In a significant move to combat greenwashing and assist investors in identifying truly sustainable companies, European Union lawmakers have approved groundbreaking standards for companies issuing “green” bonds. This new initiative aims to promote transparency and credibility in the green bond market, preventing misleading climate-friendly claims.
Europe’s Dominance in Green Bond Issuance:
Europe, being the global leader in green bond issuance, contributed to more than half of the total volume in 2021. Despite this dominance, green bonds still represent only a modest 3% to 3.5% of the overall bond market.
Voluntary “European Green Bond” Label:
The European Parliament’s approval marks the introduction of a voluntary standard for the use of the “European Green Bond” label, heralded as the first of its kind globally. This standard is designed to guide investors towards genuinely sustainable investment opportunities while providing issuing companies with confidence regarding the suitability of their bonds for environmentally conscious investors.
Enhanced Transparency Requirements:
Companies seeking the “green” label for their bonds within the EU will be required to disclose detailed information about the utilization of the bond’s proceeds. Specifically, at least 85% of the funds raised must be allocated to activities aligning with the EU’s sustainable “taxonomy.” Additionally, firms will need to demonstrate how these investments contribute to their plans for transitioning to a net-zero carbon emissions economy.
Supporting the EU’s Climate Neutrality Goals:
These standards not only enhance transparency but also establish a registration system and supervisory framework for external reviewers of European green bonds. By ensuring rigorous oversight, the EU aims to bolster investor confidence in green bonds, thereby supporting the region’s transition to climate neutrality.