European Parliament approved new green bond standard
In early October of this year, the European Parliament adopted a new voluntary standard for the use of the EGB (European Green Bonds) label. The initiative is a significant step in combating the challenges of climate change and creating a greener economy. It is the first such standard in the world.
Green finance and climate change
The new green bond standard aims to facilitate the financing of projects to protect the environment and combat climate change. Under the standard, bond issuers will be required to allocate funds to investments in line with green goals. This means that funds raised from the issuance of green bonds will have a concrete impact on projects that support renewable energy sources, energy efficiency, or biodiversity conservation.
The new green bond order will allow investors to direct their money more confidently toward more sustainable technologies and companies. It will also give the company issuing such bonds more confidence that they will be suitable for investors who want to add green bonds to their portfolio. In addition, it will increase interest in such financial products and support the EU's transition to climate neutrality. This is a very important step, because until now the interest, and thus the supply of green bonds, has been relatively small. In 2020, green bonds accounted for only 3-3.5% of total bond issuance. This is far too little to achieve the goals of the Paris Agreement and the European Green Deal. Therefore, the European Parliament's decision reflects the European Union's growing commitment towards achieving the Sustainable Development Goals, especially in the context of the European Green Deal. Green bonds are a key element of this plan, enabling the mobilization of capital for projects that support environmental protection.
Transparency and independent verification
The introduction of the new standard is also a fight against greenwashing. Until now, not all bonds that were labeled "green" were actually as "green" as they claimed to be. That's why the new standard introduces strict rules. One of the key elements of the newly adopted standard is a strict evaluation of projects eligible for financing through green bonds. They will have to meet specific sustainability criteria, and bond issuers will be subject to stringent reporting requirements to ensure transparency and efficiency in the allocation of funds.
All companies that choose to adopt the standards, and thus the EGB (European Green Bonds) label when marketing green bonds, will be required to disclose detailed information on how the proceeds are used. They will also have to demonstrate how the investments in question fit into company-wide transformation plans. The standard thus requires companies to make a meaningful commitment to overall green transformation. The disclosure requirements, can also be used by companies issuing bonds that do not yet meet the stringent EGB standards, but have aspirations to do so and want to clearly signal them.
EGB-labeled bonds will also be subject to evaluation by independent verifiers. This is because the regulation establishes a specific registration system and oversight framework for external independent reviewers to assess compliance with these standards. This will ensure that any actual or potential conflicts of interest that external reviewers may face will be properly identified, eliminated (or managed) on an ongoing basis, and then transparently disclosed.
Summary
The European Parliament's decision to approve a new green bond standard is another step toward building a more sustainable and greener economy. However, the success of this endeavor will depend not only on the establishment of standards, but also on effective implementation, monitoring and reporting of results. The introduction of the new standard in Europe also gives hope that in time other regions of the world will also begin to consider introducing similar initiatives in the pursuit of global financial sustainability. The European Parliament's approval of the new green bond standard is a landmark moment toward building a more sustainable future. It opens up new opportunities for financing projects that not only generate profits, but also contribute to protecting the planet.