The European Union (EU) has reached a provisional deal to establish new rules for green bond issuance alongside its net-zero goals. EU Lawmakers announced the European Green Bonds standard to help companies and public authorities to raise funds on capital markets while meeting rigorous sustainability requirements and protecting investors from greenwashing. Green bonds look to raise capital for use in projects or activities with specific climate or environmental sustainability purposes. The market has expanded in numerous dimensions; in 2022, green bond issuance reached $478.1bn, and together with other related labelled bonds (including social, sustainability, sustainability-linked bonds, and transition bonds), they account for a 5% total market share.
However, the complex and disparate regulatory landscape underlying prevalent greenwashing concerns, expressed by both regulators and investors. The EU’s drive to establish a green bond standard that simplifies the market-place for both investors and regulators, and reduces opportunistic greenwashing. The provisional requirements issuers will have to comply with to use the European Green Bond label, positioned as a voluntary gold standard. Organised around an explicit commitment to the net-zero transition, the EU Green Bond framework coalesces around three central tenets: transparency, external reviewers, and flexibility. EuGB Critiques highlight a mismatch between ambition and usability, particularly in reference to the taxonomy. The lack of international applicability supports doubts over the EuGB standard’s uptake, which commentators say ultimately won’t be solved until taxonomy usability challenges are addressed. However, the EuGB proposal correctly addresses the central ambitions: to simplify the landscape for investors, give issuers confidence they are bringing the right investors on board, drastically reduce the risk of greenwashing, and move the green bond market closer to a global standard. Despite the critiques, the EuGB standard is a game-changer for green finance and generates bankable projects for sustainable development.
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