EU green bonds won’t meet the bloc’s own high standards – POLITICO Europe

Brussels may be planning to raise €250 billion in green bonds — but they won’t meet its own best-in-class standards.

The European Commission will on Tuesday present its sustainable-finance strategy, which includes a voluntary green-bond standard for corporations and sovereigns, a draft of which was previously obtained by POLITICO, as part of an effort to drive more private cash toward its climate goals.

Yet the Commission won’t itself use the new label straightaway for climate-friendly bonds that finance the EU recovery fund — instead, it will try to incorporate its taxonomy of green investments into market standards.

Brussels’ decision to press ahead with its green-bond issuance may be for practical reasons, as its green list of climate-friendly investments was still on the docket when it presented its borrowing plans.

Still, the move raises the question: If the Commission isn’t using the benchmark, why should anyone else?

It may also be an indication of waning ambition within Brussels for sustainable finance following heated debates over the taxonomy — with criticism coming from both climate activists and countries with polluting industries — and a sign of just how difficult it is to reconfigure the financial industry toward green goals.

Sustainable finance has dominated the EU’s financial services agenda so far this year, both due to the fight over the taxonomy and far-reaching work on disclosures.

“The question is will the renewed sustainable finance strategy be a drag on the transition toward sustainability or will it be a driving force? I’m not sure yet,” said Paul Tang, a Dutch EU lawmaker.

The Socialist MEP, who signed a June letter calling for an ambitious strategy, said “reduced enthusiasm” in the EU executive may be reflected in a list of possible policy actions with few concrete steps.

“Are you going to propose legislation or not?” Tang added.

As well as the green-bond proposal, the strategy suggests eye-catching measures such as overhauling green credit ratings and considering capital relief for green loans — despite resistance from financial regulators — but over a number of years and without committing to bring forward changes, according to a draft obtained by POLITICO.

Voluntary standard

Critics will also point to the decision to make the green-bond standard voluntary instead of mandatory.

Corporations or governments will have to abide by the requirements only if they want to call their bonds “European green bonds.”

“Making it mandatory would reduce greenwashing,” said Lara Cuvelier, sustainable investment campaigner at NGO Reclaim Finance.

“It’s a lack of ambition — and that’s not just for green bonds but for other aspects. It feels like the Commission had originally wanted to be more ambitious, but that it faced a lot of pushback from the private sector and from the financial sector.”

Brussels is nevertheless hoping the standards will help the green-bond market take off by bringing more transparency and certainty for both investors and companies that do opt for the green label.

The standard requires proceeds are used for investments that are 100 percent aligned with the EU’s taxonomy, and issuing companies will have to undergo checks by external auditors to make sure the money is really being funneled to the right projects.

Governments get a little more flexibility, as checks will apply to whole programs rather than projects and can be performed by existing state auditors.

Luxembourg and German energy company E.ON have issued bonds aligned with the taxonomy, indicating some appetite at least.

Plus, eventually, the EU executive aims to join up its current approach with the green-bond standard once it is adopted by co-legislators.

It’s clear the Commission will face questions over whether that’s quick enough.

Louise Guillot contributed reporting.

This article has been updated.

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