Just 23% of EU green bond issuers will meet ‘gold standard’ for December deadline

Just shy of one quarter (23%) of EU green bond issuers will meet the ‘gold standard’ which will be effective from December 2024, according to MainStreet Partners' latest quarterly GSS Bonds report “Summer Edition”. 

The London-based sustainability and impact data provider said the EU GBS was a further anti-Greenwashing measure, coinciding with the introduction of the UK FCA’s new Sustainability Disclosure Regime.

Considered a voluntary ‘Gold Standard’ for GSS Bond issuers, it aims to enhance transparency, credibility, and the market integrity of Green Bonds across the EU.

Based on MainStreet Partners’ analysis, only 23% of the current stock of Green and Sustainability Bonds could claim alignment with the EU GBS. This represents approximately $700bn of assets.

One of the key requirements for the new EU Green Bond Standard is that the proceeds of the bond fundraising should be allocated to projects aligned with the EU Taxonomy, which is a pre-existing part of the EU’s sustainable finance framework.

Based on MainStreet Partners’ analysis, for the same set of securities, the average Alignment to the European Taxonomy is 53% (62% for Green Bonds and 21% for Sustainability Bonds).

A comparison with the still low level of Taxonomy alignment at corporate level, on average at 10% across Revenue, CAPEX and OPEX, places GSS Bonds in an ever more definite position within sustainable investment funds mandates.

Pietro Sette, Research Director at MainStreet Partners said: “Based on our research, only 23% of the current stock of Green and Social Bonds could claim accordance with the EU GBS. This is expected to increase as both issuers and investors progressively realise the added benefits of the label, such as smoother compliance with regulation and lower reputational risks.

"This is something we are already seeing on the market– looking only at bonds issued in 2023 and 2024 globally, eligibility to the EU GBS jumped to 58%.”

The Summer Edition of MainStreet Partners’ GSS Bond Report looked at how the current stock of bonds fares against its requirements including how Asian issuers show significant alignment participation with 9% of the eligible volume, in part thanks to the partial overlap of local environmental taxonomies with the EU’s Taxonomy.

83% of EU GBS-eligible bonds are issued by European entities, with Germany and France leading the charge. Interestingly, for German issuers, 18% of the total Taxonomy Alignment comes from projects related to “Transmission and distribution of electricity”.

From a sectoral perspective, manufacturing plays an outsized positive role in EU GBS-eligible bonds, representing ~5% of the total average alignment of EU GBS-eligible bonds, compared to non-EU GBS-eligible bonds, where it accounts for only ~1% of the total average alignment of EU GBS-eligible bonds.

From a bond’s environmental impact perspective, on average, CO2 Avoided/Reduced per EUR million invested is higher for EU GBS-eligible bonds, standing at 565 Tons/EUR million , compared to 486 Tons/EUR million for non-EU GBS eligible bonds.