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Capital markets

One of the important developments in the capital markets concerns the benchmark managers. Based on the EU Action Plan on Financing Sustainable Growth, the European Commission has amended the Benchmark Regulation so that managers are obliged to report on how sustainability (in the form of ESG factors) is incorporated in their methodology and benchmark statements.

Benchmark regulation and the low carbon benchmark package

This means that managers must include certain items in the information they provide to users that are defined in Delegated Regulations. In addition, two new benchmark categories or labels have been created for what are called ‘low carbon benchmarks’: the ‘Paris-Aligned Benchmark (PAB)’ and the ‘Climate Transition Benchmark (CTB)’. For use of these labels, a benchmark must meet certain strict requirements defined in the Benchmark Regulation. This will enable investors in an instrument that refers to one of these benchmarks to know that they are investing in a truly green benchmark. Moreover, with effect from 31 December 2021, managers of all benchmarks (apart from interest-rate and foreign-exchange benchmarks) must explain in their benchmark statements how their methodology accords with the reduction of carbon emissions objective, or how the benchmark achieves the goals of the Paris Agreement. There will thus be more information available to investors with respect to green benchmarks.

In view of the continuing increase in passive investing and the growing popularity of green investments, the AFM is devoting specific attention to how the benchmark managers subject to its supervision are meeting their legal ESG requirements. Through the Benchmarks Network within ESMA, the AFM also actively contributes to the development of policy, for instance by issuing Q&As in order to remove lack of clarity regarding the rules as far as possible.

EUA trading

On 7 June 2021, ICE Futures Europe transferred trading in European Union emission allowance contracts (EUA) from its UK platform to the regulated market of ICE Endex in the Netherlands. Emission allowance derivatives contracts entitle the holder to emit an established volume of greenhouse gas (CO₂). With this market instrument, the EU aims to achieve its own climate goals (Paris) and the goals of the Kyoto Protocol.

The move from the United Kingdom to the Netherlands has brought a large proportion of European trading in emission allowance contracts under the supervision of the AFM. This involves secondary trading in futures and options contracts with emission allowances ‘European Union Allowances (EUA)’ and ‘European Union Aviation Allowances (EUAA)’ as the underlying security. The primary trading in these emission allowances is conducted on the European Energy Exchange (EEX) in Germany. Dutch parties holding emission allowances and wishing to trade in them accordingly need to be registered with the Dutch Emissions Authority (the NEA). The AFM works with the NEA and also with the ACM and the German supervisor Bafin with respect to trading in EUA.

Bond market

The development of the sustainability transition is clearly visible in the bond market, which is growing rapidly in Europe.

This market actually doubled in size in the Netherlands in 2019 and 2020, and is continuing to grow at a similar rate in 2021. In its report ‘Sustainable Bonds in the Netherlands’, the AFM endorses the importance of this positive development. The AFM however also notes the importance of transparency in prospectuses, reporting of relevant non-financial information and standardisation.

The European Commission also published its legislative proposal for a European Green Bond Standard (GBS) on 6 July 2021. This proposal would create a voluntary standard for bonds intended to raise finance for sustainable investment. This EU GBS is expected to become the standard for businesses and governments wishing to issue green bonds to fund large investments, which will at the same time be subject to strict sustainability requirements and feature investor protection. To comply with the EU GBS, issuers will have to be able to demonstrate that they are indeed financing legitimately green projects (as defined in the EU taxonomy). This will enable investors to more easily compare investments and assess whether their investments are indeed sustainable, and thereby reduce the risk of greenwashing. The four core elements of the EU GBS are:

o In line with the taxonomy: The proceeds of the bond must be allocated to projects that are in line with the EU taxonomy.
o Transparency: Full transparency on how the proceeds of a green bond are allocated, by means of detailed reporting.
o External review: All European green bonds must be checked by an external reviewer to ensure compliance with this regulation and the taxonomy
o European supervision of external reviewers: Reviewers providing services to issuers of European green bonds must be registered with and subject to supervision by the European Securities and Markets Authority (ESMA).