By Simon Jessop
(Reuters) – The European Commission announced on Tuesday a plan to introduce a European Green Bond Standard to strengthen oversight of the burgeoning sector and funnel money to projects and programs that help it meet its climate targets.
Green bonds often raise funds for environmentally friendly projects, such as solar or wind power, low-carbon transportation infrastructure, or resource-efficient housing. Governments are also interested in increasing green sovereign debt.
Total issuance, globally, recently surpassed $ 1 trillion for the first time and demand is expected to grow strongly in the coming years.
Below are some of the main features of the new standard.
WHAT DOES THE COMMISSION PROPOSE?
The new standard (EGBS) aims to help companies raise funds for projects and governments for programs that are in line with the bloc’s climate goals. The standard will use the definition of green economic activities as set out in the European Union’s climate-friendly asset classification or taxonomy, and aims to be the framework for the ‘gold standard’ for issuance globally, with a stricter regulatory supervision than for the existing market. -driven frames.
WHY IS IT COMING NOW?
Green bond issuance has increased fivefold in the block over the last five years, representing more than half of global issuance in 2020, with 49% denominated in euros. Despite this, green bonds only account for 2.6% of EU bond issuance and policy makers are eager to see this jump considerably as they seek to achieve the EU’s climate goal of being net zero emissions. by 2050. The Commission also believes that doing so will help strengthen the role of the euro in international markets and reinforce its Capital Markets Union objectives.
WHO CAN USE IT?
The standard is voluntary and will be open to companies and governments, both inside and outside the bloc, and will cover all types of bonds, including covered bonds, asset-backed securities and project bonds.
WHAT ARE ITS MAIN CHARACTERISTICS?
In addition to being voluntary and open to all, the EGBS will require issuers to allocate 100% of revenues to activities aligned with the taxonomy before the bond expires, with a duration of up to 10 years. The bonds will also be subject to external review, with reviewers supervised by the bloc’s market regulator, the European Securities and Markets Authority.
WHY DOES THE MARKET NEED A NEW FRAMEWORK?
The Commission believes that the market suffers from a lack of clear definitions of what constitutes a green project, which increases uncertainty and costs for issuers and investors. The EUGBS aims to be compatible with existing market-led frameworks, including the widely used Green Bond Principles of the International Capital Market Association.
Fusion Media or anyone involved with Fusion Media will not accept any responsibility for loss or damage as a result of reliance on information, including data, quotes, charts, and buy / sell signals contained on this website. Be fully informed about the risks and costs associated with trading the financial markets, it is one of the riskiest forms of investment possible.