The Gold Standard for Green Bonds
The European Green Bond Standard (EuGBS) was adopted as Regulation (EU) 2023/2631 and applies from December 2024. It creates a voluntary label - "European Green Bond" or "EuGB" - for bonds whose proceeds are directed toward taxonomy-aligned activities.
The Key Rule: 85% Taxonomy Alignment
To use the EuGB label, at least 85% of bond proceeds must be allocated to economic activities that are taxonomy-aligned at the time of allocation.
The remaining 15% can go to:
- Activities for which no taxonomy criteria exist yet (but which meet the spirit of the taxonomy)
- Specific purposes defined in the regulation
This 85/15 split acknowledges that the taxonomy does not yet cover every green activity. It gives issuers flexibility while maintaining a high bar.
Requirements for Issuers
| Requirement | Detail |
|---|---|
| Allocation report | Must show how proceeds were allocated to taxonomy-aligned activities |
| Impact report | Must describe the environmental impact of funded activities |
| External review | An independent external reviewer must verify the allocation |
| ESMA registration | External reviewers must be registered with and supervised by ESMA |
Why It Matters
Before the EuGBS, any bond could call itself "green" using various voluntary standards (ICMA Green Bond Principles, Climate Bonds Standard). These are useful but not regulated. The EuGBS creates an EU-regulated label with:
- A regulatory definition of "green" (the taxonomy)
- Mandatory external review
- Supervisory oversight (ESMA)
- Legal consequences for misuse
The EuGBS is voluntary. Issuers can still use other green bond standards. But the EuGB label carries regulatory backing, which matters for institutional investors with regulatory obligations of their own (e.g., insurers under Solvency II, pension funds under IORP II).
Additional Rules Worth Knowing
The 15% flexibility pocket isn't a free pass. Activities funded with the 15% must still meet the generic DNSH criteria from the taxonomy's Appendices A-D, and must be described in the EuGB factsheet with estimated percentages.
CapEx plan provision: If bond proceeds fund activities that will meet taxonomy requirements in the future (not yet aligned), the issuer must publish a CapEx plan with a deadline before maturity. Within 60 days of that deadline, an external reviewer must assess whether taxonomy alignment was achieved.
Grandfathering rule: If technical screening criteria change after the bond is issued, unallocated proceeds and CapEx-plan proceeds must align to the new criteria within 7 years. If alignment is at risk, the issuer must publish a mitigation plan.
Excluded issuers: Companies domiciled in non-cooperative tax jurisdictions or high-risk countries for money laundering cannot use the EuGB designation.
Think of the EuGB label like an organic food certification. You can sell food without the label, and you can even market it as "natural" or "healthy." But the certified organic label means it has been verified against a specific standard by an accredited body. The EuGB label works the same way for bonds.
Key Takeaways
- 1The European Green Bond Standard creates a regulated label requiring at least 85% of bond proceeds to go to taxonomy-aligned activities
- 2External review by ESMA-registered reviewers is mandatory - this is not a self-certification
- 3The EuGBS is voluntary but carries regulatory backing that other green bond standards lack
- 4The remaining 15% of proceeds can go to activities not yet covered by the taxonomy, providing flexibility for issuers