The Council of the European Union has authorized a regulation creating a European green bond standard, including uniform requirements for bond issuers looking for environmentally sustainable bond designation.
The new regulation aims to better legitimate European green bonds, and issuers will be able to demonstrate that funded green projects align with the EU’s taxonomy. Environmentally sustainable bonds are used for financing investments related to green technologies, energy and resource efficiency, and sustainable transport infrastructure, among other environmentally beneficial projects.
The standard aims to provide consistency and comparability in the green bond market by providing a registration system and supervisory framework for external reviewers of European green bonds. For sectors not yet covered by the EU taxonomy, the EU reportedly will allow a flexibility pocket of 15% to ensure the European green bond standard may be used from the start of its existence.
Green bond issuance, according to a recent SEB report, has grown in 2023 with $408 billion in new issuances worldwide from the start of the year to July. However, sustainability-linked bonds have dropped in volume by nearly 70%, largely because issuers have not been able to meet their stated sustainability targets or are not on track to reach their goals.
Greenwashing is a term for false sustainability claims, and it has become a cause for concern as worldwide efforts toward investing in clean energy and other environmentally conscious projects have increased.
The EU said the new regulation works to prevent greenwashing in the green bonds market in general, providing voluntary disclosure requirements for environmentally sustainable bonds and sustainability-linked bonds in the EU. The SEC also recently added an amendment to its Investment Company Act’s Names Rule in order to prevent greenwashing, requiring fund titles to transparently portray their thematic focus. This rule, like the EU regulation, requires funds to accurately represent their assets and aims to ensure investors are aware of what projects, specifically, their investment will be used to support.
Outside of the large-scale investment space, the EU has also recently approved enhanced product labeling to ensure consumers are not misled by unfounded sustainability claims. This also intends to ensure sustainability claims are specific, transparent, and backed by official certification.
