 2013/34/EU and those who publish such plans voluntarily, should state how the proceeds of their bond contribute to the funding and implementation of such plans. Such statements should be disclosed in the European Green Bond factsheet and allocation report or in the optional pre-issuance and post-issuance periodic disclosure templates, or both.

(28)

State auditors are statutory entities with responsibility for and expertise in the supervision of public spending, and have legally guaranteed independence. Sovereigns that issue European Green Bonds should therefore be allowed to make use of State auditors for the purposes of reviewing the allocation of bond proceeds, alongside the external reviewers who should remain responsible for assessing the taxonomy alignment of the economic activities financed by the bond. State auditors should not be registered or supervised under this Regulation.

(29)

Only bonds in respect of which the issuer has published a prospectus pursuant to Regulation (EU) 2017/1129 and bonds covered by Article 1(2), points (b) and (d), of that Regulation should be allowed to use the designation ‘European Green Bond’ or ‘EuGB’. That Regulation includes liability provisions.

(30)

To ensure the efficiency of the market for European Green Bonds, issuers should publish on their websites details about the European Green Bonds they issue. To ensure the reliability of information and investor confidence, issuers should also publish the pre-issuance review, any post-issuance reviews, as well as, if applicable, any impact report reviews, the CapEx plan and a link to the prospectus required by Regulation (EU) 2017/1129. Those publications should be accessible, with clearly displayed dates of publication that allow the user to identify the changes from one review to another. The information contained in those documents should be drawn up in a language accepted by the competent authority of the home Member State where the bond is offered to the public or admitted to trading, or, alternatively, in a language customary in the sphere of international finance. At the time of adoption of this Regulation, the English language is the language customary in the sphere of international finance but that could evolve in the future.

(31)

In traditional securitisation transactions, the issuer of the bonds is a securitisation special purpose entity (SSPE) that is legally separate from the originator. In turn, the originator is the entity that uses the bond proceeds to allocate financing to economic activities. A European Green Bond securitisation market where all of the underlying exposures are taxonomy aligned would face considerable growth constraints at present, with a scarcity of taxonomy-aligned assets fit for securitisation. Therefore, in its report on ‘Developing a Framework for Sustainable Securitisation’, the European Supervisory Authority (European Banking Authority) (EBA) established by Regulation (EU) No 1093/2010 of the European Parliament and of the Council (13) recommended applying the use-of-proceeds requirement to the securitisation originator, instead of the SSPE, as an efficient and pragmatic approach in the transition phase. That approach would be appropriate until such time as an adequate volume of taxonomy-aligned assets is generated in the Union economy. To ensure enforceability, the responsibility of the originator with respect to the future use of proceeds should be clearly stated in the prospectus published pursuant to Regulation (EU) 2017/1129.

(32)

Specific disclosure and exclusion requirements should apply to bonds resulting from securitisation that are designated as ‘European Green Bond’ or ‘EuGB’ in order to enhance the confidence of investors and ensure that they are fully informed about the environmental characteristics of the transaction. Sufficient transparency should be assured for investors with different preferences on the environmental characteristics of the underlying pool of assets. Safeguards are necessary to avoid a situation where the selection of assets to be securitised by the originator includes exposures which finance the exploration, mining, extraction, production, processing, storage, refining or distribution, including transportation, and trade of fossil fuels as defined in Regulation (EU) 2018/1999 of the European Parliament and of the Council (14). However, the exclusion requirements should take into account the predominant purpose of the securitised exposures and should not capture exposures where the link with fossil fuel activities is only marginal or incidental, such as a commercial building with a gas storage tank. In addition, the exclusion requirements should not be based solely on the use of fossil fuels, such as in the case of car loans or residential loans. Furthermore, the originator should disclose information about taxonomy eligibility, taxonomy alignment and compliance with the principle of ‘do no significant harm’ in respect of the activities financed by the securitised exposures. Such disclosure should be on a best efforts basis and to the best of the originator’s ability, using available data such as data gathered in the originator’s internal database or IT system. Originators are invited to make that information available also via the securitisation repositories registered with the European Supervisory Authority (European Securities and Markets Authority) (ESMA), established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (15), in accordance with Regulation (EU) 2017/2402 of the European Parliament and of the Council (16).

(33)

Effective supervision by competent authorities is necessary in order to check compliance with the specific requirements applicable to originators and to SSPEs. Regulation (EU) 2017/2402 requires that Member States designate one or more competent authorities responsible for supervising the compliance of securitisation transactions with the ‘simple, transparent and standardised’ (STS) designation, which also includes specific disclosure and exclusion requirements. In light of the experience that those competent authorities have obtained while reviewing securitisation transactions, it is appropriate that they supervise the compliance of originators with the requirements of this Regulation. However, given that both originators and SSPEs are involved in a securitisation, both the competent authorities of the originator and of the SSPE should be entrusted with the corresponding supervisory powers laid down in this Regulation, and should cooperate to ensure effective and adequate supervision.

(34)

Competent authorities should supervise issuers of bonds marketed as environmentally sustainable and of sustainability-linked bonds who decide to use the common templates for post-issuance periodic disclosures, to ensure that all the elements contained in those templates are correctly published. Where issuers fail to comply with this Regulation, competent authorities should make that fact public.

(35)

The Commission has put forward a proposal for a Regulation of the European Parliament and of the Council establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability. Information about European Green Bonds will be of value to investors and other financial market participants as well as to the general public. Therefore, the disclosure documents referred to in this Regulation, including the European Green Bond factsheet, allocation report and impact report, the CapEx plan, where applicable, and optional disclosure templates for bonds marketed as environmentally sustainable and for sustainability-linked bonds, as well as the reviews carried out by external reviewers, should be publicly and freely available. Such a European single access point (ESAP) could be an appropriate mechanism to achieve that objective.

(36)

To improve the transparency of the methodology of external reviewers, to ensure that external reviewers have adequate qualifications, professional experience and independence, and to reduce the risk of potential conflicts of interest, and thus to ensure adequate investor protection, issuers of European Green Bonds should only make use of external reviewers, including from third countries, that have been registered and are subject to ongoing supervision by ESMA.

(37)

To strengthen transparency towards investors on how the taxonomy alignment of the economic activities financed by the bond proceeds is assessed, external reviewers should disclose to users of pre-issuance, post-issuance and, if applicable, impact report reviews, the methodologies and key assumptions they use in their external review activities in sufficient detail, whilst taking due account of the protection of proprietary data and intellectual property.

(38)

External reviewers should have in place arrangements for their own sound corporate governance to ensure that their pre- and post-issuance reviews are independent, objective and of good quality. The senior management of external reviewers should therefore have sufficient expertise in financial services and environmental matters and ensure that a sufficient number of employees with the necessary knowledge and experience perform the external review. For the same reason, the compliance function should be able to report its findings to either a supervisory body or an administrative body of the external reviewer.

(39)

To ensure their independence and safeguard high standards of transparency and ethical conduct, external reviewers should comply with organisational requirements and rules of conduct to mitigate and avoid situations of actual or potential conflict of interest or manage those conflicts adequately when they are unavoidable. External reviewers should not be entitled to conduct an external review in the case of a conflict of interest that cannot be properly addressed. External reviewers should therefore disclose any conflicts of interest in a transparent manner in the external reviews. They should keep records of all significant threats to their independence as well as to the independence of their employees, main shareholders or any other persons involved in the external review process, and records of the safeguards applied to mitigate those threats.

(40)

External reviewers should assess and document whether there is an actual or potential conflict of interest with a client, including in situations where there are significant personal or financial links between the external reviewer and the reviewed entity.

(41)

Regulation (EU) No 537/2014 of the European Parliament and of the Council (17) prohibits the provision to an audited entity of non-audit services linked to the financing, capital structure and allocation, and investment strategy of that entity, except for assurance services in relation to financial statements. The provision of external reviews under this Regulation should be without prejudice to Regulation (EU) No 537/2014.

(42)

It is necessary to avoid any divergent application of this Regulation by competent authorities. At the same time, it is necessary to lower transaction and operational costs of external reviewers, to strengthen investor confidence and to increase legal certainty. It is therefore appropriate to give ESMA a general competence for the registration and ongoing supervision of external reviewers in the Union. Entrusting ESMA with the exclusive responsibility for those matters should ensure a level playing field in terms of registration requirements and ongoing supervision and eliminate the risk of regulatory arbitrage across Member States. At the same time, such exclusive responsibility should optimise the allocation of supervisory resources at Union level, thus making ESMA the centre of expertise and enhancing the efficiency of supervision.

(43)

ESMA should be able to require all information that is necessary to carry out its supervisory tasks effectively. It should therefore be able to demand such information from external reviewers, persons involved in external review activities, related third parties, third parties to whom the external reviewers have outsourced operational functions as well as persons otherwise closely and substantially related or connected to external reviewers or external review activities.

(44)

To enable ESMA to perform its supervisory tasks, and in particular to compel external reviewers to put an end to an infringement, to supply complete and correct information or to comply with an investigation or an on-site inspection, ESMA should be able to impose fines or periodic penalty payments.

(45)

Issuers of European Green Bonds may need to engage the services of third-country external reviewers from outside the Union. It is therefore necessary to lay down a third-country regime for external reviewers on the basis of an equivalence assessment, recognition or endorsement under which third-country external reviewers may provide external review services. In order to facilitate access for third-country external reviewers in the absence of an equivalence decision, it is necessary to lay down a process for the recognition by ESMA of external reviewers established in a third country.

(46)

In order to facilitate the provision of services by third-country external reviewers to issuers of European Green Bonds, an endorsement regime should be laid down, allowing, under certain conditions, registered external reviewers established in the Union to endorse services provided by a third-country external reviewer. An external reviewer that has endorsed services provided by a third-country external reviewer should be fully responsible for such endorsed services and for ensuring that such third-country external reviewer complies with this Regulation.

(47)

In order to fulfil the objectives of this Regulation, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission to supplement this Regulation in respect of the content, methodologies and presentation of the information to be disclosed in the templates for optional periodic post-issuance disclosures, the procedure for the exercise of ESMA’s power to impose fines or periodic penalty payments, including provisions on the rights of defence, temporal provisions, the collection of fines or periodic penalty payments and detailed rules on the limitation periods for the imposition and enforcement of penalties, and the procedure for the exercise of ESMA’s power to charge fees, including provisions on the type of fees, the matters in respect of which fees are due, the amount of the fees, which should be proportionate to the turnover, and the manner in which those fees are to be paid. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (18). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(48)

As a body with highly specialised expertise, it would be efficient and appropriate to entrust ESMA with the development of draft regulatory and implementing technical standards that do not involve policy choices for submission to the Commission.

(49)

ESMA should be mandated to develop draft regulatory technical standards to further specify the criteria for assessing an application for registration by an external reviewer, including the management of conflicts of interest, and the provision of information by that external reviewer to determine its level of compliance with this Regulation. The Commission should be empowered to adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Regulation (EU) No 1095/2010.

(50)

In order to ensure uniform conditions for the implementation of this Regulation, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (19).

(51)

ESMA should be mandated to develop draft implementing technical standards to specify the standard forms, templates and procedures for the provision of the information for the registration of external reviewers. The Commission should be empowered to adopt those implementing technical standards by means of an implementing act pursuant to Article 291 TFEU and in accordance with Regulation (EU) No 1095/2010.

(52)

The application of this Regulation should be reviewed by the Commission five years after its entry into force, and every three years thereafter, on the basis of input from the Platform on Sustainable Finance established by Regulation (EU) 2020/852 and ESMA, where relevant. Three years after the entry into force of this Regulation, the Commission should also produce a report assessing the need to regulate sustainability-linked bonds. Furthermore, by the end of 2024 and every three years thereafter, the Commission should produce a report based on its review of the technical screening criteria under Regulation (EU) 2020/852.

(53)

To ensure that issuers of European Green Bonds for which a prospectus is published pursuant to Regulation (EU) 2017/1129 comply with the disclosure requirements set out in this Regulation, competent authorities of the home Member State should have the necessary supervisory and investigatory powers. Competent authorities should be able to exercise their supervisory powers before and after the issuance of the European Green Bonds. Competent authorities should not be required, under the supervisory powers granted by this Regulation, to verify the truthfulness or accuracy of the information that issuers are required to provide pursuant to this Regulation, nor whether issuers have complied with the obligations regarding the allocation of proceeds.

(54)

Since this Regulation creates a framework that allows for the designation of sovereign debt as environmentally sustainable, financial undertakings should disclose their exposure to environmentally sustainable sovereign debt within their green asset ratio as provided for in Delegated Regulation (EU) 2021/2178. The review of that Delegated Regulation by 30 June 2024, should assess the inclusion of sovereign exposures in the numerator and denominator of key performance indicators.

(55)

In order to facilitate the provision of services by external reviewers while ensuring that ESMA has the appropriate time to develop the framework for registration and supervision of external reviewers, a transition period should apply during the first 18 months of application of this Regulation. During the transition period, external reviewers should be able to provide services where they notify ESMA and make their best efforts to comply with this Regulation. Third-country external reviewers should, in addition, ensure that they have a legal representative established in the Union during the transition period. ESMA should monitor whether external reviewers comply with this Regulation and take that into account when assessing whether the external reviewer has fulfilled the requirements for registration.

(56)

Since the objectives of this Regulation, namely: to ensure that uniform requirements apply to the use of the designation ‘European Green Bond’ or ‘EuGB’; to establish a simple registration system and supervisory framework for external reviewers by entrusting a single supervisory authority with the registration and supervision of external reviewers in the Union; to establish supervision of issuers of European Green Bonds for which a prospectus is required pursuant to Regulation (EU) 2017/1129; and to provide for optional pre-issuance and post-issuance disclosure templates for bonds marketed as environmentally sustainable and for sustainability-linked bonds to improve transparency and facilitate the comparability of those bonds, with a view to facilitating capital raising for projects that pursue environmentally sustainable objectives, while contributing to the integrity of the market, cannot be sufficiently achieved by the Member States but can rather, by reason of the scale or effects of the action, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(57)

The ECB was consulted by the European Parliament and delivered its opinion on 5 November 2021 (20),