EU Approves World’s First Green Bond Standards To Avoid Greenwashing

Ruby Thakur
October 9, 2023
183

European Union lawmakers approved new standards for companies issuing “green” bonds to help investors pick sustainable companies and avoid greenwashing or misleading climate-friendly claims.

EU Approves World’s First Green Bond Standards To Avoid Greenwashing

Why In News

European Union lawmakers approved new standards for companies issuing “green” bonds to help investors pick sustainable companies and avoid greenwashing or misleading climate-friendly claims.
The European Parliament voted in favour of the new voluntary standard for the use of a “European Green Bond” label, calling it the first of its kind in the world.

Green Bonds

A Green bond (also known as climate bond) is a fixed-income financial instruments (bond) which is used to fund projects that have positive environmental and/or climate benefits.
A green bond is a debt security issued by an organization for the purpose of financing or refinancing projects that contribute positively to the environment and/or climate. A green bond is alternatively known as a climate bond.

Greenwashing

Greenwashing is the act of making false or misleading statements about the environmental benefits of a product or practice.
Greenwashing happens when organizations do the following: Make broad sustainability claims without evidence. Overstate their positive environmental effects in marketing materials. Advertise products as eco-friendly, but source raw materials from unsustainable suppliers.
Another cynical greenwashing move is to slap a green label on something to make it appear more sustainable or healthy, as Coca-Cola did with Coca-Cola Life — that with 6.6% sugar was far from a healthy drink. You’d probably get less Life if you drank a lot of it.

Why It Is Needed

Europe is the world’s biggest issuer of green bonds, accounting for more than half of global volume in 2021, though issuance is still only 3% to 3.5% of the overall bond market.
The standards will enable investors to direct their money more confidently towards more sustainable technologies and businesses.
It will also give the company issuing the bond more certainty that their bond will be suitable to investors who want to add green bonds to their portfolio
“It will also give the company issuing the bond more certainty that their bond will be suitable to investors who want to add green bonds to their portfolio,” parliament’s economic affairs committee said in a statement.

Steps Taken

The regulation, adopted by 418 votes in favour, 79 against and 72 abstentions, lays down uniform standards for issuers who wish to use the designation ‘European green bond’ or ‘EuGB’ for the marketing of their bond.
The regulation establishes a registration system and supervisory framework for external reviewers of European green bonds – the independent entities responsible for assessing whether standards are being adhered to.
All companies choosing to adopt the standards and therefore also the EuGB label when marketing a green bond will be required to disclose considerable information about how the bond’s proceeds will be used.
They would also be obliged to show how these investments feed into the transition plans of the company as a whole.

It also stipulates that any actual or potential conflicts of interest external reviewers may face are properly identified, eliminated or managed, and disclosed in a transparent manner.
This will increase interest for this kind of financial product and support the EU’s transition to climate neutrality.
At least 85% of funds raised would have to be allocated to activities in line with the EU’s “taxonomy” of sustainable activities.
Firms would also have to show how these investments feed into their plans to transition to a net zero carbon emissions economy.

Conclusion

By Ensuring Rigorous Oversight, The EU Aims To Bolster Investor Confidence In Green Bonds Thereby Supporting The Region’s Transition To Climate Neutrality.

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Ruby Thakur

General Studies Lecturer SSBCrackExams, BSc In PCM, Trained Students For State Services Exams. Expertise in Geography ,Polity & Current Affairs. Love Travelling.