The European Commission has set its sights on cutting greenhouse gas emissions by pushing the private sector to invest in sustainable projects, therefore helping the government finance the green transition.
The sustainable financial strategy that the Commission has come up with is called the ‘gold standard’ because of its included draft regulation that established a voluntary European Green Bond Standard (EUGBS). The “high-quality voluntary standard,” as the Commission says, will be available to both public and private issuers inside and outside of the EU to raise funds on capital markets that would later be directed towards sustainable investments.
The Commission has set a minimum target of 37% for green investments in its €750-billion recovery fund, while they have quickly realized that much more is needed. To be more specific, EU Commission Executive VP Dombrovskis tells Euro News that “Over this decade, we estimate that Europe will need around 350 billion euros of annual extra investment to meet its 2030 emissions target in energy systems alone. This is in addition to around €130 billion it will need for other environmental goals… We have known for a long time that public money will not be enough. And we have to rely on the private sector. This is why sustainable finance is so important: to generate investment at the scale needed.”
The bloc’s €1.07 trillion multi-annual budget is what boosts the circulation of the EU funds across the continent. The budget is powered by the recovery fund and has instilled great fear in the public over the last couple of years. To ease the minds of many, the projects financed by green bonds will avoid greenwashing, the process of providing misleading information to consumers about how a company’s products are more environmentally sound than they are.
The money raised by these projects will have to benefit investment projects that are approved by the EU taxonomy, under the EUGBS system. Under the taxonomy, projects are split into two categories: sustainable or significant harm. Sustainable is considered to be projects such as solar power and bioenergy, while those that cause ‘significant harm’ include coal and lignite. It is important to note that gas and nuclear energy are still not included in the taxonomy due to disagreements between the EU countries.
Many groups welcome this new proposal, including the Association for Financial Markets in Europe (AFME) and SME United. These groups are tremendous fans of its ‘sensible approach.’ On the other hand, some groups do not approve of this proposal, including Transport & Environment (T&E) who believe that this response is too little too late.
“EU Unveils ‘Gold Standard’ Sustainable Finance Strategy.” Euronews, 7 July 2021, www.euronews.com/green/2021/07/06/brussels-unveils-gold-standard-bond-to-boost-private-investment-in-green-transition.