EU Green Bond Standard – a match or a clash for the Green Bond Market? 

This edition of the report focuses on the EU Green Bond Standard (EU GBS), which will be effective from December 2024.

The EU GBS is a further anti-Greenwashing measure, coinciding with the introduction of the UK FCA’s new Sustainability Disclosure Regime. Considered a voluntary ‘Gold Standard’ for GSS Bond issuers, it aims to enhance transparency, credibility, and the market integrity of Green Bonds across the EU.

Based on MainStreet Partners’ analysis, only 23% of the current stock of Green and Sustainability Bonds could claim alignment with the EU GBS. This represents approximately $700 billion of assets.

One of the key requirements for the new EU Green Bond Standard is that the proceeds of the bond fundraising should be allocated to projects aligned with the EU Taxonomy, which is a pre-existing part of the EU’s sustainable finance framework. Based on MainStreet Partners’ analysis, for the same set of securities, the average Alignment to the European Taxonomy is 53% (62% for Green Bonds and 21% for Sustainability Bonds).

A comparison with the still low level of Taxonomy alignment at corporate level, on average at 10% across Revenue, CAPEX and OPEX, places GSS Bonds in an ever more definite position within sustainable investment funds mandates.

The EU Taxonomy aims to provide a robust, science-based classification system, setting out criteria for economic activities aligned with achieving net zero by 2050, as well as broader environmental goals

Green Bonds Lead the Charge as GSS Bond Issuance Hits $5 Trillion

The Q3 2024 GSS Bonds Market Trends Report highlights the strength of the market in 2024, with Green Bonds once again leading the way – now representing 57% of total GSS Bond issuance year to date.

In the first half of 2024 alone, Green Bond issuance reached a record-breaking $356 billion, making it the most active period for Green Bonds since the market’s inception. Europe continues to dominate, contributing $291 billion in issuance, a 13% year-on-year increase.

The Report also explores how the current regulation will affect Funds that invest in GSS Bonds. In particular, the European Securities and Markets Authority (ESMA) Guidance on the use sustainability-related terminology in fund names will require fund managers to align their portfolios with either the Paris-Aligned or Climate Transition Benchmarks, with no minor consequences for many portfolios.

The Report reveals that as many as 122 GSS bonds funds are facing a dilemma to comply with the requirements under either of the benchmarks by adjusting their portfolio positioning or face a potential name change. The majority of these funds are aligned with sustainability goals but may need to meet new benchmarks’ constraints.