What is a green bond?
A green bond is a fixed-income instrument designed to support climate-related or environmental projects. Green bonds are used to finance or re-finance investments, projects, expenditure or assets helping to address climate and environmental issues. Governments and private companies use them to finance the transition to a more sustainable and low-carbon economy.
Why does the EU need a green bond standard?
The global and EU green bond markets grew by an average of 50% per year between 2015-2020, but represented only 3 to 3.5% of overall bond issuance of overall bond issuance in 2020. More rapid growth of a high-quality green bond market is needed to meet the targets in the Paris Agreement and in the European Green Deal.
However, there is no uniform green bond standard and this is an obstacle to developing the market. The European green bond standard would allow better regulation of the green bond market, improving supervision, making it transparent, and preventing firms from presenting themselves as more environmentally friendly than they really are, a practice known as greenwashing.
What will the green bond standard look like?
On 28 February 2023, MEPs and Council reached a provisional agreement on the European green bond standard.
It will be available to companies and public entities that wish to raise funds on capital markets to finance green investments and meet tough sustainability requirements. All the money raised by bonds issued under the European green bond standard must be invested in activities that are aligned with the EU taxonomy for sustainable activity.
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