EU Green Bonds: What You Need to Know

Regulation (EU) 2023/2631, which introduces the EU Green Bond framework, will come into effect on December 21, 2023.

This new financial instrument is a cornerstone of the European Commission’s strategy to transition the European economy and financial system toward a more environmentally sustainable model.

While existing market standards for green bond issuance already exist, the EU Green Bond framework does not replace these instruments or mandate compliance for new issues. Instead, its distinctive feature lies in its alignment with the EU Taxonomy for environmentally sustainable economic activities. Capital raised through EU green bonds must be invested in taxonomy-aligned activities, and issuers are required to ensure transparency regarding their use.

Transparency and Reporting Requirements
Issuers of EU green bonds must include detailed information about the sustainability profiles of their bonds in the issuance prospectus and annual reports. These reports will account for the impacts achieved, allowing for standardized comparisons of sustainability levels and outcomes across different issuances.

Moreover, all disclosed information must be certified by external, independent auditors, who will operate under the supervision of the European Securities and Markets Authority (ESMA).

The proceeds from these bonds can also support transition activities—environmental initiatives in industries such as steel, aluminum, and cement that are not yet taxonomy-compliant but require substantial investment to transition to sustainable production models.

A Growing Market for Sustainable Bonds
The market for sustainable bonds, including Green, Social, and Sustainability (GSS) bonds, has seen remarkable growth. In 2024, the cumulative issuance volume reached $5 trillion, marking a significant milestone, according to MainStreet Partners.

Europe remains the global leader in GSS bond issuance, with $291 billion issued in 2024—a 13% increase compared to the previous year. Asia is also gaining momentum; notably, the Japanese government issued its first Green Transition Bond worth $12 billion in three tranches, with plans to expand issuance in the coming years.

Italy’s Role in the Green Bond Market
Italy entered the green bond market in March 2021 with the issuance of its first Green BTP (Buoni del Tesoro Poliennali), maturing on April 30, 2045. The framework for this issuance was based on the Green Bond Principles of the International Capital Market Association (ICMA), while also incorporating aspects of the EU Green Bond Standards, which were still under discussion at the time.

The proceeds were allocated to the following environmental objectives under the EU Taxonomy and United Nations Sustainable Development Goals (SDGs):

• Goal 6: Clean water and sanitation
• Goal 7: Affordable and clean energy
• Goal 11: Sustainable cities and communities
• Goal 12: Responsible consumption and production
• Goal 13: Climate action
• Goal 14: Life below water
• Goal 15: Life on land
  Between 2021 and 2023, Italy issued additional green BTPs, raising a total of €35.4 billion. The funds were primarily directed toward infrastructure construction and modernization (44%) and energy efficiency improvements (35%). Notably, 54% of these investments were concentrated in the central-southern regions of Italy.

Conclusion
The EU Green Bond framework represents a significant step in standardizing and expanding sustainable finance. By aligning bond proceeds with the EU Taxonomy and ensuring transparency through standardized reporting and third-party certification, the framework enhances accountability and investor confidence.

As Europe continues to lead the global market for green bonds, the launch of EU Green Bonds further cements its commitment to driving the transition toward a sustainable future.
Original article published on Money.it Italy 2024-12-12 06:34:24. Original title: Al via i green bond dell’UE. Ecco cosa devi sapere