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The European Council has adopted a new regulation to establish a European green bond standard. This regulation sets standardised criteria for bond issuers who want to label their bonds as ‘European green bond’ or ‘EuGB’ for their eco-friendly bonds.
Eco-friendly bonds serve as a key financial tool for backing investments in green technologies, energy and resource efficiency, as well as sustainable transport and research infrastructure.
European green bonds will align with the EU’s taxonomy for sustainable activities and be accessible to global investors.
This regulation marks another milestone in the EU’s ongoing efforts to finance sustainable growth and transition to a climate-neutral, resource-efficient economy. The new standard aims to bring uniformity and comparability to the EuGB market, benefiting both those who issue and invest in the instruments.
Issuers can now prove that their funding supports genuine green projects in line with EU taxonomy. The framework will bolster investor confidence in green investments by mitigating the risks associated with greenwashing, thereby encouraging more capital to flow into eco-friendly projects.
The regulation also introduces a registration and oversight system for external reviewers of European green bonds.
To counteract greenwashing in the broader green bond market, the regulation includes optional disclosure requirements for other types of eco-friendly and sustainability-linked bonds issued within the EU.
Funds raised through European green bonds must be allocated to economic activities that comply with the EU’s taxonomy for sustainable activities, as long as the relevant sectors are already included in it.
For sectors not yet included in the EU taxonomy and for certain specific activities, a flexibility margin of 15% will be allowed. This is to ensure the European green bond standard is usable from its inception.
The necessity and usage of this flexibility margin will be reassessed as Europe advances towards climate neutrality and as more green investment opportunities become available in the future.
The Commission unveiled its proposal for a regulation on European green bonds on 6 July 2021. The proposal aims to regulate the labelling of bonds as ‘European green bond’ or ‘EuGB’ that have environmentally sustainable objectives.
The system will also oversee the registration and supervision of entities acting as external reviewers for European green bonds, as well as regulate the supervision of the issuers.
The Council finalised its stance on the proposal on 13 April 2022. Trilogue negotiations commenced on 12 July 2022 and concluded with a provisional agreement on 28 February 2023. The European Parliament ratified the agreement’s contents on 5 October 2023.
The Council formally enacted the regulation on 23 October 2023. It will be signed and published in the EU’s Official Journal, coming into effect 20 days thereafter. The regulation will begin to apply 12 months after it enters into force.