Council Adopts Regulation Fostering Sustainable Finance with European Green Bonds

The Council has approved a regulation that establishes a standardized framework for European green bonds. This regulation outlines consistent criteria for bond issuers seeking to label their environmentally sustainable bonds as 'European green bonds' or 'EuGB.'

Environmentally sustainable bonds serve as a primary financial instrument for supporting investments in green technologies, energy efficiency, resource efficiency, sustainable transportation infrastructure, and research infrastructure. European green bonds will adhere to the EU's sustainable activities taxonomy and will be accessible to global investors.

This regulation represents a significant stride in implementing the EU's strategy for financing sustainable growth and transitioning toward a climate-neutral, resource-efficient economy. It aims to enhance uniformity and comparability within the green bond market, benefiting both bond issuers and investors. Issuers can demonstrate their commitment to funding genuine green projects in alignment with the EU taxonomy, thereby bolstering investors' trust in green investments and mitigating the risk of greenwashing. Ultimately, this will stimulate capital inflow into environmentally sustainable initiatives.

The regulation also establishes a registration system and supervisory framework for external reviewers of European green bonds. To address greenwashing concerns in the broader green bonds market, the regulation introduces voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued within the EU.

Under this regulation, all proceeds from European green bonds must be invested in economic activities that conform to the EU's sustainable activities taxonomy, provided those sectors are already covered by it. For sectors not currently included in the EU taxonomy and specific activities, a flexibility margin of 15% is permitted to ensure the immediate applicability of the European green bond standard. The use and necessity of this flexibility will be reviewed as Europe progresses toward climate neutrality and as more green investment opportunities become available.

Background and next steps

The European Commission presented its proposal for a regulation governing European green bonds on July 6, 2021. The proposal seeks to regulate the use of the 'European green bond' or 'EuGB' label for bonds with environmentally sustainable objectives. It will establish a system for registering and overseeing external reviewers for European green bonds and supervising issuers of these bonds.

The Council expressed its position on the proposal on April 13, 2022. Trilogue negotiations commenced on July 12, 2022, concluding with a provisional agreement reached on February 28, 2023. The European Parliament adopted the agreement's contents in its position on October 5, 2023. The Council formally adopted the regulation on October 23, 2023. It will be signed, published in the EU's Official Journal, and will enter into force 20 days later. The regulation will be implemented 12 months after its entry into force.

Relevant links:

• Regulation on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds
• Adoption note European Green Bonds regulation