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Green bonds go EU-niversal: Europe sets first comprehensive guidelines for sustainable investments

The European Union (EU) has agreed on comprehensive guidelines for issuing green bonds to meet the bloc's net-zero targets. Compliance will be voluntary. EU member states and the European Parliament have jointly established a standard for businesses to use the term ‘European green bond’ or EUGB. Currently, investors are confronted with various national practices on green bonds that are difficult to compare, and attempts to make EU norms obligatory have failed.

The European Union Sets Rules for Issuing Green Bonds_visual 1Green ripening soybean field, agricultural landscape.

The European Green Bonds Standard, which companies may opt to adhere to when issuing bonds, will primarily enable investors to confidently direct their investments toward more sustainable technologies and businesses. Additionally, it will provide the bond-issuing company with greater assurance that its bond is appropriate for investors seeking green bonds in their portfolio. The standard is consistent with the more horizontal taxonomy legislation, which determines which economic activities are environmentally sustainable.

Diversify your portfolio with our green bond: 8% return on investment with  impact

All firms that opt to market a green bond using the standard will be required to disclose extensive information on how the bonds’ proceeds will be used and how those investments contribute to its transition plans. Consequently, the standard mandates that companies participate in a general green transition. The adoption of the standard will also ensure that the bond is taxonomy-aligned.

Companies unable to meet all of the criteria for the European Green Bonds Standard (EUGBS) can still use the disclosure requirements, which are presented in template formats. These businesses would be subject to stringent transparency requirements and, as a result, benefit from increased trust among investors.

According to the European Parliament, the rules will allow investors to identify high-quality green bonds, reducing greenwashing or overstated environmentally-friendly claims.

Barclays predicts that global sales of corporate bonds with environmental, social, and corporate governance (ESG) criteria will surpass $460 billion this year, following the asset class's first setback in 2022, when rising interest rates weighed on credit markets.

In recent years, ESG bond volumes have risen. They however fell by 22% in 2022 due to higher borrowing costs. According to a credit research note from Barclays, corporate ESG bond issuance fell from $461 billion in 2021 to $362 billion in 2022. The bank estimates that this year, ESG bond sales will increase by 30% primarily due to the sale of green bonds.

Adding green bonds to your investment portfolio is beneficial two-fold: for returns on investment on the one hand, and for restoring the environment on the other. Additionally, with the implementation of robust verification mechanisms, the green bond market can become more reliable and trustworthy, thereby providing increased visibility to high-quality sustainability projects.  DGB Group offers a green bond with an 8% return on investment that offers investors sustainable returns whilst benefitting the environment. Want to hear more about what adding green bonds can do for your portfolio?

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