Green bond issuers gear up for Europe’s landmark new standard
Key Takeaways:
European Union taxonomy-aligned investments reached €249 billion in 2023, suggesting significant uptake potential for European Green Bond Standard issuances.
Large corporate issuers with significant eligible investments may find it almost effortless to align with the new label for raising funds.
Public issuers are well-positioned to issue sizeable benchmark bonds that spur wider participation.
16 December 2024 (IEEFA) | Financial institutions and corporates with eligible sustainable investments should easily be able to raise funds with the European Green Bond Standard (EUGBS), which takes effect on 21 December 2024.
New research from the Institute for Energy Economics and Financial Analysis (IEEFA) suggests EUGBS issuances worth hundreds of billions of euros could be on the way from issuer types such as supranational entities, government agencies, sovereigns, financial institutions and corporates.
The standard requires use of proceeds to be aligned with the European Union (EU) taxonomy, which defines whether an economic activity is considered environmentally sustainable. As taxonomy-aligned investments reached €249 billion in 2023, there is significant potential for applying the new green bond label.
“Projects are already in place to support considerable uptake in European green bond supply. As investments aligned with the taxonomy continue growing, the new label will become a prominent subset of the green bond market,” said Kevin Leung, author of the study and a sustainable finance analyst at IEEFA.
While prominent existing green bond issuers could potentially align with the standard, the research suggests financial institutions and corporates may become frontrunners.
“There is minimal additional burden for banks as they are already expected to detail their EU taxonomy-aligned assets, which could determine the eligible pool for European green bond funding,” said Leung. “Non-financial corporate issuers with eligible investment pipelines may find it almost effortless to align with the label.”
The research calls on public entities—including supranational organisations, governmental agencies and sovereigns—with sustainable project pipelines to also lead uptake of the label.
“They are well-positioned to issue sizeable benchmark bonds that spur wider participation from other issuers facing proportionately higher hurdles to meet EUGBS requirements,” said Leung. “For example, the EU’s NextGeneration Green Bond programme has an unspent fully taxonomy-aligned pool of €53.5 billion. The EU could adopt the green bond label for this while establishing best practices.”
Read the briefing note: https://ieefa.org/resources/driving-green-finance-europes-new-label/
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