Sustainability of the financial markets is a strategic priority of the AFM. Therefore, the sustainable bonds market and the related trends and developments receive extra attention in our supervision.
Not only in the Netherlands but also at European level there are a lot of developments regarding the sustainable bonds market, such as the European Commission's Action Plan on Financing Sustainable Growth, the further elaboration of the classification system for sustainable activities (also known as the EU Taxonomy), a standard for green bonds (the EU Green Bond Standard Regulation) and the Listing Act. Many of these regulations are currently not yet in force.
The AFM considers it important that investors are able to form a responsible opinion about the issuer and the securities (as referred to in Article 6 of the Prospectus Regulation), also until further specific regulations in the field of sustainability come into force.
What does the AFM expect?
Below is an explanation of what we expect, among other things, in prospectuses relating to the issuance of sustainable bonds.
Although this clarification specifically deals with prospectuses for the issuance of bonds where the proceeds are used for sustainable purposes, certain points of attention are also relevant for other prospectuses (including IPO prospectuses) that contain information related to sustainability.
Which information does the AFM require in a prospectus for the issuance of sustainable bonds?
1. Issuers should not present themselves as more sustainable than they are. If an issuer presents itself as "sustainable" in the prospectus, the basis for this must be described. Information that suggests greenwashing (e.g. in the risk factors) will not be accepted;
2. The prospectus should contain as much objective information as possible, instead of the inclusion of (too) subjective information in the prospectus (see also recital 27 to the Prospectus Regulation);
3. For the sake of comprehensibility, sustainable terminology (including sustainability targets) should be specifically explained and substantiated;
4. If the prospectus contains information relating to sustainability claims such as net-zero claims, it is relevant, also in connection with the specificity and comprehensibility of the information, that the prospectus contains the following information:
a. As specific and detailed as possible information to substantiate the claims, with quantified information if possible;
b. A description of how to achieve the sustainability claims, including: (i) information on what the issuer does and does not do; (ii) information on achievements (including progress to date) and (planned) actions. If examples are given, it is desirable to describe how these examples fit into long-term planning (e.g., are certain actions scaled up and if so, to what extent and what does it contribute?);
c. If an issuer includes information on emissions (reduction) of, for example, CO2, it is important that actual emissions and emissions reductions in its value chain are described separately from all forms of CO2 compensation against which its own emissions are offset;
d. If an issuer includes information about its emissions targets, it is important that this includes emissions across its value chain. This is also referred to as the emissions within "scope 1+2+3" as specified in the GHG Protocol;
e. A description as specific as possible of the business and strategy (including KPIs) and how a sustainability claim forms part of it.
See also What topics should listed companies be mindful of when preparing their reports for 2022 and What topics should listed companies be mindful of when preparing their reports for 2023. In this context, consistency between ESG-information in the prospectus and the annual report is also relevant;
5. The use of proceeds of the issuance must be described in the prospectus in detail. In case of a base prospectus: if the specific use of the proceeds will be specified in the final terms, then the form of final terms should include specific placeholders to ensure that with every issuance, the allocation of the proceeds is adequately described in the final terms;
6. A specific description of the (intended) impact/reduction pre-issuance at the individual issue level or, if in specific cases only a so-called portfolio approach is used instead of at the individual issue level, at the portfolio level;
7. Information on whether the transaction/issue aligns with one or more ESG market standards and at least a clarification whether or not the issue aligns with the EU Taxonomy;
8. It is important to describe how the bond contributes to the issuer's transition plans or sustainability goals. In addition, it is desirable to include information on how the sustainable bonds align with the issuer's broader business, strategy and objectives;
9. If the issuer has a framework, such as a green bond framework, then the AFM expects that the most important information of this framework is integrally included in the prospectus (including a link to the framework if it is published on the issuer’s website), for instance in the use of proceeds section. Examples include: the criteria, the allocation of proceeds, the management of the proceeds, the reporting (such as allocation and post issuance impact reporting) and external review (including a link to the external review if it is published on the issuer’s website);
10. If the prospectus states that the issuer intends to publish post issuance information with respect to the sustainable bonds, then it should be specified how investors will be notified of this information and/or where exactly this post issuance information can be obtained.
It is important that all material information regarding the sustainable bonds is included in the prospectus and described as specific as possible. Only when all material information is included in the prospectus, potential investors are enabled to make an informed investment decision.
In this respect, we also refer to ESMA’s statement on sustainability disclosure in prospectuses.