EU Parliament shows the red card and puts an end to greenwashing!

The EU Parliament is making the first attempt of its kind in the world to regulate "Green Bonds" and has paved the way for the EuGB Regulation, a European regulation on so-called EU Green Bonds (EuGB). But let's start from the beginning:

What are Green Bonds?

Green Bonds are bonds that invest exclusively in sustainable and climate-friendly projects (e.g. wind farms or energy-efficient real estate).

Who issues Green Bonds?

In addition to states/governments, now also banks and companies from environmentally related sectors.

Who is the Green Bond for?

Large or institutional investors as well as small investors with a green "financial thumb". Green Bonds are no longer a niche product.

When is a Bond green?

If it says so on the label, you might think. This is because there are no universally valid standards. Instead, various standards have been established, each of which defines differently what qualifies a bond as a Green Bond. One well-known example is the "ICMA Green Bond Principles". This is exactly where the EU comes in and wants to create and establish standards for "EU Green Bonds".

What does the EuGB Regulation dictate to issuers (states, banks, companies)?

The text of the regulation can be found here. A brief summary of the most relevant aspects:

(i) in principle taxonomy-compliant use of the emission proceeds, with a 15% flexibility quota, which is not to be understood in the sense of complete room for maneuver,

(ii) comprehensive transparency during the term of the bond (preparation of an information sheet, annual allocation reports on the allocation of the emission proceeds and the progress of the information plan as well as so-called impact reports); most documents are to be verified by external auditors,

(iii) Publication of and compliance with investment plans in accordance with fixed deadlines,

(iv) special regulations for securitized bonds must be observed.

What about non-EuGBs? Will they remain unregulated?

For other Green Bonds that are not advertised as EuGBs, as well as for bonds with sustainability or social commitment (so-called Sustainability Bonds or Social Bonds), the EU Commission is to develop guidelines with standardized documents that can be used voluntarily for information in advance of the issue. However, this will take place at a later date (probably twelve months after the EuGB Regulation comes into force).

Aim of the EuGB Regulation?

To create high quality and transparency standards for Green Bonds.

Status of the legislation?

As this is not an EU directive but a regulation, there is no need for implementing legislation in the respective member states. The EU Parliament adopted the EuGB Regulation in October 2023. If it is approved by the Council of Ministers before the end of this year, the regulation is expected to be applied in practice at the end of 2024.