The Council of the European Union today announced the adoption of a regulation establishing a new European green bond standard, marking the final major step towards the introduction of a new European Green Bond (EuGB) label aimed at combating of greenwashing and helping to promote sustainable finance. market in the EU.
In addition to setting out the requirements for issuers wishing to use the EuGB designation, the new regulation also includes guidelines for voluntary disclosure of other environmentally sustainable bonds and sustainability-linked bonds issued in the EU.
Green bond issuance volumes have soared in recent years as companies and governments have increasingly used them to finance their environmental sustainability and transition initiatives. Despite lower volumes last year, amid a broader downturn in the issuance market, issuance has recovered to reach record volumes in the first half of this year, with particular strength in the European market, which according to Moody’s Investors accounted for almost 60 % of the world market. Employ.
The European Commission launched its EuGB regulatory proposal in July 2021, aimed at establishing a ‘gold standard’ for green bonds, and is part of a series of initiatives designed to promote a more sustainable financial system and support the necessary investments to help facilitate the EU’s economy moving forward. and global climate goals.
The EU Council approved the EuGB proposal in April 2022, although the EU Parliament proposed a series of amendments in its own position aimed at significantly expanding the scope of the new regulation with rules covering the entire green bond market . Earlier this year, the Council and Parliament agreed on the new regulation, which established the EuGB standard as voluntary, while also including a voluntary framework for sustainability-related bonds and green bonds not issued with the EuGB designation.
Under the final regulation, all proceeds from instruments issued under the new EuGB designation will have to be invested in economic activities in line with the EU taxonomy, although the rules include a flexibility pocket allowing 15% to be invested in economic activities that comply with the EU taxonomy. the taxonomy requirements, but in sectors that do not yet have established taxonomy criteria, with issuers clearly explaining where these funds will be allocated.
In addition to the investment rules, companies issuing bonds under the EuGB designation will have to follow strict transparency criteria, including disclosing how the bonds’ proceeds will be used, as well as committing to a green transition plan, and reporting on how the investments contribute to those plans.
The new regulation also provides for a new registration system and supervisory framework for external assessors of European green bonds, including the obligation for external assessors to identify, address and disclose potential conflicts of interest.
The Council’s approval follows the approval earlier this month of the new regulation by the EU Parliament. Once both milestones are achieved, the regulation will be signed and published in the Official Journal of the EU. It will enter into force twenty days later and will apply twelve months after entry into force.