Lawmakers in the European Union on Thursday approved new standards for companies issuing “green” bonds, in a move aimed at helping investors pick sustainable companies and avoid greenwashing or misleading climate-friendly claims.
The European Parliament voted in favour of the new first of its kind voluntary standard, which allows companies to label their bonds as “European Green Bonds” if they meet certain criteria.
The new EU green bond standards are designed to provide both issuers and investors with clearer and more transparent criteria for the financing of sustainable investments towards a low carbon economy, essential to meet the European Green Deal’s goals.
Green bonds are a type of loan which are used to fund projects considered good for the environment. Green bonds are typically issued by governments and corporations to raise capital for sustainable projects such as renewable energy, energy efficiency, clean transportation, green buildings, and sustainable land use.
“Businesses want to make the green transition,” said, Paul Tang, Member of the European Parliament (MEP). “Today’s 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.”
All companies choosing to use the standard when marketing a green bond will be required to disclose much information about how the bond’s proceeds will be used, but are also obliged to show how those investments feed into the transition plans of the company as a whole.
Until the taxonomy framework is fully operational, issuers must allocate at least 85% of the raised funds to economic activities aligned with the EU Taxonomy Regulation. The remaining 15% may be allocated to other economic activities, provided the issuer clearly explains where the investment will go.
The market for green bonds is booming, with annual issuance surpassing $500 billion for the first time in 2021, a 75% increase from the previous year. Europe is the world’s leading issuer of green bonds, accounting for over half of the global market. Green bonds now represent about 3-3.5% of all bond issuance.
You can read the press release here.
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