Amendments to the EU Green bond regulation proposed by the European Parliament’s lead on the legislative project would have unintended negative consequences such as the contraction of the European sustainable bond market, according to the International Capital Market Association (ICMA).

The draft amendments in question were released by the Parliament’s rapporteur in early December, six months after the European Commission published its draft proposal for a regulation on European green bonds, which is supposed to become the high quality voluntary European Green Bond Standard.

In an analysis of the rapporteur’s amendments, ICMA this week said it believed they “reflect a fundamental shift from the Commission’s proposal”.

It said they added new requirements for bonds aligned with the EU green bond standard and proposed that the standard become mandatory for all green bonds between 2023 and 2028.

According to ICMA, the proposed amendments also aim to regulate all types of sustainable bonds, including social, sustainability bonds and sustainability-linked bonds, as of the EU green bond regulation’s entry into force.

In its view, the association said, the amendments would lead to “an unsustainable level of additional cost and liability for issuers, which would hinder uptake of the label”.

“They would also undermine the inclusive, voluntary and aspirational nature of the European sustainable bond market replacing it with a mandatory framework lacking any form of incentive to counterbalance the additional cost and liability being required from issuers,” it added.

Under the Commission’s proposal, the EU green bond standard designation would remain voluntary, as was recommended by the technical expert group (TEG) advising the Commission on its sustainable finance action plan. ICMA was a member of the TEG.

In its analysis, ICMA expressed concerns that adoption of the rapporteur’s draft amendments would cause fragmentation of the international green bond market and prompt many issuers to access markets for sustainable finance in other jurisdictions or switch to other sources of European market or bank finance.

“The ensuing contraction of the European sustainable bond market and issuer flight would effectively end the current undisputed leadership of the EU in the international sustainable capital markets,” ICMA wrote.

ICMA’s criticism of the rapporeur’s draft amendments does not mean it considers the Commission’s proposal perfect. Although it has said it is supportive of it, at the same time certain aspects could “significantly hinder the label’s usability and international uptake”.

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