EU to crackdown on greenwashing in green bonds

20 May, 2022

The proposals seek to bring in standards, as there is currently no uniform green bond standard in the EU.

The EU Parliament’s Economic and Monetary Affairs Committee have proposed a series of measures to better regulate the green bond market.

The Committee hopes the measures will reduce greenwashing and “weed out” so-called brown companies, those companies that belong to highly polluting industries.

To tackle greenwashing in the green bond market, the Committee has proposed introducing transparency requirements, with these being aligned with the taxonomy legislation on the use of proceeds derived from bond issuance.

The Committee stated this would help regulate the wider green bond market rather than just those with a European Green Bond Label (EuGB). The Committee also proposed that all EuGBs have verified transition plans, to prevent brown companies advertising themselves to investors as greener than they really are.

Further measures proposed include rules to strengthen supervision, such as ensuring that external review companies have fewer conflict of interests as well as the provision of legal recourse to investors if the issuer’s failure to comply with green bond rules leads to the depreciation of the security.

It has also been proposed that green bond issuers that plan to allocate to nuclear energy or fossil gas related activities would have to state so from the outset, on the first page of their EuGB factsheet.

Paul Tang, a S&D member of the European Parliament who was responsible for preparing the proposal text, commented: “The European Green Bond Standard needs to be fully aligned with the EU taxonomy for it to become the gold standard in the international green bond market.

“And with transition plans, we put European Green Bonds at the heart of companies’ transitions to a sustainable economy. We are serious about ending greenwashing. When this regulation becomes law, simply saying your firm’s bond is green will no longer be good enough.”

Green bonds have surged in issuance levels but many commentators have raised concerns about the green credentials of all this debt.

Watch Minerva's educational briefing on Greenwashing and how to address it in your investments.