Posted on March, 02 2023

The new standard is intended to fight greenwashing in European bond markets and has the potential to become the gold standard for green bonds (also referred to as “ESG bonds”) in Europe and globally. If adopted widely by issuers, investors, underwriters, and other market participants, this could help create confidence that investments actually deliver on green pledges.

Jochen Krimphoff, global lead data, tools and methods, WWF’s Greening Financial Regulation Initiative (GFRI), who is also former member of the European Commission’s Technical Expert Group, which developed the initial proposal for the standard, said:
“Europe now has new and better rules for ‘green bonds’. What counts now is that issuers of green bonds, underwriters and investors adopt the standard, shift away from environmentally harmful debt capital instruments, and move into green debt instruments that fulfil the criteria of best practice green bonds”.

WWF has been calling for credible, fully developed and widely accepted standards for the fast-growing green bonds market since 2016. In 2022, markets of debt securities such as bonds labelled as green, social and sustainable reached more than 20% of market share of annual issuances in Europe, and more than 13% globally.

“It is great to see that the European green bond standard agreed by co-legislators today strengthens the checks and balances in a market which has now moved from ‘niche’ to mainstream. It includes a system of registration and a supervisory framework for external reviewers as proposed by the Commission’s expert group. The regulation also provides for a voluntary disclosure framework for issuers who are not ready to adopt the gold standard, but fails to make mandatory requirements on taxonomy alignment and principal adverse impacts for all bonds labelled as green or sustainable, as recommended by WWF, ” added Jochen Krimphoff.

More detailed disclosure rules mandated by the regulation agreed today are yet to be released by the European Commission. 

Whether debt capital markets labelled as green will eventually play their part in saving the planet, and whether they shift to becoming ‘zero-carbon and nature positive’, will now depend on the people who control transactions in these markets,  including market practitioners, financial regulators, supervisors and central bankers. WWF calls on these practitioners to speedily adopt the new green bond standard.

References:

1- Legislators strike deal on a new standard to fight greenwashing in the bond markets, 28 February 2023
2- Over the past 5 years WWF has worked with standards-setters, regulators and capital market participants to shape and nurture environmental standards for global debt capital markets. During that period international markets for ‘green bonds’, also referred to as “ESG bonds”, have grown substantially, both in quality and quantity.
3- The European Green Bond Standard adopted today is based to a large extent on a proposal developed by the EC-mandated Technical Expert Group on Sustainable Finance (TEG) in June 2019.
4- Wanted: Common standards for ‘green bonds’ across the EU
5- Source: AFME ESG Finance Report Q4 2022 and Full Year 2022, and S&P global ratings
6- In particular with respect to the detailed requirements for transition plans and controversial activities such as gas or nuclear that are currently included in the EU-taxonomy. EU Taxonomy: Environmental groups start legal action against ‘sustainable’ gas classification, September 2022.
7- Debt capital markets can do more to prevent climate catastrophe and nature loss, September 2021