Lawmakers in the European Parliament and the European Council reached to an agreement on the creation of standards for proposed European Green Bonds (EuGB), as well as voluntary disclosure guidelines for green bond issuers aimed at preventing greenwashing in the sustainable bond market.
Under the new proposed standard, issuers wishing to use the EuGB designation will need to follow a strict set of investment and transparency criteria, including ensuring that all proceeds are invested in activities aligned with the EU Taxonomy.
“The new standard which we are setting will be useful for both issuers and investors of green bonds”, said Elisabeth Svantesson, Minister for Finance of Sweden, according to www.esgtoday.com. “Issuers will be able to demonstrate that they are funding legitimate green projects aligned with the EU taxonomy. And investors buying the bonds will be able to more easily assess, compare and trust that their investments are sustainable, thereby reducing the risks posed by greenwashing.”
The European Commission launched its EuGB regulation proposal in July 2021, as part of a series of initiatives aimed at promoting a more sustainable financial system and help facilitate the necessary investments to advance the EU’s and global climate goals.
The goal of the proposed green bond regulations is to make it easier to finance sustainable investments by setting a high bar for how businesses and governments can use green bonds to raise money on capital markets while still adhering to strict sustainability standards and shielding investors from greenwashing. By using the EuGB label, issuers would guarantee that all money received will go to projects that adhere to the EU Taxonomy, provide complete transparency through thorough reporting, and employ external reviewers to assure compliance.
The deal includes a voluntary framework for sustainability-linked bonds and green bonds not issued with the EuGB designation, which the European Commission said will for the first time provide a standardized template to report information on the Taxonomy-alignment of green bonds, reducing administrative burdens for both issuers and investors.
For EuGBs, the agreement confirms that all proceeds will need to be invested in economic activities that are aligned with the EU Taxonomy, while adding flexibility enabling 15% to be invested in economic activities that comply with the taxonomy requirements, but in sectors that don’t yet have established taxonomy criteria, such as the nuclear sector, for example.
The new rules also establish a registration system and supervisory framework for external reviewers of European green bonds, aimed at standardizing reviewers’ verification work and improving trust in the review process.
The proposed rules will now be sent for confirmation by the Council and the European Parliament, and will apply 12 months after entering into force.
Photo: Guillaume Périgois on Unsplash