MEPs have approved a new voluntary standard labelled the “European Green Bond” (EuGB), marking it as the globe’s premier of its kind.
Through 418 votes for, 79 against, and 72 abstentions, the regulation establishes rigorous, uniform standards for issuers desiring to utilise the ‘European green bond’ or ‘EuGB’ designation in bond marketing. Not only will the standards direct investors’ capital toward sustainable technologies and businesses with greater assurance, but they’ll also provide issuers confidence that their bonds are fitting for investors desiring to diversify with green bonds.
This is foreseen to enhance the allure of such financial products and fortify the EU’s march towards climate neutrality, whilst adhering to the EU’s taxonomy framework that categorises environmentally sustainable economic activities.
Transparency remains paramount with companies opting for the standards and EuGB label needing to disclose substantial information regarding the utilisation of the bond’s proceeds. These firms are also mandated to exhibit how these investments dovetail into their overall green transition plans. While flexibility is offered until the taxonomy framework is fully functional, issuers must assure that at minimum 85% of the bond’s funds are dedicated to economic activities in harmony with the EU’s Taxonomy Regulation, with the residual 15% necessitating a clear investment explanation.
External reviewers play a critical role, with a supervisory framework established to govern their assessments of adherence to the EuGB standards. Furthermore, it’s imperative that potential or actual conflicts of interest for external reviewers are judiciously identified, managed, eliminated, and transparently disclosed.
The rapporteur, Paul Tang (S&D, NL) said, “Businesses want to make the green transition. And the European Green Bond gives them the best tool yet to help them finance this shift. It provides a transparent and trustworthy tool to drive a company’s transition plan. Today’s vote is the starting shot for business to get serious about their green bond issuances. Investors are eager to invest in European Green Bonds and from today onwards business can start developing them. This way European Green Bonds can boost Europe’s transition to a sustainable economy.”
Since 2007, the green bond market has witnessed a meteoric rise, with 2021 seeing annual green bond issuance surpassing the USD half-trillion threshold for the initial time — a hefty 75% augmentation compared to 2020. With Europe front-running as the most prolific issuance region, hosting 51% of the global volume of green bonds in 2020, green bonds currently symbolise approximately 3-3.5% of total bond issuance.
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