The evolution of green bond markets in the EU and the Western Balkans

Regulation (EU) 2023/2631 (EuGB Regulation), applicable from 21 December 2024, lays down certain requirements for issuers that wish to use the designation "European Green Bond" for their environmentally sustainable bonds.

Use of proceeds

Before the maturity of a European Green Bond, the proceeds will be allocated in accordance with the taxonomy requirements, i.e. the criteria for environmentally sustainable economic activities set out in Article 3 of Regulation (EU) 2020/852.

Disclosure and reporting

Issuers must adhere to stringent disclosure requirements, including the publication of the European Green Bond factsheet, allocation reports and impact reports. The factsheet must undergo a pre-issuance review by an external reviewer. Every year until the date of full allocation of the proceeds, allocation reports as well as a post-issuance review by an external reviewer are required. At least once, issuers must draw up an impact report and may seek a review by an external reviewer.

Following a transitional regime until 21 June 2026, external reviewers, including from third countries, must be registered and are subject to ongoing supervision by the European Securities and Markets Authority.

Issuing green bonds in the Western Balkans

As EU candidate countries, Western Balkan nations tend to align with EU regulatory and market trends. There are promising signs that the region is progressing towards a green economy, including the issuance of green bonds.

In 2021, Serbia emerged as a regional leader in green finance, following its issuance of the first green bond from the region on the international market. To support the issuance, Serbia established a Green Bond Framework compliant with the Green Bond Principles published by the International Capital Market Association (ICMA), as validated by an external reviewer. The EUR 1bln green bond issuance was a resounding financial success, with the proceeds primarily allocated to green investments in the transport sector, sustainable water and wastewater management, pollution prevention and circular economy initiatives.

Building on this success, Serbia issued its first US-dollar-denominated ESG bond in 2024, raising USD 1.5bln. This issuance also adhered to the relevant ICMA principles, further cementing Serbia's role in regional green finance.

The rest of the region is making progress, albeit at a slower pace. In 2023, a commercial bank in Bosnia and Herzegovina completed a smaller ESG bond issuance, while North Macedonia issued a EUR 10m sovereign green bond, both within their domestic markets. Montenegro and Albania have yet to issue green bonds, but momentum is building. In Montenegro, capital market professionals are increasingly advocating for a sovereign green bond issuance, and the government has explored this option. However, concrete steps, such as the establishment of a green bond framework, are still required to move forward.

Outlook

With recent regulatory developments in the EU, it remains to be seen whether market participants, including future sovereign and corporate green bond issuers from the Western Balkans, will adopt the extensive and uniform EU Green Bond Standard or continue to follow frameworks such as the ICMA principles.

authors: Angelika Fischer, Vasilije Grgurevic, Nikola Babic