EU Council Adopts New European Green Bond Standard to Promote Sustainable Finance
Listen to this story:
The Council adopted a regulation creating a European green bond standard. The regulation lays down uniform requirements for issuers of bonds that wish to use the designation ‘European green bond’ or ‘EuGB’ for their environmentally sustainable bonds.
Environmentally sustainable bonds are one of the main instruments for financing investments related to green technologies, energy efficiency and resource efficiency as well as sustainable transport infrastructure and research infrastructure. European green bonds will be aligned with the EU taxonomy for sustainable activities and made available to investors globally.
The regulation is a further step in implementing the EU’s strategy on financing sustainable growth and the transition to a climate-neutral, resource-efficient economy. The new standard will foster consistency and comparability in the green bond market, benefitting both issuers and investors of green bonds.
Issuers will be able to demonstrate that they are funding legitimate green projects aligned with the EU taxonomy. Investors’ confidence in green investment will be enhanced thanks to a framework that reduces the risks posed by greenwashing, ultimately stimulating capital flows into environmentally sustainable projects.
The regulation establishes a registration system and supervisory framework for external reviewers of European green bonds.
To prevent greenwashing in the green bonds market in general, the regulation also provides for some voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU.
All proceeds of European green bonds will need to be invested in economic activities that are aligned with the EU taxonomy for sustainable activities, provided the sectors concerned are already covered by it.
For those sectors not yet covered by the EU taxonomy and for certain very specific activities there will be a flexibility pocket of 15%. This is to ensure the usability of the European green bond standard from the start of its existence.
The use and the need for this flexibility pocket will be re-evaluated as Europe’s transition towards climate neutrality progresses and with the increasing number of attractive and green investment opportunities that are expected to become available in the coming years.
See full infographic Here