S&P Global Ratings is an external reviewer of European Green Bonds (EuGBs). We provide pre-issuance, post-issuance, and impact report reviews under Regulation (EU) 2023/2631 of the European Parliament and of the Council (EuGBR). We published our "Analytical Approach: European Green Bond External Reviews" on Oct. 31, 2024.
Frequently Asked Questions
What information sources do you typically use for an EuGB external review?
The documents we assess are the issuer's EuGB pre-issuance factsheet, allocation report, and impact report.
We review the issuer's rationale in the factsheet as to why its financed economic activities meet the EU Taxonomy's requirements. Nevertheless, we may require additional information from the issuer to make an assessment, given the potential length and specificity of the technical screening criteria and minimum safeguards requirements.
Example inputs for assessing the EU Taxonomy's substantial contribution requirement
ABC Corp., a fictitious real estate entity is establishing a green finance framework, that includes an EuGB factsheet, to fund new construction of green residential buildings. The issuer has requested a pre-issuance review of its EuGB factsheet.
ABC Corp.'s factsheet states that the eligibility criteria for green buildings are linked to the eligible activity within the EU Taxonomy for the construction of new buildings, namely NACE (Nomenclature of Economic Activities) codes F41.1 and F41.2.
For the financed buildings to be aligned with the EU Taxonomy, primary energy demand must be at least 10% lower than the threshold set for the nearly zero-energy building (NZEB) requirements in national measures. In this case, we would need evidence of how the issuer identifies the 10% below NZEB threshold for its country. This evidence is to be provided by the issuer.
Additionally, for buildings larger than 5,000 square meters (m²) certain elements of the substantial contribution criteria apply. If these elements do not apply according to the factsheet, we would seek confirmation from the issuer that it does not intend to finance buildings larger than 5,000 m².
If these elements apply, we would ask the issuer for a commitment that specifically addresses the described requirements, such as calculating the life-cycle global warming potential of the building resulting from construction for each stage in the life cycle, with disclosure to investors and clients upon request. This confirmation, as well as details on the calculation methodology, should be provided by the issuer.
How do you conduct an EU Taxonomy assessment?
First, we analyze the commitments made in the issuer's EuGB pre-issuance factsheet, and its financing documents when applicable, and how the description of economic activities aligns with the description of eligible activities in the EU Taxonomy.
Second, we assess each economic activity's eligibility criteria against the EU Taxonomy's technical screening criteria to determine whether the criteria align with the substantial contribution and DNSH (do no significant harm) requirements. In cases where the activity is not currently aligned, we consider whether the issuer's capital expenditure plan could help eligible economic activities become aligned with the EU Taxonomy within the time frame defined by the regulation.
Third, we evaluate how the issuer's procedures align with the minimum safeguards based on the recommendations from the EU Platform on Sustainable Finance.
Finally, based on the above analysis, we determine whether the economic activity is aligned with the EU Taxonomy.
For activities that do not have technical screening criteria, how do you determine whether the activity makes a substantial contribution to environmental objectives, without doing any significant harm?
Since there are no defined technical screening criteria in the regulation for these activities, we apply our "Analytical Approach: Shades Of Green Assessments" (click here to view on spglobal.com) to assess whether the activity is making a substantial contribution to at least one of the objectives outlined in the EU Taxonomy and its supplemental regulations, without significantly harming any of the other objectives.
An S&P Global Ratings Shade of Green (Shade) represents our qualitative opinion of how consistent an economic activity or financial investment is with a low-carbon climate-resilient future. Such a future includes building resilience to the adverse impact of climate change and achieving sustainable outcomes for both climate and non-climate environmental objectives. If an activity is assigned a Shade of Light green, Medium green, or Dark green, and the issuer's procedures meet minimum safeguards, we consider it aligned with Article 5 of the EuGBR.
We regularly update the analytical considerations in our Shades of Green analysis to reflect the most recent climate and environmental research, as well as the economy's transition pathway toward a low-carbon climate resilient future. As a result, activities we considered green in our pre-issuance analysis may no longer be consistent with a Green Shade by the time we conduct our post-issuance review. Activities we assessed as green in our pre-issuance review, but have since changed to non-green, may be assessed as not aligned with Article 5.
How does your Shades of Green assessment interact with the EU Taxonomy?
Regardless of an EuGB factsheet's alignment with the EU Taxonomy, we always apply our "Analytical Approach: Shades Of Green Assessments" (click here to view on spglobal.com). Our Shades of Green analytical approach is science based, and can be applied to a variety of activities, regardless of whether they are covered by, or aligned with, the EU Taxonomy. The Shades of Green assessment represents our view on how consistent an economic activity or financial investment is with a low-carbon climate resilient future.
To date, we have assigned a green Shade to all EU Taxonomy-aligned activities we have assessed. We have, however, seen some variation in the environmental characteristics of EU Taxonomy-aligned activities, causing us to use all three green shades under our Shades of Green approach. For example, we typically consider construction of EU Taxonomy-aligned new buildings to be Light green, and EU Taxonomy-aligned electricity generation using solar panels to be Dark Green.
Some activities--such as aquaculture--are not EU Taxonomy eligible but we may still consider them green, provided certain conditions are met.
How do you analyze activities when an issuer includes more activities in the financing framework you reviewed for an SPO than in the EuGB pre-issuance factsheet?
In our SPO analysis, we assess all activities included in the issuer's financing framework. In our EuGB pre-issuance review, we analyze only the activities included in the issuer's EuGB factsheet, which may consist of all the activities in the financing framework or a subset of those activities.
What are the analytical differences between your review of corporate EuGB issuance and your review of sovereign EuGB issuance?
Our assessment considers alignment with different aspects of the EuGBR for different types of issuers. For example, the defined categories of use of proceeds in Article 4 of the EuGBR allow sovereigns to reach alignment for a broader range of uses than for corporates.
For example, when assessing compliance with the minimum safeguards, we assess sovereigns following the recommendations of the Platform on Sustainable Finance, which is limited to aspects of human rights and corruption (excluding the evaluation of taxation and fair competition aspects required for corporates).
Does the EuGB external review involve an analysis of the entity's transition plan?
For our EuGB pre-issuance reviews, our view on the issuer's transition plan will primarily be discussed in the issuer sustainability context (ISC) section of our report. The ISC of the EuGB pre-issuance review is the same as the ISC of our SPOs and focuses on the issuer's strategy for the sustainability factors relevant to the financing.
In our EuGB impact report review, we assess whether the bond issuance aligns with the issuer's broader environmental strategy, and whether the bond proceeds have contributed to funding and implementing the issuer's transition plan.
Is there any difference in how you analyze the EU Taxonomy alignment of EuGBs versus non-EuGB green financing?
No. We apply our "Analytical Approach: EU Taxonomy Assessment" in both cases.
Related Publications
- Analytical Approach: European Green Bond External Reviews, Oct. 31, 2024
- Analytical Approach: EU Taxonomy Assessment, Oct. 31, 2024
- Analytical Approach: Shades Of Green Assessments, July 27, 2023
- Analytical Approach: Second Party Opinions: Use Of Proceeds, July 27, 2023
- FAQ: Applying Our Integrated Analytical Approach For Use-Of-Proceeds Second Party Opinions, July 27, 2023
Regulation
- Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds, Nov. 30, 2023
This report does not constitute a rating action.
| Authors: | Luis Solis, Madrid +34 914233218; luis.solis@spglobal.com |
| Florence Devevey, Paris + 33 1 40 75 25 01; florence.devevey@spglobal.com | |
| Charlie Cowcher, CFA, London +44 7977 595797; Charlie.Cowcher@spglobal.com | |
| Tim Axtmann, Oslo +47 94 15 70 46; tim.axtmann@spglobal.com |
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