Green bond issuers are gearing up for the European Green Bond Standard (EUGBS), set to take effect on December 21, 2024. With €249 billion in EU taxonomy-aligned investments recorded in 2023, the new standard is expected to unlock opportunities for financial institutions, corporates, and public entities to issue labelled green bonds.
The EUGBS mandates that proceeds from bonds align with the EU taxonomy, which defines environmentally sustainable economic activities. Research from the Institute for Energy Economics and Financial Analysis (IEEFA), an institute that examines issues related to energy markets, trends and policies, has predicted that issuances worth hundreds of billions of euros could emerge under the new framework. Supranational entities, sovereigns, government agencies, financial institutions, and corporates are all poised to lead the charge, it highlighted.
Kevin Leung, author of the IEEFA study, said: “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.”
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The research suggested that financial institutions and corporates will likely take center stage, as many already report EU taxonomy-aligned assets. “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.”
Public issuers, including sovereigns and governmental agencies, are also expected to play a key role. “They are well-positioned to issue sizeable benchmark bonds that spur wider participation from other issuers facing proportionately higher hurdles to meet EUGBS requirements,” Leung noted. He cited the EU’s NextGeneration Green Bond programme, which holds an unspent €53.5 billion taxonomy-aligned pool, as a prime candidate for adopting the new label while establishing best practices.
Hans Biemans, head of sustainable markets at ING and a member of the EU Platform on Sustainable Finance, highlighted the transformative yet demanding impact of the EUGBS on the green bond market. While issuers with taxonomy-aligned assets are expected to embrace the standard, many others may opt for the voluntary EUGBS disclosure templates, which require issuers to disclose their alignment levels without meeting the full 100% taxonomy alignment mandate.
“The larger part of the market will keep using the International Capital Market Association’s Green Bond Principles,” Biemans said. “Issuers with sufficient taxonomy-aligned assets will start issuing EUGBS bonds, while others might adopt the voluntary templates, which are a lighter regime.”
The EUGBS imposes stricter requirements compared to existing standards, including full taxonomy alignment for the assets, capital expenditure, or operating expenditure financed by the bonds. “The tough part of the EUGBS is the requirement that 100% of the assets must be taxonomy aligned,” Biemans added. While the standard includes a “flexibility pocket” for assets not covered by EU taxonomy criteria, he suggested adjustments are needed to make compliance more practical.
For issuers, the EUGBS is likely to attract those with large, straightforward green asset bases, such as utilities, real estate firms, and public sector entities. “Issuers with large volumes of relatively simple green assets—renewable energy, grids, or flood protection projects—are the most likely candidates,” Biemans said.
Investor appetite for green bonds, including those issued under the EUGBS, continues to rise as ESG factors gain prominence in investment decisions. “The advantage for European investors is that these bonds are 100% taxonomy aligned,” Biemans said. However, he stressed that mainstream investors are still in the early stages of ESG integration, using green bonds to align with sustainability objectives rather than solely as ethical investments.
Biemans also called for broader systemic changes to amplify the impact of green bonds. “If carbon impact were discounted in financial statements, investments in decarbonisation would suddenly become profitable. This would drive more corporate investment and create jobs—a win-win for business, people, and planet.”
