EC launched a targeted consultation on establishment of the Green Bond Standard in EU, with the comment period ending on October 02, 2020. This consultation builds on work of the EC's Technical Expert Group on sustainable finance (TEG) and focuses on the added value of an official EU Green Bond Standard. A decision on this will be taken in the context of the Renewed Sustainable Finance Strategy, for which there is an ongoing consultation until July 15, 2020. This strategy is expected to be proposed in the fourth quarter of 2020.
Green bonds play an important role in financing assets needed for the low-carbon transition. The current initiative aims to further increase the public and private finance for sustainable investments by establishing a high quality and easily recognizable European standard for green bonds, providing a clear definition of eligible green assets and projects. The ongoing COVID-19 outbreak shows the critical need to strengthen the sustainability and resilience of our societies and the importance of integrating social issues and objectives into the broader functioning of our economies. Financial markets have so far responded to the challenge with increased issuance of social bonds responding to the impact of COVID-19 pandemic. These social bonds often follow established market-based Social Bond Principles. Through this consultation, EC is seeking the input of stakeholders on the lessons learned from this new development, including whether EC can play an even greater supportive role in building resilience to address future potential crises. Green bonds will be instrumental in reaching the objectives of the European Green Deal.
Green bonds will play an even larger role in unlocking the private sector's potential to address climate change and foster a sustainable economic recovery after the pandemic. EC has published an inception impact assessment on the establishment of an EU Green Bond Standard. As part of the Action Plan on Financing Sustainable Growth, EC had committed to developing standards and labels for green financial products and instruments, including an EU Green Bond Standard. As a first step, the Technical Expert Group on sustainable finance was tasked with preparing a report on the EU Green Bond Standard. The Expert Group published its first report in June 2019, with 10 recommendations for the establishment of such a standard. The standard would be based on the EU taxonomy on sustainable finance, which is an EU-wide classification system for sustainable investments. Given that the euro is already the main currency used for the issuance of green bonds worldwide, an official EU Green Bond Standard could also bolster the international role of the euro and help to consolidate the EU as a global hub for green finance.
Furthermore, the establishment of an EU Green Bond Standard should contribute to growing the market for green bonds in two main ways. First, on the demand side, by reducing search costs for investors looking to invest in bonds that contribute to environmental goals, by providing a trusted and recognized alternative to current market-based standards. Second, on the supply side, by making it more attractive to issue green bonds, by standardizing, providing clarity on definitions, and ensuring that verifiers have the necessary expertise and objectivity. The link with the EU Taxonomy and the technical screening criteria for the objectives of the taxonomy is one of the key issues that will need to be calibrated when establishing an EU Green Bond Standard. It will also be important that any verification is robust enough to avoid mis-selling and abuses of the brand “EU Green Bond.” The EU Green Bond Standard would also aim to serve as a reference for other sustainable financial products such as social and sustainable bonds as well as green, social, and sustainable loans. A legal definition for an EU green bond would also enable linkages with other EU legislation, for instance, to promote their use.
- Press Release
- Targeted Consultation (PDF)
- Impact Assessment
- Overview of the Consultation
- Overview of EU Green Bond Standard
Comment Due Date: October 02, 2020
Keywords: Europe, EU, Banking, Securities, Sustainable Finance, Climate Change Risk, ESG, European Green Deal, Green Bond Standard, Social Risk, COVID-19, EC
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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