European Green Bond Standard “a positive step” despite limitations, study finds

According to the Institute for Energy Economics and Financial Analysis (IEEFA), the European Green Bond Standard (EUGBS) offers improved transparency and tackles greenwashing, encouraging flows to support climate investment needs.

After being adopted by EU lawmakers in October 2023, the EUGBS will start applying in late 2024 when issued bonds may voluntarily use the label “European Green Bond” or “EuGB”.

“With ample projects needed for the net-zero transition, the EUGBS and its role in improving credibility will give issuers potential long-term benefits, thereby underpinning long-term green bond supply,” said Kevin Leung, author of the report and a sustainable finance analyst at IEEFA.

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“Issuers can build a track record of EuGB-labelled bond issuances to reflect lower transition risks through four pillars: commitments, capital expenditure pipelines, green asset delivery and governance,” he added.

However, the EUGBS has limitations, the report pointed out. It lacks standardised impact reporting, making it difficult for investors to assess and compare environmental impacts.
Additionally, its loose allocation timeline for proceeds may lead to unallocated funds, potentially reducing investor confidence in achieving timely environmental impacts, especially for bonds with distant maturity dates.

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The report suggests “follow-up measures”—such as revisions of the relevant EU sustainable finance regime and the launch of a comparable impact reporting framework—to support the uptake of EuGB labels versus other self-claimed labels.

The European Commission intends to issue €250 billion in green bonds as part of the NextGenerationEU coronavirus recovery package. The report recommends that the Commission establish best practices and offer clear communication on regulatory requirements to facilitate easier adoption of the EUGBS label by issuers. However, concerns emerge due to low alignment with the EUGBS in the latest allocated proceeds, raising usability concerns.

“High demands from investors raise the EU’s obligation to align all its issuance with the EUGBS,” said Leung. “The bloc has not made a clear promise for a gradual alignment as the European Investment Bank has; this does not help promote uptake.”

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