US bank Goldman Sachs said the creation of a standard for European green bonds (EuGB) could stimulate transition funding from private capital and financial institutions, after the European Parliament and European Council reached a provisional agreement last week.
The provisional deal involves regulating the use of the EuGB designation for bonds that pursue environmentally sustainable objectives. "A consistently defined EuGB could become a catalyst for private capital and financial institutions to fund the sustainable transition," Goldman Sachs said.
The bank added that although the standard will be voluntary, it expects issuers to face a strong push on adoption from investors. This is because of the EuGB standard's links to the EU taxonomy, a classification system establishing a list of environmentally sustainable economic activities, and to the net zero transition. The fact that the standard "should ease the reporting burden for credit institutions when meeting their own EU Taxonomy Green Asset Ratio (GAR) reporting requirements" could play a role in its adoption, according to the bank. From 2024, banks in the EU will have to report their GAR — the share of their total investments meeting EU taxonomy.
For issuers wishing to use the EuGB designation for their environmentally sustainable bonds, the EU regulation would provide a uniform framework that is aligned with the EU taxonomy and made available to investors globally. The EuGB standard would also establish a registration system and supervisory framework for external reviewers of European green bonds.
"Environmentally sustainable bonds are one of the main instruments for financing investments related to green technologies, energy efficiency and resource efficiency, as well as sustainable transport infrastructure and research infrastructure," the European Council said.
"Issuers will be able to demonstrate that they are funding legitimate green projects aligned with the EU taxonomy. And investors 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," Sweden minister for finance Elisabeth Svantesson said.
The standard will have some built-in flexibility for sectors not yet covered by the EU taxonomy and certain "very specific activities", which will be re-evaluated as Europe's transition towards climate neutrality progresses, the council said.
