EU launches green bond label for new taxonomy

New EU green bond issuances worth billions of euros could be on the way as the European green bond label goes live this year, according to the Institute for Energy Economics and Financial Analysis (IEEFA).¹ 

At the end of December, the European Green Bond Standard (EUGBS) went live, offering a landmark regulatory framework for sustainable bonds under the EU’s new taxonomy, which includes some gas projects and nuclear investments.  

Issuers can use the new “European green bond” label when marketing a euro-denominated green bond to investors, providing it meets requirements set out in the EU Green Bonds Regulation adopted in 2023. 

These requirements include compliance with the EU taxonomy’s “do no significant harm” criteria, allocation of at least 85% of proceeds to sustainable purposes, and certification by an EU green bond reviewer registered with the European Securities and Markets Authority (ESMA). Issuers from supranationals to sovereigns and financial institutions to companies are expected to take advantage of the new standard, particularly as environmental sustainability targets grow in size and importance.  The IEEFA said that investments aligned with the EU taxonomy already reached a quarter of a trillion euros in 2023, indicating strong market potential for the new green bond label.²  Understanding the taxonomy 

Just ahead of the EUGBS taking effect in December, the EU released further clarifications on the taxonomy for sustainable economic activities.³ The guidance, published as a set of FAQ, covers how the taxonomy interoperates with the EU Corporate Sustainability Reporting Directive (CSRD) and the subset of European Standards for Sustainability Reporting (ESRS). Because of the CSRD, companies will need to align their reporting practices to the ESRS and the EU taxonomy even if they are not involved in green bond issuance.  

The taxonomy sets out more than 150 activities that can contribute to the EU’s sustainability goals across six environmental objectives: 

• Climate change mitigation 

• Climate change adaptation 

• Sustainable use and protection of water and marine resources 

• Transition to a circular economy 

• Pollution prevention and control 

• Protection and restoration of biodiversity and ecosystems 

 Companies under the scope of the CSRD need to map their business to these activities, and bond issuers will need to ensure that 85% of the proceeds of their bonds match them. November’s FAQ provide clarification on all six objectives, along with further information on the “do no significant harm” criteria, the Taxonomy Disclosures Delegated Act and general questions. The complexity of the new regulations are indicated by the size of this document, which runs to 75 pages.   Betting on bonds  The standards for companies and for green bond issuers are aimed at driving more capital towards sustainable activities, as well as setting rules around what is considered ‘green’. Rising greenwashing risk - the accusation that a company with both sustainable and unsustainable business activities is “pretending to be green” - has tended to hamper sustainable investment. For firms that don’t have any easy path to going green, it can seem more prudent to do nothing than to do a little and face reputational damage from greenwashing accusations. Clear rules will allow investors, companies and shareholders to better assess and analyse green claims and green investments. 

Green bonds have so far adhered to voluntary standards or principles such as those offered by the Climate Bonds Initiative, but these lack regulatory oversight and are not as detailed or stringent as the EUGBS.   

According to a report from sustainability data provider MainStreet Partners, only 23% of EU green bond issuers were meeting the new standard ahead of the deadline.⁴ Bonds issued under the new EU green bond label will be holding to the current top standard, making them more attractive to investors seeking to prove their green credentials. Issuers, particularly public ones, will also be keen to adopt the top standard to show their commitment to sustainability targets. 

While appetite for the standard should be strong, it will face a difficult market. In 2024, the supply of Euro-denominated sustainable bank bonds didn’t surpass the previous year’s volume for the first time in a decade, although it reached around €75bn.⁵  

A report from ING said: “Banks globally have issued €70bn in EUR-denominated ESG bonds so far this year, down from €74bn last year. Covered bonds and preferred senior unsecured bonds represent 27% and 26% of the year-to-date ESG print, respectively, while bail-in senior issuance makes up 40% of the green and social use of proceeds supply. Subordinated bonds and RMBS have a modest share of 5% and 2%, respectively, in the 2024 ESG print of banks.”⁶  

ING is also forecasting a slight decrease in ESG supply by banks in 2025 compared to the previous year, with expected issuance of around €70bn including 80% in green format. 

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