EU adopts joint green bond standard

The Council of the European Union has adopted a regulation establishing standards for issuing green bonds. It sets out uniform requirements for issuers who want to use the European green bond or EuGB designation for their debt securities.

Green or climate bonds enable raising funds for investments to mitigate climate change or its impact. They include green technologies, achieving energy and resource efficiency, and a circular economy. European green bonds will be aligned with the EU’s taxonomy for sustainable activities and will be available to investors worldwide, the Council of the EU said.

The European Commission presented the proposal in July 2021. The idea is to regulate the use of the label when borrowing on the market for environmentally sustainable objectives.

The legislation will enter into force in November, but the implementation is delayed by 12 months.

The European Commission issued the first green bond in October 2021, for economic recovery and resilience. The sale of EUR 12 billion in debt securities, the biggest until then on a global scale, attracted record demand as well. The European Union intends to finance 30% of its EUR 800 billion NextGenerationEU investment package by end-2026 with green bonds.

The prescribed standards in the regulation will promote consistency and comparability in the green bond market, benefiting both issuers and investors, ministers in charge of the sector said after adopting the proposal.

The regulation also establishes a registration system and a supervisory framework for external assessors of the securities in the class.

Issuers can prove they fund legitimate green projects aligned with the EU taxonomy. The statement adds that investors’ trust in green investments will increase since the framework reduces the risks of manipulative quasi-green marketing – greenwashing, thus directing capital into environmentally sustainable projects.

All proceeds from European green bonds must be invested in economic activities in line with the EU’s taxonomy

In this regard, the regulation determines the methods of voluntary reporting on other sustainable and sustainability-related bonds issued in the EU. The legislation says that all proceeds from European green bonds must be invested in economic activities aligned with the EU taxonomy for sustainable activities if the respective sectors are covered.

For sectors not yet covered and certain particular activities, there will be a flexibility pocket of 15%. The council explained that the need for such relief will be reviewed when Europe’s transition to climate neutrality progresses.