EU reaches landmark deal to fight greenwashing in bond market

EUROPEAN Union (EU) negotiators reached a deal to establish a green bond standard, giving investors long-awaited clarity that their money is aligned with the region’s climate ambitions.

Companies that use the standard will have to prove that the proceeds from their green bonds are in line with the bloc’s list of environmentally-friendly activities, known as the taxonomy.

They will, however, get a 15 per cent “flexibility pocket” for activities that are not yet covered by the rulebook, according to the terms of the agreement reached by EU lawmakers and member states.

“This regulation creates a gold standard that green bonds can aspire to,” said Paul Tang, parliament’s chief negotiator.

“Any green bonds not using this system will likely be looked at with increasing suspicion.”

The long-awaited deal has been plagued by disagreements over how strict the rulebook needs to be, and whether all issuers marketing green bonds in Europe should be required to comply.

Negotiators failed to reach a deal in December, as parliament and member states debated how much flexibility issuers should get when investing the proceeds.

The rulebook is intended to help creditors navigate a market with annual issuance of US$500 billion, and which is currently shaped by a mishmash of industry guidelines and voluntary standards.

Companies will have to commit to transition plans, parliament said in a statement.

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The deal will be subject to final approval by lawmakers and EU countries. BLOOMBERG