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European Union  |  December 01, 2023 12:20:00, updated

Questions & Answers on the NGEU Green Bond Allocation and Impact Report

NGEU Green Bond Allocation and Impact Report

Why is the EU issuing green bonds?

President von der Leyen announced in her State of the Union address of 2020 the European Commission`s intention to issue 30% of the NextGenerationEU financing through green bonds.

Under NextGenerationEU (NGEU) at least 37% of spending in Member States' Recovery and Resilience Plans (RRPs) will be used for sustainable investments and reforms in areas such as green infrastructure and renewable energy. Proceeds from NGEU Green Bonds are used to finance these investments.

NGEU Green Bonds issuances:

  • Bring a new highly rated and liquid green asset to the market, allowing a wide range of investors access to green investments;
  • Enable the European Commission to access a wider range of investors;
  • Allow investors to diversify their portfolio of green investments with a highly rated liquid asset, thereby potentially accelerating a virtuous circle of sustainable investments;
  • Further boost the green bond market and serve as an inspiration to other issuers;
  • Strengthen the role of the EU and of the euro in the sustainable finance markets.

How does the issuance of NGEU Green Bonds help in achieving the EU climate targets such as 55% reduction by 2030 and climate neutrality by 2050?

The NGEU Green Bonds proceeds help finance the climate-relevant investments of Member States' Recovery and Resilience Plans. These plans must be consistent with national energy and climate plans. NGEU Green Bond proceeds hence contribute directly to achieving national climate plans. In addition, NGEU Green Bonds further bolster the European sustainable finance markets, by further increasing much needed financial flows to green economic activities.

Full implementation of all measurable climate-relevant actions can reduce greenhouse gas emissions by 44 million tonnes per annum, which is equivalent to 1.2% of aggregate EU greenhouse gas emissions in 2022. These are very conservative estimates as the implementation of climate-relevant projects is at an early stage. The 1.2% reduction of GHG emissions is equivalent to, for example, a reduction of 81% of all emissions caused by the construction sector in the EU in 2022.

What is the NGEU Green Bond Allocation and Impact report, and why is it published now?

This report constitutes the first comprehensive NGEU Green Bond report that also discloses climate impact since the start of the NGEU Green Bond programme in 2021.

The report, which follows the first NGEU Green Bond Allocation report published in 2022, presents:

  1. An update, on the amount and break-down of each Member State Recovery and Resilience Facility (RRF) expenditure that is eligible to receive financing from NGEU Green Bonds based on the approved Recovery and Resilience Plans (RRPs);
  2. The evolution of NGEU Green Bond issuances and how the net proceeds have been allocated;
  3. A review of the EU taxonomy alignment of the pool of green bond eligible measures and of the allocated proceeds; and
  4. A first set of expected and realised climate impacts for the quantifiable parts of the pool of NGEU Green Bond expenditures and related reported expenditures. The report describes the methodology used to derive the climate impacts (GHG emissions avoided presented in tonnes of CO2e/year of emissions avoided) based on the expected and current implementation of quantifiable milestones and targets for measures eligible for NGEU Green Bond financing.

What impact metrics are you reporting on?

The 2023 NGEU Green Bonds allocation and impact report shows the climate impacts of measure financed by NGEU Green Bonds proceeds. These climate impacts are quantified through methodologies translating output from financed measures (e.g., MWh of solar panel capacity installed, km of railway upgraded) into GHG emissions avoided, presented in tonnes of CO2 equivalent per year of emissions avoided.

While the Commission recognises that other impact indicators than GHG emissions avoided are available, this first report focuses only on GHG emissions avoided given its usability for investors in estimating the climate impact of their investments.

How are impact metrics aggregated across Member States?

The methodology to determine impact is based on a detailed bottom-up analysis of milestones and targets included in Member States Recovery and Resilience Plans. This was done in several steps:

  1. Screening Measures:

Measures were screened and classified as either "usable" or "unusable" for the aggregation of the output indicator. "Unusable" measures include those where they could not be linked to relevant quantifiable output information.

  1. Conversion into quantifiable output indicators and aggregation:

Usable measures were converted into quantifiable output indicators (e.g. in case of railway-related intervention fields, these were kilometres of railways either build, upgraded or digitised as well as corresponding infrastructure, such as stations and/or crossings). These output indicators were then aggregated in appropriate groupings.

  1. Translation of output indicators into impact indicators:

For each output indicator a methodology for translating output indicators into greenhouse gas emissions avoided was established with the help of external consultants specialising in the field, using market practice, and the most recent studies and academic literature. The underlying data used for the calculations was implemented at EU Member State level wherever applicable.

  1. Tracking implementation

Actual completion of milestones and targets was then tracked. Milestones and targets are only deemed as fulfilled and therefore taken into account for calculating the realised climate impact after the Commission had confirmed that the target value has indeed been reached. Partially achieved milestones or targets were not used for the purpose of impact calculations. For completed milestones and targets that contain output indicators which were marked as relevant for impact reporting, these output indicators were summed up

What assurance can be given on the robustness of the analysis presented in the NGEU Green Bonds Allocation and Impact report?

The impact methodologies presented in the report have been established with the support of a specialized consultant in the fieldand rely heavily on methodologies available in academic literature. Information on allocation and realised impacts has also been subject to a limited assurance report by an independent auditor. The report complements information provided by the Commission in its regularly updated NGEU Green Bonds dashboard.

Estimates presented in the report are based on an overall conservative approach. For example, concerning measures related to the financing of both wind and solar renewables, if no precise information about the share of each type was available, the measure was assumed to be a pure solar panel measure, which represented a more conservative approach for climate impacts.

The Commission is committed to providing regular updates on realised climate impacts, with future reports continuing to address methodological constraints, ensuring transparency in reporting. In addition, and in line with the approach for the 2022 allocation report, the 2023 allocation and impact report have been subject to an independent auditor's limited assurance report relating to information contained to allocation and realised impacts.

For More Information

NextGenerationEU green bond framework

EU as a borrower website

Press release - NextGenerationEU Green Bonds investments can reduce EU emissions by 1.2%

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