In February, the European Council and the European Parliament provisional agreed on the creation of the European green bond standard (EUGBS) as part of their plan to support sustainable growth and transition to a climate-neutral economy. The standards are the most comprehensive standards on green bonds to date.
The new standards set up clear guidance for bond issuers looking to label their bonds as green. The recently approved framework is based on the EU taxonomy and makes EU approved bonds available to investors globally. While it’s still early to make predictions about the future of the EUGBS, our consultant Laila Lippert sees a few noteworthy potential future developments:
- The EUGBS is likely become the gold standard for green bonds globally. The EUGBS could provide a consistent framework for green bond issuers and investors alike. This could lead to greater transparency, reduced greenwashing, and increased confidence in the market.
- EUGBS aligns with the EU taxonomy, defining which economic activities can be considered as environmentally sustainable. Therefore, it has the potential to become a benchmark for other international markets, leading to increased harmonization and standardization in the global green bond market.
- Clear guidelines and standards for green bonds can help mitigate risks for creditors through clarity of standards. This will increase confidence and therefore make it easier for creditors to navigate, leading to increased confidence and participation in environmentally sustainable investments.
The EUGBS sets the bar high for green bonds, ushering in a new era for green bonds to be driven by greater transparency, accountability, and environmental responsibility.
“One of the main concerns is the potential disproportionate financial impact on smaller entities (SME’s) in meeting the new requirements, which may hinder their participation in the green bond markets. Moreover, there are worries about possible conflicts and inconsistencies between the EUGBS and other global green bond standards – such as the Climate Bonds Standard (CBS) – which could create confusion and a more fragmented market,” she says.
The agreement still awaits final confirmation by the Council and the European Parliament. Once the final text has been confirmed and adopted, the (voluntary) standard will enter into force after 12 months.