Members of the European Parliament on Thursday adopted a new voluntary standard for the use of a “European Green Bond” label, the first of its kind in the world.
The regulation, adopted by 418 votes in favour, 79 against and 72 abstentions, lays down uniform standards for issuers who wish to use the designation ‘European green bond’ or ‘EuGB’ for the marketing of their bond.
The standards align with the EU’s taxonomy framework that defines which economic activities the EU considers environmentally sustainable.
Transparency is a central aspect of this regulation. Companies opting to adhere to these standards and utilize the EuGB label when marketing green bonds will be obligated to provide substantial information regarding how the bond proceeds will be utilized. They must also demonstrate how these investments contribute to the company’s broader sustainability plans, necessitating a commitment to a general green transition.
The disclosure requirements, outlined in predefined “template formats,” can also be employed by bond issuers who aspire to signal their green intentions, even if they are not yet able to fully meet the stringent EuGB standards.
The regulation institutes a registration system and supervisory framework for external reviewers of European green bonds, independent entities responsible for verifying adherence to the standards. It also mandates the identification, elimination, or management of any actual or potential conflicts of interest faced by these external reviewers, with full transparency in disclosure.
The global and EU green bond markets grew by an average of 50% per year between 2015-2020 but represented only 3 to 3.5% of overall bond issuance of overall bond issuance in 2020. More rapid growth of a high-quality green bond market is needed to meet the targets in the Paris Agreement and in the European Green Deal.
However, there is no uniform green bond standard and this is an obstacle to developing the market. The European green bond standard would allow better regulation of the green bond market, improving supervision, making it transparent, and preventing firms from presenting themselves as more environmentally friendly than they really are, a practice known as greenwashing.