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(BRUSSELS) – EU negotiators struck a deal on the European Green Bond Regulation Tuesday, establishing an EU voluntary high-quality standard for the issuing of environmentally sustainable bonds.
Green bonds are seen as playing a crucial role in financing the transition to a low-carbon economy, and in helping to help to mobilse capital needed to achieve ambitious climate and sustainability goals. The green bond market has seen exponential growth since 2007 with annual green bond issuance breaking through the USD half trillion mark for the first time in 2021, a 75% increase on 2020.
The European green bond standard (EUGBS) will be available to companies and public entities that wish to raise funds on capital markets to finance their green investments, while meeting tough sustainability requirements. In particular, issuers of EUGBS would need to ensure that at least 85% of the funds raised by the bond are allocated to economic activities that align with the Taxonomy Regulation. This will allow investors to more easily assess, compare and trust that their investments are sustainable, thereby reducing the risks posed by greenwashing.
“With EUR 100 trillion in annual trades, the European bond market is the single most popular option for businesses and governments to raise finances,” said Parliament’s rapporteur Paul Tang MEP: “Tonight the EU has taken a big step to green this massive market by adopting the first regulation in the world on green bonds.”
As a result of the agreement, the Commission will also publish EU templates for issuers of other bonds with environmental objectives, even if they do not make use of the EUGBS. The use of these templates will be strictly voluntary. For the first time, there will be a standardised template that issuers can use to report information on the Taxonomy-alignment of green bonds, thereby reducing administrative burdens and uncertainty both for green bond issuers and for their investors.
The Regulation also creates a regime for the registration and supervision of external reviewers. External reviewers play an important role in the market by assessing green bonds in detail and providing confirmation to investors about their environmental credentials. Issuers making use of the new EUGBS will be required to employ such external reviewers at several points during the bond’s life-cycle, including to check the alignment of the funded projects with the Taxonomy Regulation.
