Green bonds constitute one of the most important sources of funds for the transition to a low carbon society, bringing about substantial reallocation of resources within the economy. In 2021, the global volume of outstanding green bonds amounted to more than USD 1.2 trillion, highlighting a shift from a niche financial asset to an asset class that financial market participants can no longer ignore. Nonetheless, considering that the overall market size of the global bond market is estimated to be at USD 128 trillion, the market for green bonds still offers significant growth potential. 

Currently the bond market lacks a common framework that defines what constitutes a green bond, which hinders further growth. The principles of the International Capital Markets Association (ICMA) or the Climate Bonds Initiative provide some guidance on what characteristics bond issues should fulfil in this area, but they remain voluntary and do not make use of a uniform definition for environmentally sustainable economic activities. 

Alongside the renewed sustainable finance strategy and a delegated act on sustainability KPIs, the European Commission published a proposal for an EU Green Bond Standard (EU GBS) on 6 July 2021. In this article, we will examine the requirements green bond issues must meet to be labelled as an “European green bond” or “EuGB”, look at the requirements external verifiers face and analyse the potential impact of the proposed standards on the sustainable bond market.