In the past weeks, many EU member states have committed themselves to becoming climate-neutral by 2050. In order to achieve this goal, massive investments in a more sustainable economy will be needed. In order to facilitate and stimulate investments in climate-friendly projects and assets, the European commission is currently developing a so-called Green Bond Standard.
December 12, 2015 was the day the Paris agreement was published. Its central aim is to strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius. For the EU, this implies a 40% cut in greenhouse gas emissions until 2030, with an investment gap estimated at 180 billion EUR per year (source: European Commission) – a sum that cannot be raised overnight.
FINANCING SUSTAINABILITY GOALS
Rather than to use public funds to fill this gap, the EU aims to motivate investors to re-orient financial flows towards low-carbon and climate resilient developments. This is one of the main goals of the EU Action Plan on Sustainable Finance, published in March 2018.
One of the priority actions for the commission is to “develop official European sustainable finance standards, starting with green bonds”. To achieve this goal, the Commission has put together a Technical Expert Group (TEG), which had to create a report on an EU green bond standard (EU GBS).
EU GREEN BOND STANDARD: THE REPORT OF THE TECHNICAL EXPERTS
Three months after publishing an interim report, the TEG published its final report in June 2019. The report proposes the content of an EU Green Bond Standard, explains its purpose and sets its ambition level. It also explains how the TEG believes the creation of the proposed EU GBS will address the barriers hindering the green bond market’s further development and will support its role in channelling substantial financial flows into green projects. In addition, the interim report elaborates on possible incentives, based on the EU GBS, to enhance the growth of green bond issuance and the links with other sustainable financing instruments in a wider context. The EU GBS is proposed as a voluntary standard building on existing market practices and designed to be compatible with them.
THE EU TAXONOMY
As indicated above, the ambition of the EU is to guide investors towards green projects. But what counts as green? This is where the EU Taxonomy comes into play: together with the report, the experts published the Taxonomy Technical Report, a classification to determine how sustainable projects are. In essence, the proposed taxonomy is a list of economic activities that contribute to climate change mitigation and adaptation, such as low-carbon transport, generation of renewable energy, manufacture of biofuels, etc.
VERIFICATION BY EXTERNAL PARTIES
In order to ensure the credibility of the Green Bond Standard, third-party verification of bonds will be mandatory. To this end, an accreditation regime for verification bodies will be created. As an experienced verification body, we are following the development closely and will seek accreditation as soon as possible.
HOW DOES THE EU GREEN BOND STANDARD COMPARE TO THE CLIMATE BOND INITIATIVE?
The EU taxonomy will be developed in harmony with the categories of the Climate Bonds Initiative. This means that bonds that are certified by the Climate Bonds Initiative won’t have problems to receive the approval of the European Initiative. The Climate Bonds Certification offers issuers the chance to prove that their bonds are sustainable without having to wait for the European Standard. A double certification with EU GBS and the Climate Bonds Certification is possible.
The report of the working group makes recommendations to the EU Commission. It is expected that these recommendations will lead to the approval and introduction of a Green Bond Standard in the EU. Sign up for our newsletter to receive information on the latest developments.
WHAT DQS CAN DO FOR YOU
DQS is your partner for verification of green bonds. With qualified assessors around the globe, we help bond issuers gain the trust of potential investors.
Source: DQS CFS website (https://dqs-cfs.com/2019/06/how-the-eu-wants-to-finance-climate-protection-the-eu-green-bond-standard/). For more information, please send email to email@example.com.