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ESMA clarifies naming rules for green bonds funds

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Move is boost for utility and power intensive sector green

bonds

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Removes uncertainty ahead of busy period for bond sales

By Virginia Furness

LONDON, Dec 16 (Reuters) - Green bond funds in the

European Union are free to continue investing in bonds sold by

big polluters such as power and energy companies, after the

securities watchdog introduced allowances to its new fund naming

guidelines.

The European Securities and Markets Authority (ESMA) on

Friday clarified fund managers could continue to hold green or

other use of proceeds bonds that meet certain sustainability

exclusion criteria without changing their fund names or

divesting assets.

The watchdog in October sparked an industry backlash with

new rules that investors warned would make it harder for

utilities and power companies to raise money to decarbonise,

particularly via green bonds.

The rules, which applied to new funds from November, set out

how funds using words including "green", "environmental" or

"impact" could label themselves as sustainable. The rules bar

funds from investing in oil, coal and companies deriving more

than 50% of their revenue from gas, as well as the most

polluting electricity companies.

Fund managers must change their fund names or sell assets

that breach the criteria, a process that has started.

However, ESMA has excluded green bonds issued under its

Green Bond Standard, due to be launched on Dec. 21, from its

fund naming guidelines, it said in its clarification. It also

introduced a provision to allow investors to hold green or other

use-of-proceeds bonds used to finance renewable or other green

projects sold by companies in carbon-intensive sectors which

themselves fall short of the broader exclusion criteria.

This 'look-through' provision does not apply however to

companies which fail to meet UN Global Compact principles or

OECD guidelines for multinational enterprises, the watchdog

said.

Agnes Gourc, BNP Paribas' head of sustainable capital

markets, said the update removed significant uncertainty ahead

of a traditionally busy time for bond borrowers.

"In Q1 we would have seen some issuers hold back on green

bond issuance until they had more clarity," she said. "The

timing is good."

Energy and power companies represented a fifth of the global

green bond market and had issued more than $70 billion-worth of

debt by September this year, according to LSEG data.