European green bonds: investing free from greenwashing?

Uniform rules for green bonds promise less greenwashing and financing of a green economy

European Green Bonds

Author: House of Eden

On February 28, 2023, the European Union made a preliminary agreement regarding sustainable bonds. The proposed EuGB regulation, which was put forward by the European Commission in July 2021, seeks to establish a consistent regulatory structure for the use of the terms "European green bonds" or "EuGB". It's worth noting that participation in this is optional. This regulation is anticipated to take effect in 2024.

Reduce risk of greenwashing

The aim is to facilitate the European green bond market while minimizing disruption to existing markets. The regulation is also intended to reduce the risk of Greenwashing by ensuring that green bond issuers meet its high standards. The EuGB regulation is part of the European Green Deal, aiming to make it easier for investors and companies to find ecologically sustainable investments.

The preliminary agreement revealed some important details on the EuGB regulation. The proposed EuGB standard should remain voluntary. However, issuers using the standard must disclose a significant amount of information available regarding the utilization of bond proceeds. For example, how these investments feed into the company's sustainable transition plans.

85% of the green bond proceeds are to be reinvested sustainably

All proceeds from EuUCs must be invested in economic activities that comply with the EU taxonomy. However, the agreement allows investments of 15% of proceeds in sectors not yet covered by the EU taxonomy.

Also in economic activities that meet the requirements of the EU taxonomy, but for which technical (green) screening criteria are not yet available. The provisional agreement is intended to ensure the applicability of the EuGB standard from the outset. However, issuers can decide for themselves whether to participate in the program.

Green bonds reviewed by national officials

The national competent authorities of the home member state, designated in accordance with the EU Prospectus Regulation, are to monitor that issuers meet their obligations under the new standard. The EuGB regulation will also introduce a registration system and regulatory framework for external auditors of European green bonds.

The final EuGB regulation will be published shortly. Before the provisional agreement can come into force in 12 months, it must be confirmed and adopted by the European Council and Parliament. The Green Bond Standard aims to be of great benefit to both issuers and investors and to encourage investments in green technologies, energy, and infrastructure.

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