Corporate TreasuryFinancial Supply ChainEU launches voluntary green bond standard

EU launches voluntary green bond standard

Though readily useful to investors, the widespread use of the Taxonomy would be as a common language and reference point for markets

The EU’s Technical Expert Group (TEG) on Sustainable Finance has launched a voluntary EU Green Bond Standard and a set of low-carbon benchmarks.

The new 400-page report and taxonomy aims to provide practical guidance for policy makers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy. It’s hoped that the new standards will put an end to the issues surrounding what exactly constitutes ‘green’ in trade finance. Guidelines for companies outlining how to report climate change-related information have also been published.

Basis for change

The report sets out technical screening criteria for 67 economic activities that can make a substantial contribution to climate change mitigation across sectors such as agriculture, forestry and manufacturing. It also includes a methodology and worked examples for evaluating contributions to climate change adaptation.

The TEG report on EU taxonomy quoted: “Through financing or investments and through the stewardship of investments, investors will influence the decisions taken by corporations and other entities. This chain of influence requires translation of policy goals into frameworks that the investors and managers of capital can respond to. The EU Taxonomy is one example of such a framework: a list of economic activities assessed and classified based on their contribution to EU sustainability related policy objectives.

“The EU Taxonomy is an implementation tool that can enable capital markets to identify and respond to investment opportunities that contribute to environmental policy objectives. Decisions by investors to allocate capital or influence company activities will be making a substantial contribution to climate goals and to the related SDGs”

Implementation and use

With its mandate having been extended until the end of this year, the TEG will launch a call for feedback by early July on those technical screening criteria that have not yet been subject to public consultation.

It will also refine and further develop ‘some incomplete aspects’ of the proposed criteria, and develop further guidance on implementation and use of the taxonomy.

The TEG’s recommendations are designed to inform a proposed delegated act to implement the taxonomy. Under the draft regulation currently under discussion, this would be developed by the Commission and subject to full public consultation as required under standard procedures.

Publication of the TEG’s reports comes as political agreement on a taxonomy regulation by the EU Council and the European Parliament remains outstanding. Under the Commission’s proposal, asset managers marketing investment products as environmentally sustainable would need to explain whether, and how, they have used the taxonomy criteria. Investors would be free to explain that that they use alternative methodologies.

Sustainable finance is fast becoming a mainstream financing tool and the latest to target the untapped opportunities of climate finance and green bonds are International Finance Corporation (IFC) and HSBC. Investors and issuers of green bonds in Asia expect an alignment of standards to take place as this asset class is gaining traction in the secondary markets.

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