The European Parliament voted in favour of the new voluntary standard for the use of a European Green Bond label, calling it the first of its kind in the world.
Europe is the world’s biggest issuer of green bonds, accounting for more than half of global volume in 2021, though issuance is still only 3% to 3.5% of the overall bond market.
It will give the company issuing the bond more certainty that their bond will be suitable to investors who want to add green bonds to their portfolio,” parliament’s economic affairs committee said in a statement.
“This will increase interest for this kind of financial product and support the EU’s transition to climate neutrality,” it added
The standards align with the EU’s taxonomy framework that defines which economic activities the EU considers environmentally sustainable.
All companies choosing to adopt the standards and therefore also the EuGB label when marketing a green bond will be required to disclose considerable information about how the bond’s proceeds will be used.
They would also be obliged to show how these investments feed into the transition plans of the company as a whole. The standard therefore requires companies to be engaging in a general green transition.
The regulation establishes a registration system and supervisory framework for external reviewers of European green bonds – the independent entities responsible for assessing whether standards are being adhered to.
It also stipulates that any actual or potential conflicts of interest external reviewers may face are properly identified, eliminated or managed, and disclosed in a transparent manner.
Until the taxonomy framework is fully up and running, issuers of a European Green Bond would need to ensure that at least 85% of the funds raised by the bond are allocated to economic activities that align with the EU’s Taxonomy Regulation. The other 15% can be allocated to other economic activities provided the issuer complies with the requirements to clearly explain where this investment will go.
The rapporteur, Paul Tang (S&D, NL) said, “Businesses want to make the green transition. And the European Green Bond gives them the best tool yet to help them finance this shift. It provides a transparent and trustworthy tool to drive a company’s transition plan.
Today’s vote is the starting shot for business to get serious about their green bond issuances. Investors are eager to invest in European Green Bonds and from today onwards business can start developing them. This way European Green Bonds can boost Europe’s transition to a sustainable economy.”
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 compared to 2020. Europe is the most prolific issuance region, with 51 % of the global volume of green bonds in 2020. Green bonds represent about 3-3.5% of overall bond issuance.
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