MEPs have voted to adopt a new voluntary standard over the use of the ‘European Green Bond’ label.
According to the European Parliament, the regulation – adopted by 418 votes in favour, with 79 against and 72 abstentions – lays down uniform standards for issuers who wish to use the designation ‘European green bond’ or ‘EuGB’ for the marketing of their bond.
The new standard will become applicable after approval by the Council, following which the text will be published in the Official Journal of the EU and enter into force 20 days from the date of publication. It will start applying 12 months after its entry into force.
Rapporteur Paul Tang said: “Businesses want to make the green transition. And the European Green Bond gives them the best tool yet to help them finance this shift. It provides a transparent and trustworthy tool to drive a company’s transition plan.
“The vote is the starting shot for business to get serious about their green bond issuances. Investors are eager to invest in European Green Bonds and, from today onwards, business can start developing them. This way European Green Bonds can boost Europe’s transition to a sustainable economy.”
In addition, the companies choosing to adopt the standards – and thus also the ‘EuGB’ label when marketing a green bond – will be required to disclose considerable information about how the bond’s proceeds will be used. They would also be obliged to show how these investments feed into the transition plans of the issuing company as a whole. The standard therefore requires companies to be engaging in a general green transition.
The disclosure requirements, set out in so-called “template formats”, can also be used by companies issuing bonds that are not yet able to adhere to all the strict standards of the EuGB but still wish to signal their green aspirations.
The regulation also establishes a registration system and supervisory framework for external reviewers of European green bonds – the independent entities responsible for assessing whether standards are being adhered to. It also stipulates that any actual or potential conflicts of interest external reviewers may face are properly identified, eliminated or managed, and disclosed in a transparent manner.
Among those commenting on the development was the World Wildlife Fund, with Jochen Krimphoff, global lead for data, tools and methods at the organisation’s Greening Financial Regulation Initiative, noting: “It is truly encouraging to witness the European green bond standard reinforcing market oversight in its journey from ‘niche’ to mainstream. A notable milestone is the creation of a system of registration and a supervisory framework for external reviewers as proposed by the Commission’s expert group.”
PwC also offered commentary through its Luxembourg office, saying the adoption of the standard was the ‘turning point’ for debut and repeat Green Bond issuers. “We believe the adoption of the EU Green Bond Regulation introducing the EU GB Standard will be the turning point for debut and repeat Green Bond issuers who want to apply what has been regarded as the long-awaited golden standard to be used for Green Bonds issuances and to make a clear statement of being frontrunners in and fully committed to a sustainable future.”
It added: “To name a few, however, the requirements for the proceeds being aligned to the EU taxonomy and getting assurance over the DSNH [‘Do no significant harm’ objective] are challenging elements of the EU GB Standard to be complied with, and it is likely that this voluntary standard will operate alongside ICMA Green Bond Principles and the CBI Climate Bonds Standards for few years to come.”