February 2, 2023

Volume XIII, Number 33


February 01, 2023

Subscribe to Latest Legal News and Analysis

January 31, 2023

Subscribe to Latest Legal News and Analysis

January 30, 2023

Subscribe to Latest Legal News and Analysis

European Commission Issues its First—and the World’s Largest—Green Bond

On 12 October 2021, the European Commission (EC) issued its first-ever NextGenerationEU green bond, raising a total of €12 billion that will be used exclusively to fund green and sustainable investments across the EU. More than 11 times oversubscribed—the final order book exceeded €135 billion—the issuance provides a solid launch for the NextGenerationEU green bond programme and its plan to issue up to €250 billion in similar bonds by the end of 2026. With 29% of investors coming via the UK, the issuance also underscores the depth of liquidity in the UK and its continuing position as a premier centre for global investment.

The timing and success of this first NextGenerationEU green bond is significant, as it was scheduled just weeks before COP26, the UN Climate Change Conference being held in Glasgow from 31 October through 12 November 2021. Adopted in September 2021 and fully compliant with the Green Bond Principles of the International Capital Market Association (ICMA), the NextGenerationEU Green Bond framework is designed to achieve the following goals, among others:

  • Confirm the EU’s commitment to sustainable finance

  • Strengthen the EU’s role in sustainable finance markets

  • Provide a wide range of investors with access to new, highly rated and liquid green assets that can diversify their portfolios

  • Boost the green bond market overall and serve as inspiration to other issuers.

Under the NextGenerationEU green bond framework, funds are to be used for nine broad categories of expenditure, including energy efficiency, clean energy and climate change adaptation. A minimum of 37% of every Recovery and Resilience Plan must be devoted to green transition and the EC will report on how the funds have been spent (allocation reporting) and what the funds have achieved (impact reporting).

The NextGenerationEU green bond marks a monumental shift for issuers and other market participants in continually evolving capital and financial markets and represents another step in international bodies’ collective efforts to support green projects worldwide. For example, since its inaugural issue in 2008, the World Bank has issued more than 160 green bonds in nearly two dozen currencies totalling approximately US$15 billion. In the private sector, sustainability-linked bonds have also come into vogue in recent years. Unlike green bonds, sustainability-linked bonds have no restrictions on how the proceeds are used; the coupon paid to investors is tied to the achievement of specific performance objectives, such as reductions in CO2 emissions and increased use of energy from renewable sources.

The high level of interest in this first issuance of NextGenerationEU green bonds and the EC’s announced plan to issue substantially more green bonds over the next five years: 

  • Underscore the EU’s determination to fully embrace the challenges of addressing climate change and achieve the goal of climate neutrality by 2050 through the deployment of a historical stimulus package to boost the EU’s economy.

  • Confirm that the EU’s climate policy objectives and investors’ expectations are fully aligned when it comes to climate issues.

  • Demonstrate that green bonds are an efficient instrument to channel private capital to fund climate investments.

While the transaction is a welcome development in the overall growth of the green bond sustainable finance market, there is also a significant push to structure these deals to:

  • Determine the benefit to issuers from a green bond labelling/certification, by gaining access to significantly lower cost of capital as compared to non-green-labelled bond issuances.

  • Develop global, standardized green definitions and a set of global taxonomies, disclosures and principles, such as the EU Green Bond Standards (EUGBS), that will help “commoditise” these transactions to grow market confidence, identify responsible financial structures and ensure legal consistency of transaction terms.

  • Establish independent certification of alignment and compliance that will become a requirement for purposes of labelling a bond instrument as "green."

  • Define representations and warranties, covenants, and events of default relating to alignment and compliance with principles, reporting obligations and other undertakings that will become standard in green bond documentation.

Development of some or all of the above will be key to supporting a sustainable and more rapid growth of the green bond market in furtherance of the fulfilment of global climate objectives.

For its part, the UK government has recently announced that large companies will be required to disclose climate financial information from April 2022. In so doing, the UK will become the first G20 country to make these disclosures mandatory for its largest businesses, in line with recommendations from the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD).

In conclusion, to achieve climate neutrality by 2050, issuers, investors, regulators and the legal community will be required to coordinate extensively over the coming years in catalysing the growth of the market. While the EC’s green bond transaction is a clear sign of its commitment and ambition, businesses will be watching closely as detailed policy proposals follow.

For a number of sectors, a difficult transition may lie ahead. For others, there are clear opportunities, particularly as European governments and central banks look to drive public- and private-sector investment into new and emerging technologies. Perhaps David Attenborough was right when he said at the recent COP26 meetings, “We are, after all, the greatest problem solvers to have ever existed on Earth[…] If working apart we are forces powerful enough to destabilise our planet, surely working together we are powerful enough to save it.”


© 2023 McDermott Will & EmeryNational Law Review, Volume XI, Number 313

About this Author

Siddhartha Sivaramakrishnan Finance Lawyer McDermott Will Emery

Siddhartha Sivaramakrishnan focuses his practice on the representation of investment bank underwriters, issuers and vendors in a wide range of US and international equity and debt capital markets transactions. These include numerous primary and secondary offerings under Rule 144A and Regulation S, US private placements and SEC-registered offerings. Siddhartha also advises on M&A and structured financings, offerings of equity-linked instruments and investment grade, high yield and sovereign debt offerings. Siddhartha’s practice focuses on the Asia Pacific and EMEA markets.


+44 020 7577 6912
Ranajoy Basu Finance Attorney McDermott

Ranajoy Basu focuses his practice on structured finance with key experience in debt capital markets transactions. He has a broad range of experience in international capital markets advising a wide range of participants, including arrangers, originators, servicers and trustees, in connection with the securitisation of a wide variety of assets in numerous jurisdictions, including emerging markets transactions.

Ranajoy has a particular focus on emerging markets transactions, and is recognised as an industry leader by both, Legal 500 and Chambers. He joins as the Head of the Firm’s...

+44 20 7577 6916
Raminta Dereskeviciute London Counsel Product Compliance Attorney McDermott Will & Emery Law Firm

Raminta Dereskeviciute focuses her practice on product compliance and trade regulation (sanctions and export controls). She has significant experience in EU chemical control (REACH), EU product safety and liability, EU regulatory law and frequently represents clients before the European Chemicals Agency Board of Appeal. Raminta also advises businesses on the implications Brexit will have in relation to a range of regulatory compliance issues.

Raminta counsels clients on the EU and the UK sanctions regimes and export controls, including in higher...

+44 20 75701411