Does the European Union need another Green Bond Standard?

On February 28, 2023, the European Union (EU) reached a political agreement on a future regulation of green bonds, the European Green Bond Standard (EU GBS). Last Friday, the European Parliament officially adopted this new regulation. The regulation aims to improve the effectiveness, transparency, comparability and credibility of the green bond market in the EU. In this policy brief, we evaluate the potential advantages and limits of this new regulation. The EU GBS certainly makes sense from a political point of view. It could become a reliable benchmark for evaluating the “greenness” of a bond that directly aligns with regulatory and political action. However, the EU GBS is unlikely to be widely accepted by market participants. The already existing market-based green bond standards seem to be well established. Apart from that, the EU GBS can be seen as a combination of some of those already existing labels, but with the additional obligation for issuers to provide some legally binding information in their prospectuses. The latter could indeed discourage green bond issuers from using the EU GBS.

Brückbauer, Frank, Thibault Cézanne, Karolin Kirschenmann and Michael Schröder (2023), Does the European Union need another Green Bond Standard?, ZEW policy brief No. 23-10, Mannheim