European Commission Publishes Green Bond Framework

    Stockholm (NordSIP) – On Tuesday, September 7th, the European Commission announced the adoption of its independently evaluated Green Bond framework. The EU intends to issue up to €250 billion in green bonds between now and end-2026.

    According to Johannes Hahn, Commissioner in charge of Budget and Administration, the framework is the most recent step towards making the EU “the largest green bond issuer in the world. This is also an expression of our commitment to sustainability and places sustainable finance at the forefront of the EU’s recovery effort.”

    Proceeds from bond issued under the Next Generation EU Green Bond Framework will be allocated to the nine broad categories, including energy efficiency, clean transportation and clean energy, which will be the largest expenditures under the Recovery and Resilience Facility.

    The European Commission will use a well-established market standard of the International Capital Market Association (ICMA) green bond principles as its reference which ensures that eligibility for green bonds is clearly defined, according to Hahn. “It has to be proved that financed investments have a positive ecological impact,” the Commissioner added.

    Second Party Opinion

    The Green Bond framework already passed the first test: A well-known sustainability rating and research agency (Vigeo Eiris) provided an independent opinion – with a very positive and reassuring result: in important aspects, NGEU green bonds go beyond standard practice and provide a best-practices approach towards sustainability.

    The independent assessment of the ability of the EU to track the final disbursal of its funds is crucial for an institution that has been plagued by exaggerated claims of fund misallocation once EU spending reaches national borders. “We guarantee this also with a robust reporting mechanism: The European Commission is able to trace the NextGenerationEU green bond proceeds to their final investment, and provide allocation reporting to investors,” Hahn explained.

    According to Vigeo Eiris’ opinion, the framework is ‘Coherent’ with the EU’s strategic sustainability priorities. The second party opinion provider also noted it expected the framework to reorient “capital flows to sustainable investments”, contribute to the EU’s “environmental commitments, objectives and targets”, including the long-term ambition to achieve climate neutrality by 2050. Vigeo Eiris also noted that “the reporting commitments (…) are aligned with best market practices.”

    “Green bonds issued via the European Commission’s framework are expected to provide a ‘Robust’ contribution to sustainability, the second-highest level on our four-point scale,” said Patrick Mispagel, Managing Director – Sustainable Finance at Moody’s ESG Solutions. “Investing in a green recovery from the pandemic demonstrates the EU’s commitment and role in enabling the green transition, and further developing the European sustainable finance market.”

    Image Courtesy of European Commission/ Photographer: Jennifer Jacquemart

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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