The European Union (EU) lawmakers have approved green bond standards for companies issuing green bonds to combat greenwashing. The initiative will promote transparency in the market, and prevent misleading claims.
“MEPs have adopted a new voluntary standard for the use of a European Green Bond (EuGB) label, the first of its kind in the world,” the EU confirmed in a press release.
The green bond market experienced a 75% increase in 2021, reaching the USD half trillion mark for the first time, with Europe leading the way with 51% of global issuance.
Benefits:
The green bond standards enable investors to confidently invest in environmentally friendly businesses and technologies. It boosts a company’s confidence in its bond’s suitability for investors seeking green bonds. The move also aids the EU’s transition to climate neutrality.
The standards align with the EU’s taxonomy framework, which outlines which economic activities are considered environmentally sustainable. They outline transparency, external reviews, and flexibility as the key moot points to boost investor confidence.
Transparency:
Businesses using the EuGB label are required to disclose their green bond proceeds usage and align them with their sustainability transition plans.
Companies unable to meet strict EuGB standards but still aiming for greener bonds can utilize template formats for disclosure requirements.
External reviewers:
To ensure standards are upheld, the regulation creates a registration process and regulatory framework for external examiners.
The document requires that any potential conflicts of interest encountered by external reviewers be acknowledged, handled, or managed.
Flexibility:
EuGB holders must ensure 85% of the bond’s raised funds are used for taxonomy-compliant economic activities until the taxonomy framework is fully operational.
The issuer can allocate the remaining 15% of the investment to other economic activities as long as they clearly explain its allocation, the EU said.