The European Parliament and the European Council put a stop to ‘eco-posture’ and announce the creation of the first European standard for environmental bonds that will make it possible to legislate against ‘greenwashing’ in the debt market to ensure that they are aligned with the financing of sustainable growth and the transition towards a climate neutral and efficient economy in the use of resources.
The Swedish finance minister, who holds the Council’s rotating presidency, Elisabeth Svantesson, stressed that this new standard will allow issuers to demonstrate that they are financing legitimate green projects aligned with the EU taxonomy, while investors who buy bonds will be able to more easily assess, compare and trust that their investments are sustainable, thereby reducing the risks posed by greenwashing.
This regulation establishes uniform requirements for bond issuers who wish to use the designation ‘European Green Bond’ or ‘EuGB’ for their sustainable environmental bonds that are aligned with the EU taxonomy and that are available to investors globally. The new regulation also establishes a system and registry and a supervisory framework, as well as some voluntary disclosure requirements for other environmentally sustainable bonds.
These bonds are one of the main instruments to finance investments related to green technologies, energy efficiency and resource efficiency, as well as sustainable transport infrastructure and research infrastructure.
According to the provisional agreement, all the income from these bonds must be invested in economic activities that are aligned with the EU taxonomy, provided that the sectors in question are already covered by it, while for those sectors that are not yet umbrella, it will be established a 15% flexibility pocket to guarantee the usability of the European green bond standard from the beginning of its existence.
The use and need for this pocket of flexibility will be reassessed as Europe’s transition to climate neutrality progresses and with the increasing number of attractive green investment opportunities expected to become available in the coming years.
Regarding supervision, the competent national authorities of the designated home member state will be in charge of supervising that issuers comply with their obligations under the new standard. The agreement still needs to be confirmed by the Council and the European Parliament, and adopted by both institutions before it becomes final and begins to apply 12 months after its entry into force.
