In a momentous step towards combating greenwashing and aiding investors in making informed choices, European Union legislators have granted approval to pioneering standards governing the issuance of “green” bonds. This visionary initiative is designed to champion transparency and credibility within the green bond market, curtailing deceptive claims of environmental sustainability.
Europe, as the global frontrunner in green bond issuance, contributed to over half of the total volume in 2021. Despite its dominance, green bonds continue to represent a modest 3% to 3.5% of the overall bond market.
The European Parliament’s approval signifies the introduction of a voluntary standard for the utilization of the “European Green Bond” label, heralded as the world’s first of its kind. This standard is poised to guide investors towards authentic sustainable investment opportunities while instilling confidence in issuing companies about the suitability of their bonds for environmentally conscious investors.
Companies within the EU seeking the coveted “green” label for their bonds will be mandated to provide comprehensive details about the allocation of the bond’s proceeds. Specifically, a minimum of 85% of the funds raised must be directed towards activities aligning with the EU’s sustainable “taxonomy.” Moreover, firms will be required to illustrate how these investments contribute to their strategies for transitioning to a net-zero carbon emissions economy.
These standards not only enhance transparency but also establish a registration system and a supervisory framework for external assessors of European green bonds. Through rigorous oversight, the EU aims to fortify investor confidence in green bonds, thereby bolstering the region’s path towards climate neutrality.