EU Approves “World’s First” Standards for Green Bonds

European Union lawmakers gave their stamp of approval to new standards for the issuance of "green" bonds. This move aims to equip investors with the tools to identify genuinely sustainable companies while eliminating the risk of falling for misleading eco-friendly claims.

The European Parliament extended its support to the introduction of a voluntary "European Green Bond" label, proudly touting it as a global first. 

This initiative showcases Europe's commitment to green financing, as the continent stood as the most prominent issuer of green bonds in 2021, representing more than half of the worldwide volume. Despite this dominance, green bonds still constitute only 3% and 3.5% of the overall bond market.

However, with this label comes responsibility. Companies keen on branding their bonds as "green" within the EU boundaries must now be transparent about the intended use of the bond's proceeds. To ensure accountability, a minimum of 85% of the capital raised through these bonds must be channeled toward activities that align with the EU's specified "taxonomy" of sustainable initiatives.

Furthermore, these companies will be required to delineate how such investments dovetail with their strategic roadmap to transition to a net zero carbon emissions stance.

The newly approved standards have also introduced a systematic registration and a robust supervisory framework for external entities responsible for reviewing European green bonds to enhance credibility and oversight.

It's worth noting that EU member states, collectively holding influence over the finalization of these standards, had already signaled their approval earlier this year.