Green bonds are financial instruments where the net proceeds are specifically used to finance green, social and other sustainable activities. Green bonds are already prominent in the EU bond market (with some of the largest issuers located in the Netherlands), but the "green" stamp is so far mainly based on voluntary market standards. This will change when the Green Bonds Regulation comes into effect. The Green Bonds Regulation sets uniform requirements for issuers of EU Green Bonds (EuGBs).

Although issuers can decide not to market their green bonds as EuGBs after 21 December, they may want to issue them in line with the Green Bond Regulation to show that they meet the strict standards and that they are proactively tackling greenwashing allegations. Depending on how the market evolves after 21 December, issuers may effectively be forced to market their bonds as EuGBs to create enough investor appetite and to potentially benefit from a price discount for issuers of green bonds (known as "greenium"). But only time will tell, as some market participants question whether green financing is here to stay. For now, issuing EuGBs is likely to result in more disclosure and reporting obligations, and related preparations and costs for issuers.

AFM guidelines on sustainability disclosures for green bonds

In the Netherlands, the Netherlands Authority for the Financial Markets (AFM) oversees compliance with sustainability disclosures, including those related to green bonds. In our debt capital markets practice, we have already observed an increase in AFM scrutiny over sustainability disclosures in bonds prospectuses as well as the "use of proceeds" wording.

The AFM's current review of prospectuses is guided by Article 6 of the EU Prospectus Regulation, which requires comprehensive and easily understandable information to be available to enable investors to make informed investment decisions. In anticipation of the Green Bonds Regulation (in addition to certain other instruments and guidelines), the AFM has formulated ten expectations concerning sustainability disclosures for prospectuses on green or sustainability-linked bonds. The AFM's expectations cover various key elements, including:

• the basis for "green" claims;
• details on the use of proceeds;
• information on alignment with one or more ESG market standards (for example, the EU taxonomy); and
• the bond's contribution to the issuer's transition plans included in its broader green bond framework (if applicable).

Additionally, the AFM mandates the providing of clear and specific information regarding sustainability claims, particularly with respect to net-zero commitments, and reported scopes (scope 1, 2, and 3).

Changes to disclosure obligations envisaged by the Green Bonds Regulation

The Green Bonds Regulation aims to promote consistency and comparability in the green bond market for EuGBs, by establishing specific criteria for bonds to qualify as EuGBs. It also provides guidelines for issuers of green bonds falling outside the scope of EuGBs.

Requirements applicable to EuGBs

Bonds marketed as EuGBs must meet strict standards on the application of proceeds to sustainable objectives. As a general rule, and with only limited exceptions, the proceeds must be fully allocated to certain prescribed categories, and in accordance with EU taxonomy requirements.

The Green Bonds Regulation also introduces detailed reporting obligations for EuGBs, including:

• a detailed pre-issuance fact-sheet including additional information, for example, on the anticipated environmental impacts of the EuGB proceeds;
• post-issuance allocation reports over every 12-month period until the date of full allocation of the proceeds (including on the "portfolio approach adopted by the issuer");
• post-issuance review of the allocation report drawn up after the full allocation of the proceeds of the EuGB; and
• after the full allocation of the EuGBs and at least once during its lifetime, an impact report on the environmental impact of the EuGBs proceeds.

Most of these reports must be reviewed by a registered independent external reviewer and eventually made available on the issuer's website. The external reviewer's assessment may look at various categories of information, including:

• an analysis of the reasonableness of assumptions underlying the quantitative assessment; and
• a verification of the issuer's process and due diligence systems for evaluating the qualitative criteria.

The market already requires green bond issuers to comply with many of these items. But the more rigorous standards that will apply to the EuGBs – and the additional reporting obligations when compared to the current situation – are expected to further increase scrutiny on sustainability disclosures in bonds prospectuses. This may set in motion several new workstreams to manage, including additional analysis from issuers before issuing EuGBs; more disclosures in the prospectus as well as during the lifetime of EuGBs; and an updating of existing green-financing frameworks.

To be clear: these disclosures will mean more than simply drafting separate fact sheets and reports. For example, the "use of proceeds" section in the prospectus should mention that the EuGB is being issued in accordance with the Green Bonds Regulation. Additionally, under the forthcoming EU Listing Act (which will amend, among other regulations, the Prospectus Regulation), the pre-issuance fact sheet may soon have to be incorporated by reference.

Additional guidance for non-EuGBs

The Green Bonds Regulation also provides additional voluntary standards for non-EuGBs. Issuers of environmentally sustainable or sustainability-linked bonds (with environmental sustainability objectives) may elect to apply these voluntary standards, even if these bonds do not qualify as an EuGB or are not marketed as one. To increase accessibility and the reliability of relevant information for investors, the Commission is expected to provide disclosure guidelines and to adopt a delegated act for these type of sustainable bonds by 21 December 2024.

These guidelines will include optional pre-issuance and periodic post-issuance disclosure templates, which issuers can complete and publish alongside their prospectus. Adhering to these voluntary standards may (again) require additional disclosures, as the provisions of the Green Bonds Regulation already hints that in some respects, the templates may go beyond current AFM guidelines. For example, with regards to these sustainability-linked bonds, the calculation methodology of key performance indicators will most likely have to be included in the post-issuance template, which is currently not required by AFM guidelines. Other elements to be part of the templates include: (i) a minimum proportion of bond proceeds to be used for activities that are environmentally sustainable, and (ii) information on whether the issuer intends to use an independent external reviewer.

If an issuer of sustainable bonds opts in to these voluntary disclosures, it may eventually also have to include the relevant disclosures in its prospectus due to the EU Listing Act. As such, deciding whether or not to voluntarily comply with these standards requires careful consideration. To be clear, if an issuer of environmentally sustainable or sustainability-linked bonds decides to voluntarily provide post-issuance disclosure reports in line with the template documents, these disclosures are also subject to supervision by the competent authorities.

It remains to be seen how these voluntary standards and template documents will serve as an inspiration for the AFM's expectations on sustainability disclosures in cases where an issuer decides not to use the optional templates.

Implementation and enforcement of the Green Bonds Regulation in the Netherlands

According to the explanatory memorandum published along with the Implementation Act on the Green Bonds Regulation, the EU Regulations Decree will designate the AFM as the competent authority to implement and enforce the Green Bonds Regulation. For certain securitised EuGBs, the Dutch Central Bank will be designated the competent authority.

The Green Bonds Regulation envisages some additional measures for non-compliance. The AFM and Dutch Central Bank will, among other supervisory measures, be competent to make an issuer's failure to meet the obligations of the Green Bonds Regulation public (and require the issuer to make this public on its own website). In addition to the other supervision measures listed in the Green Bonds Regulation, the competent authority in the Netherlands may also impose administrative penalties higher than the amounts outlined in the Green Bonds Regulation.

According to the Green Bonds Regulation, the AFM and the Dutch Central Bank will not be responsible for verifying the accuracy of the information published by the issuer.

Key points to consider

Increasing selection of "green" and sustainable bonds standards available: Issuers of sustainable or green bonds should be mindful of the different sustainability standards that will be added to the existing mix as of 21 December 2024, and that navigating this complex and intertwined landscape may require expert advice.

Mapping exercise to select suitable standard: EuGBs must adhere to strict standards regarding the use of proceeds. Additionally, EuGBs require extensive disclosures and may involve additional costs for external review. Before deciding on whether to issue EuGBs, issuers should carefully map out their activities and strategy in relation to the EU taxonomy to determine whether they meet the EuGB standard, also in the longer term, and whether any updates to existing green financing frameworks are required. If they have not already done so, those issuers may also want to start implementing mechanisms to collect the necessary data on a regular basis in order to prepare for the enhanced disclosure regime.

Interplay with developments expected in the next two years: The regulatory landscape for sustainable bonds keeps evolving, and issuer may want to closely monitor these developments.

• The optional pre-issuance and periodic post-issuance templates for non-EuGBs are expected by 21 December 2024. More information on the technical standards that apply to external reviewers of EuGBs is expected by the end of 2025 (until 21 June 2026, certain transitional measures apply).

• The most relevant provisions of the EU Listing Act for issuers of sustainable or green bonds are expected to take effect in the second half of 2026, which will include requirements related to ESG disclosures. How this will affect the standards in the Green Bond Regulation is not yet clear, with the final text of the EU Listing Act mentioning that "the Commission should be empowered to set out schedules specifying the ESG-related information to be included in prospectuses for non-equity securities that are advertised as taking into account ESG factors or pursuing ESG objectives […] without undermining the voluntary nature of the label and of the opt-in templates set out in the [Green Bonds Regulation]". We will provide our clients with an update on the EU Listing Act in due course.