A new standard for green bonds in Europe: EU Council adopts regulation to promote transparency and sustainable finances

Entities wishing to issue "EuGBS" bonds will be subject to uniform requirements after the European Council approved new regulations for such financial instruments last week.

"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", states a press release by the European Council. Additionally, the new rules also contemplate voluntary disclosure requirements to prevent false sustainability claims in general.

External reviewers will be in charge of ensuring standards are complied with.

"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.", adds the release.

Nevertheless, the flexibility pocket clause will be revised in the future according to changing climate objectives and advancements in line with the EU Green Deal aspiring to achieve carbón neutrality in the continent by 2050.

The EU green bond market has grown rapidly in recent years, with issuance increasing by an average of 50% per year between 2015 and 2020. This growth is expected to continue in the coming years, as the EU implements its ambitious climate and energy targets.

Additionally, Europe is the most prolific issuance region, with 51% of the global volume of green bonds as of 2020. According to the German Council on Foreign Relations, the EU Green sovereign bond market had a value of almost €147 billion at issuance in 2022.

The proposal on a new standard, which was first presented by the European Commission in July 2021, was finally adopted by the Council on October 23rd and will enter into force in November.

Last month during a joint press conference with EIB and IEA authorities, European Central Bank President Christine Lagarde called for a "green Capital Markets Union" as well as EU-issued green bonds to strengthen sustainable finances.

Author: Marina Vanni