The European Union is nearing a final agreement on rules designed to prevent greenwashing in one of the fastest growing areas of finance.
(Bloomberg) — The European Union is nearing a final agreement on rules designed to prevent greenwashing in one of the fastest growing areas of finance.
The European Parliament and member states aim to complete the Green Bond Standard this week, according to negotiators. Talks are focused on whether transparency requirements should include issuers who don’t adopt the green-bond label, and on the degree of flexibility around the use of proceeds, according to documents seen by Bloomberg.
The rulebook is intended to help creditors navigate a market with annual issuance of $500 billion, and which is currently shaped by a mishmash of industry guidelines and voluntary standards. It’s part of a broader framework that includes a taxonomy that outlines the economic activities deemed in line with a climate-neutral path, as well as sustainable investing rules for asset managers.
Whether the final Green Bond Standard can be judged a success will depend on “whether they extend disclosure requirements to all green bonds and whether issuers will be required to have credible transition plans in place,” said Sebastian Mack, a policy fellow at the Jacques Delors Centre. “Both would be a major step in improving transparency, comparability and fighting greenwashing.”
European officials want to make sure the market for green debt actually aids the fight against climate change. Proposed changes to strengthen the rules would mean that all green and sustainability-linked bond issuers will need transition plans in line with the bloc’s own 2050 net-zero targets.
Aside from issues of transparency and flexibility over the use of proceeds, negotiators said that the question of grandfathering remains a sticking point. The outcome will determine how long a green bond can rely on an old version of the green taxonomy after a new iteration is published.
The EU is still fielding 11th-hour feedback. The International Capital Market Association, which manages the Green Bond Principles that underpin much of the global market, said earlier this week it was opposed to a lawmaker proposal to have the rules apply to other kinds of sustainable debt besides green bonds. The ramifications of such a step “have not been properly scrutinized,” it said on Tuesday.
Meanwhile, a proposal to enforce disclosure requirements for all debt issuances marketed as environmentally sustainable was welcomed by the European Sustainable Investment Forum, which represents funds managing about $20 trillion in assets. Eurosif also called for greater transparency in the sustainability-linked bond market.
“We are cognizant that these requirements will, in some instances, imply additional effort and cost for issuers, especially in the first years of application,” said Aleksandra Palinska, executive director of Eurosif. “Nevertheless, we believe that such disclosures would minimise greenwashing and that the benefits to the investors, supervisors and other stakeholders would outweigh the costs.”
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