By 2026 the European Union will issue 250 billion euros in green bonds to finance the initiatives set out in the Next Generation EU plan.
The Covid-19 pandemic has shown that there exists a bond that is simultaneously strong and fragile, settled and malleable, between human health and that of planet Earth. A balance to be protected by cultivating the principle of environmental, social and economic sustainability through projects and initiatives. With this additional impetus, and with ever greater conviction, the European Union has set itself a challenging objective: to become the largest supporter of projects and economic initiatives with a low environmental impact through the issuance of 250 billion euros in green bonds by 2026.
The proceeds from these bonds are earmarked for financing green investments and reforms set out in Next Generation EU, the historically significant plan that will support recovery from the pandemic with approximately 750 billion euros. These are, in particular, investments and reforms for the climate that represent 37 per cent of the expenditure of each member state's National Recovery and Resilience Plan, Italy included.
The time has come to get to work, to make Europe greener, more digital and more resilient.
European Commission
To develop the green bond framework, the European Commission followed the principles set by the International Capital Market Association (Icma), a self-regulatory organisation and trade association dedicated to promoting high market standards. There are four key assumptions:
The framework was defined on 7 September last, following an independent assessment by the rating agency Vigeo Eiris, which falls under Moody's ESG Solutions. The resulting outcome is consistent both with the principles set by Icma for green bonds and with the broader European strategy dedicated to sustainable finance, under which the analysis of performance in the fields of environment, society and governance — the ESG factors — rightfully sits alongside the financial and economic evaluation of an investment.
Part of this strategy is the European standard on green bonds, which covers several sectors, including the production and distribution of energy, energy efficiency in buildings and the construction of transport infrastructure with a low environmental impact. "It will introduce a rigorous standard to which all issuers (private and sovereign) will be able to adhere on a voluntary basis," reads the relevant page of the European Commission, and it will represent "the benchmark for the use that companies and public authorities can make of these instruments to raise funds on capital markets in order to finance ambitious investments, in compliance with stringent sustainability requirements and protecting investors from greenwashing."
The proposal for the standard was presented last July by the executive to the European Parliament and the Council, as the co-legislative procedure requires, and will undergo an implementation period before entering into force. It also aims to be consistent with the European taxonomy on sustainable investments, a veritable dictionary that sets out information on the environmental performance of assets and economic activities provided by companies, both financial and non-financial.
The first issuance on 12 October 2021, a 15-year bond maturing in February 2037 with a total value of 12 billion euros, recorded orders of over 135 billion euros — a new record. "This is also a sign of our commitment to sustainability and places sustainable finance at the heart of the EU's recovery effort," Johannes Hahn, European Commissioner for Budget and Administration, states with conviction in a press release. The total 250 billion euros is equivalent to 30 per cent of the total issuance of Next Generation EU and, Hahn emphasises, will "further enhance the attractiveness of EU loans and will have a lasting impact on EU capital markets."
To drive the resilience of the financial system, of the European Union and its partners, and to ward off "the emergence of greenwashing," it is necessary to "make sustainable finance more inclusive towards small and medium-sized enterprises and consumers," as the Commission itself highlights. Once the bonds have been issued, the Union therefore aims to guarantee transparent and impartial communication to investors, dividing information into nine categories, including clean energy, energy efficiency and transport.
To track the allocation of resources, an external and independent auditor will be tasked with verifying the expenditure information provided by member states to the European executive. Data on the impact of investments will instead be processed by the Commission together with a team of external professionals. The impartiality of the data and constant communication will therefore be the foundation for building a relationship of trust between the institutions of the European Union and citizens, all of whom are called upon to play their part in a recovery that cannot fail to be sustainable.
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