The European Parliament and member states have reached an agreement to establish a European Union Green Bond Standard (EU GBS), to prevent greenwashing.
Under the agreement, all proceeds from an EU-labelled green bond must either be taxonomy aligned or be allocated to credible projects and activities not yet covered by the taxonomy.
Under the agreement, companies will have to prove that the proceeds from their green bonds are in line with the bloc’s list of environmentally friendly activities, known as the taxonomy.
They will, however, get a 15% “flexibility pocket” for activities that aren’t yet covered by the rulebook.
Issuers will also have to demonstrate that those proceeds contribute to achieving an entity-level transition plan.
“This regulation creates a gold standard that green bonds can aspire to,” said Paul Tang, parliament’s chief negotiator. “Any green bonds not using this system will likely be looked at with increasing suspicion.”
The long-awaited deal has been plagued by disagreements over how strict the rule book should be and whether all issuers marketing green bonds in Europe should be required to comply.
The idea of an EU green bond standard was first floated in 2017 by members of the EU’s High Level Expert Group on Sustainable Finance, whose members included representatives from Aviva, APG and the Climate Bonds Initiative.
Formal negotiations between the European Council, Parliament and Commission began last July with the Parliament originally pushing to make the label mandatory for green, social and sustainability-linked bonds. However, they decided to opt for a voluntary approach.
Negotiators failed to reach a deal in December, as parliament and member states debated how much flexibility issuers should get when investing the proceeds.
A key aspect of the agreement is the legal onus it places on issuers to meet the green promises they make.
If a bond doesn’t manage to fulfill its commitments under the standard, its issuer will be liable for any damages suffered by investors through the EU’s prospectus regulation, according to a person familiar with the negotiations.
The agreement also gives bond issuers seven years to tweak their investments in case of changes in the taxonomy, according to people familiar.
The standards are part of a wider push by the EU to counter greenwashing.
The bloc’s three financial regulators launched a joint call for evidence on greenwashing in November in an attempt to crack down on inflated marketing claims.
©Markets Media Europe 2023
