The European Commission has presented its sustainable finance strategy with the aim of bringing financial institutions on board with its goal of a climate-neutral continent. Among the legislative proposals are standards for green bonds to be followed by both companies and member states.
Brussels estimates that the European Union (EU) will need some 480 billion euros in additional investment each year to meet its climate targets, which call for a 55% reduction in pollutant emissions by 2030 compared to 1990 and to reach carbon neutrality – emitting only what it can absorb – by 2050. However, emissions of ‘green’ bonds – those intended to finance environmentally sustainable projects – account for only 2-4 per cent of the total, some 250 billion euros globally, and while they are growing at 40 per cent a year, the EC believes they can grow further.
The voluntary regulation will provide issuers of environmentally friendly debt with guidelines that they will have to meet in order to obtain the EU label. The EU label for “green bonds” aims to ensure that the proceeds of these securities are invested in climate change or environmental projects, thus helping to mobilise funding for these objectives and preventing financial products that are not green from being marketed as green.
To obtain this label, issuers will have to allocate 100 per cent of the bond yields to objectives in line with the European “taxonomy”, a classification of activities considered sustainable.
This standard may be used by companies, financial institutions, states and other public bodies, European or otherwise, but its use will be voluntary, as it is not intended to prevent the use of other standards already operating in the market.
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