The European Union has implemented its long-awaited rules for green bonds, aiming to curb greenwashing in the rapidly growing market. However, the stringent criteria may only permit a small number of borrowers to utilize these rules initially.
The European Union’s long-awaited rules for green bonds took effect over the weekend, though the strict criteria mean only a limited pool of borrowers may adopt them for now. The European Green Bond Standard is designed to help stamp out greenwashing in the burgeoning market for bonds that fund climate-friendly projects. Going forward, the EU says alignment with the rules is necessary if issuers want to market their debt as a “European green bond.
” It’s the bloc’s effort to provide a gold standard for a market that has a mishmash of industry guidelines and labels, led by the International Capital Market Association’s Green Bond Principles. The EUGBS remains voluntary as well, and bankers say it’s likely most debt issuers will refrain from meeting its more-stringent conditions in the coming year. “The larger part of the market will keep using the ICMA green bond standard,” said Hans Biemans, head of sustainable markets at ING Groep NV. Issuers with large volumes of “relatively simple green assets” such as renewable energy utilities are the most likely to take it up, he said. The rules became available to borrowers on December 21 after being agreed by lawmakers in early 2023, following years of negotiations. The market is continuing to expand globally, defying a US pushback against ESG investing, with around $560 billion of green bonds issued this year alone. Some of the key criteria of the EUGBS are that at least 85 percent of bond proceeds are aligned to the EU’s green taxonomy, a separate and overarching rule book for sustainability. All of the projects must abide by a “do no significant harm” condition, and must be certified by a designated EU green bond reviewer approved by the European Securities and Markets Authority. While the extra work required may deter many, it’s possible the lure of potentially lower borrowing costs will convince those with enough eligible project
GREEN BONDS EU EUROPEAN GREEN BOND STANDARD ESG INVESTING GREENWASHING
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