In the blog below, Jeroen van Eck of our Financial Markets team looks back on, and ahead to, the developments surrounding green bonds in the EU.


Developments in green bonds

The EU financial markets have seen record volumes of issuances of green, social and sustainability bonds and, increasingly, sustainability-linked bonds in 2021 and 2022. The proceeds of green, social and sustainability bonds finance a diverse range of green, social and other sustainable projects of the relevant issuers, whereas with sustainability-linked bonds the proceeds are for general purposes of the issuer and the terms and conditions of the bonds include incentives for the issuer to develop an increasingly sustainable footprint. In most cases, issuances comply with principles and guidelines of ICMA (the International Capital Market Association), including, in respect of green bonds, the ICMA Green Bond Principles (the ICMA GBP).

In a separate development, the EU legislative powers tried to seal the deal on the EU Green Bond Standard (EU GBS) in 2022. Since no political agreement was reached in December 2022, an agreement on the EU GBS was deferred to 2023. In a recent press release it was announced that the European Council and the European Parliament have reached a provisional agreement on the EU GBS.


The aim of the EU GBS is to ensure that bond issuances labelled as ‘green bonds’ align with the EU's environmental and climate objectives. The EU GBS has been created as a way to promote the development of a transparent and robust green bond market in the EU and as a response to the increasing demand for green bonds used to raise capital for projects that have environmental benefits. The EU recognizes the need for a common set of guidelines to ensure that green bonds are used effectively to support the EU's environmental and climate objectives.

The EU launched a first proposal for the EU GBS in 2018, which was reviewed and updated by the European Commission on 6 July 2021. The European Council (in April 2022) and the European Parliament (in May 2022) published their own visions, including proposed amendments to the EU GBS. Despite disagreement in 2022, the EU legislative powers have now found a compromise.

Once the EU GBS has been adopted, the proposed Regulation will set a gold standard for how companies and public authorities can use green bonds to raise funds on capital markets in order to finance ambitious large-scale investments, while meeting tough sustainability requirements and protecting investors. The EU GBS is also intended for use as a benchmark for the creation of similar standards outside the EU.

Legal framework

The EU GBS will be available to any issuer of green bonds, including companies, public authorities, and also issuers located outside of the EU. The EU GBS covers four main areas, as do the ICMA GBP: use of proceeds, process for project evaluation and selection, management of proceeds, and reporting. However, there are four key requirements under the proposed framework that differ from the ICMA GBP as follows:

  • Taxonomy-alignment: All the funds raised by EU Green Bonds should be allocated to projects that are aligned with the EU Taxonomy Regulation, provided that the sectors concerned are already covered by it. For those sectors not yet covered by the EU Taxonomy Regulation and for certain very specific activities, there will be a flexibility pocket of 15% . The fact that the projects must be aligned with the EU Taxonomy Regulation, rather than being aligned with the issuer’s own green bond framework on the basis of the ICMA Green Bond Principles, raises concerns, given the current lack of a comprehensive solution to issues with the Taxonomy Regulation. Also, the level of detail and specificity in the proposed Taxonomy Regulation will reduce the eligibility of green projects that would otherwise be capable of being financed through green bonds. This will be an impediment to growth and development of the green bond market;
  • Transparency: Full transparency is required on how the bond proceeds are allocated through detailed reporting requirements, rather than flexibility in the scope, methodology and granularity of reporting as under the ICMA GBP. The EU GBS also includes voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the EU
  • External review: All European green bonds must be checked by an external reviewer to ensure compliance with the Regulation and taxonomy alignment of the funded projects. This is no longer a recommendation as under the ICMA GBP, but rather a requirement; and
  • Supervision by the European Securities Markets Authority (ESMA) of reviewers: External reviewers providing services to issuers of European green bonds must be registered with and supervised by the ESMA. This will ensure the quality of their services and the reliability of their reviews to protect investors and ensure market integrity. This is a departure from the ICMA GBP, which recommend external review pre- and post-issuance by third parties.

In short, a green bond can receive the EU Green Bond label if it meets the criteria of the EU GBS, which strongly relies on the Taxonomy Regulation. Discussions between the EU’s legislative bodies about the EU GBS centred on it being a voluntary standard, co-existing with the ICMA GBP and other international sustainable finance initiatives, or a mandatory standard. If it were a mandatory standard, any green bond issued in the EU would need to comply with the strict EU GBS criteria, including alignment with the Taxonomy Regulation, which could be an obstacle to development of the green bond market in the EU.

Next steps

The recent compromise between the European Parliament and the European Council is provisional and it still needs to be confirmed and adopted by the European Council and the European Parliament before it is final and effective. The final text (once adopted) will start to apply 12 months after its entry into force.