EU Parliament Adopts European Green Bond Standard

The European Parliament and the Council have successfully passed the Regulation on European Green Bonds, which establishes a unified framework for issuers, both within and outside the EU, who wish to offer bonds to investors in the EU under the “European Green Bond” or “EuGB” label. The Regulation also includes guidance regarding optional disclosures for bonds marketed as environmentally sustainable and sustainability-linked. This Regulation will come into direct effect twelve months after its publication.

The European Green Bond Standard is in close alignment with the EU Taxonomy, which delineate economic activities that the EU deems environmentally sustainable. This includes crucial provisions on:

Transparency: Issuers employing the European Green Bond or EuGB label in marketing a green bond will be required to provide substantial information regarding how the proceeds will be applied.

External Reviewers: The Regulation establishes a registration system and a supervisory framework for external reviewers of European Green Bonds.

Flexibility: Until the EU Taxonomy framework is fully up and running, issuers of a European Green Bond will be required to ensure that at least 85 per cent. of the funds raised by the green bond are allocated to economic activities that align with the EU’s Taxonomy.

The Green Bond Market

The green bond market has experienced exponential growth since 2007. In 2021, annual green bond issuance surpassed the USD half-trillion mark for the first time, marking a 75 per cent. increase compared to 2020. Europe leads as the most prolific issuance region, accounting for 51 per cent. of the global volume of green bonds in 2020. Currently, green bonds constitute approximately 3–3.5 per cent. of overall bond issuance. It is anticipated that the Regulation on European Green Bonds will play a pivotal role in augmenting this share.