The regulation establishing rules for a European green bond standard will enter into force next month after the Council followed the European Parliament in adopting the text.

The regulation, which lays down uniform requirements for issuers of bonds that want to use the European green bond designation, or EuGB, will apply 12 months after its entry into force later next month.

According to John Berrigan, director general, financial stability, financial services and capital markets union at the European Commission, the standard, which is voluntary, is expected to be available to issuers from January 2025.

Writing on social media, he said the new standard would be aligned with market best practices on reporting and external review, while also benefitting from requiring alignment with the EU Taxonomy and having external review of European green bonds subject to a supervision regime via the European Securities and Markets Authority (ESMA).

On the reliance on the EU Taxonomy, Berrigan said this meant that “investors buying a European Green Bond will benefit from the assurance that the proceeds of the bond are allocated to green projects that align with the detailed and well-known requirements of the EU Taxonomy”.

“As more economic activities are added to the Taxonomy, the types of green projects that can be funded by a European green bond will further increase, which should also contribute to higher uptake of the standard,” Berrigan wrote.

The EU green bond rules require eligible deals to be at least 85% aligned with the green taxonomy, with the use of and need for the 15% “flexibility pocket” to be re-evaluated in the coming years.

Investors have indicated they expect the EU green bond label to make it more difficult for companies to engage in greenwashing

Proposal floated in 2021

The European Green Bond regulation goes back to a proposal from the Commission in July 2021, after the idea for an EU green bond standard was floated in 2017 by members of the EU’s High Level Expert Group on Sustainable Finance.

The European Council, Parliament and Commission reached a political agreement on the regulation in late February this year, although it still needed to be formally adopted by Council and Parliament. The Parliament had tried to make the EU green bond label mandatory, but during the negotiations it agreed to a voluntary approach.

The Parliament formally approved the agreement on 5 October and the Council did so this week, with Austria, Germany and Luxembourg abstaining. In statements, Austria and Germany made clear this was because of the inclusion of nuclear energy in the EU Taxonomy.

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