The EU Council has approved a regulation that establishes a standard for European green bonds. This regulation outlines consistent criteria for bond issuers who want to label their environmentally sustainable bonds as ‘European green bonds’ or ‘EuGB.’ These bonds play a significant role in financing investments related to green technologies, energy efficiency, resource efficiency, sustainable transport infrastructure, and research infrastructure. European green bonds will adhere to the EU’s sustainable activities taxonomy and will be accessible to global investors.
The new standard aims to promote uniformity and comparability in the green bond market, benefiting both issuers and investors. It allows issuers to demonstrate that they are financing genuine green projects in line with the EU taxonomy, thereby increasing investor confidence in green investments and reducing the risk of greenwashing. The regulation also establishes a registration system and supervisory framework for external reviewers of European green bonds.
To prevent greenwashing across the broader green bond market, the regulation includes voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU. All proceeds from European green bonds must be invested in economic activities consistent with the EU’s sustainable activities taxonomy, as long as those sectors are already covered by it. For sectors not yet covered by the EU taxonomy and specific activities, there is a flexibility provision of 15%, ensuring the practicality of the European green bond standard from the outset. The use of this flexibility will be reassessed as Europe’s progress towards climate neutrality continues and more green investment opportunities become available.
Background and Next Steps:
The European Commission presented its proposal for a regulation governing European green bonds in July 2021, with the aim of regulating bonds pursuing environmentally sustainable goals bearing the ‘European green bond’ or ‘EuGB’ label. The proposal establishes a system for registering and overseeing external reviewers for European green bonds and for supervising bond issuers.
The Council established its position on the proposal in April 2022, and trilogue negotiations commenced in July 2022, concluding with a provisional agreement in February 2023. The European Parliament adopted the terms of the agreement in its position in October 2023.
On October 23, 2023, the Council formally adopted the regulation. It will be signed and published in the EU’s Official Journal before coming into force 20 days later. The regulation will become applicable 12 months after its entry into force.
