After five meetings, negotiators for the Council of the European Union and the European Parliament reached a provisional agreement on the creation of European green bonds (EuGB) on the evening of Tuesday, 28 February. This measure is part of the strategy on financing ‘sustainable’ growth and the transition to a climate-neutral and resource-efficient economy.
“With €100 trillion in annual trades, the European bond market is the single most popular option for businesses and governments to raise finances”, emphasised the text’s rapporteur Paul Tang (S&D, Dutch) in a press release. “Tonight the EU has taken a big step to green this massive market by adopting the first regulation in the world on green bonds”, he rejoiced. Companies that adopt the standard are thus committing to implement green transition plans.
As a result, investors will be able to direct their investments with more confidence towards more sustainable technologies and businesses. The standard is aligned with the EU’s taxonomy, which defines which economic activities can be considered environmentally sustainable.
“To guarantee the effective uptake by investors, it remains of the utmost importance to design an attractive, trustworthy and voluntary green bonds instrument, and it’s exactly what we achieved with the European green bond standard”, declared Christophe Hansen (EPP, Luxembourger) in a press release.
As requested by the Council of the EU, a ‘flexibility pocket’ will allow sovereign issuers to include, in their EU green bonds, a certain amount of spending as a product that has a positive environmental impact but without being aligned with the European taxonomy. It had prevented an agreement in December during the last trilogue negotiation session (see EUROPE 13085/10).
Finally, the provisional agreement provides for a flexibility pocket of 15%, which was the minimum acceptable for Member States. According to our information, the European Parliament—which was rather strongly opposed to it—finally agreed, thanks to some rather strict conditions.
This pocket only concerns sectors that are not yet covered by the EU taxonomy and certain very specific activities. Member States only have some leeway in how the technical selection criteria are applied: if the investments concern development aid and compliance with the criteria cannot be verified or if there are no sector-specific standards for that sector (for example, agriculture, mining, aviation).
In that case, Member States will still have to apply the generic ‘do no significant harm’ criteria. The idea is to ensure the usability of the ‘EuGB’ European standard from the start. The use of and need for this ‘pocket’ will be reassessed as the transition towards climate neutrality progresses.
On Wednesday, 1 March, a parliamentary source told EUROPE that [legislators] consequently felt that European green bonds would probably not be financing polluting activities and that 15% was acceptable.
Regarding the transparency that was sought by MEPs and was also the subject of debates, the agreement includes a requirement to provide information on how the bond’s proceeds will be used and on how those investments fit into the transition plans of the company as a whole.
The publication standards may also be used by companies issuing bonds that are unable to fulfil all the requirements to qualify for ‘EuGB’ bonds. “[I]nvestors buying the bonds will be able to more easily assess, compare, and trust that their investments are sustainable, thereby reducing the risks posed by greenwashing”, noted Swedish Minister for Finance Elisabeth Svantesson in a press release.
The text also establishes a registration system and a supervisory framework for external reviewers of ‘EuGB’ bonds. (Original version in French by Anne Damiani)