The European Commission has adopted several measures to increase its level of ambition on sustainable finance. First, the new Sustainable Finance Strategy:

The EU has become significantly more ambitious in tackling climate change. Sustainability is the central feature of the EU’s recovery from the COVID-19 pandemic and the financial sector will be key in helping to meet the targets of the European Green Deal. The Strategy includes six sets of actions:

• Extend the existing sustainable finance toolbox to facilitate access to transition finance.
• Improve the inclusiveness of small and medium-sized enterprises (SMEs) and consumers, by giving them the right tools and incentives to access transition finance.
• Enhance the resilience of the economic and financial system to sustainability risks.
• Increase the contribution of the financial sector to sustainability.
• Ensure the integrity of the EU financial system and monitor its orderly transition to sustainability.
• Develop international sustainable finance initiatives and standards and support EU partner countries.

The Commission has also adopted a Regulation on the European Green Bond Standard (EUGBS). This proposal will create a high-quality voluntary standard available to all issuers to help financing sustainable investments. Green bonds are already used to raise financing in sectors such as energy production and distribution, resource-efficient housing, and low-carbon transport infrastructure. The EUGBS will set a 'gold standard' for how companies and public authorities can use green bonds to raise funds on capital markets to finance ambitious investments, while meeting tough sustainability requirements and protecting investors from greenwashing. In particular:

• Issuers of green bonds will have a robust tool at their disposal to show they are funding green projects aligned with the EU Taxonomy.
• Investors buying the bonds will be able to more easily see that their investments are sustainable, thereby reducing the risk of greenwashing.

The new EUGBS will be open to any issuers of green bonds, including issuers located outside of the EU. There are four key requirements under the proposed framework:

• The funds raised by the bond should be allocated fully to projects aligned with the EU Taxonomy.
• There must be full transparency on how bond proceeds are allocated through detailed reporting requirements.
• All EU green bonds must be checked by an external reviewer to ensure compliance with the Regulation and that funded projects are aligned with the Taxonomy. Specific, limited flexibility is foreseen here for sovereign issuers.
• External reviewers providing services to issuers of EU green bonds must be registered with and supervised by the European Securities Markets Authority. This will ensure the quality and reliability of their services and reviews to protect investors and ensure market integrity. Specific, limited flexibility is foreseen here for sovereign issuers.

The core objective is to create a new ‘gold standard’ for green bonds that other market standards can be compared to, and potentially seek alignment. This standard will aim to address concerns on greenwashing and protecting market integrity to ensure that legitimate environmental projects are financed.

Finally, the Commission adopted the Delegated Act supplementing Article 8 of the EU Taxonomy Regulation, which requires financial and non-financial companies to provide information to investors about the environmental performance of their assets and economic activities. Markets and investors need clear and comparable sustainability information to prevent greenwashing.

These initiatives highlight the EU’s global leadership in setting international standards for sustainable finance. The European Commission intends to work closely with all international partners, including through the International Platform on Sustainable Finance, to cooperate on building a robust international sustainable finance system.

Image © European Commission, 2021