Part 2: Navigating Challenges and Seizing Opportunities with the EU GBS

Building on Part 1, this section delves into the challenges associated with implementing the EU GBS and offers practical solutions.

Challenges and Opportunities in Implementation

However, challenges persist in implementing the EU Taxonomy and the EUGBS. Issuers may face limitations in collecting necessary data, especially concerning activities such as lending via budget programs or loans for general purposes. Additionally, discrepancies between EU and national criteria, evolving EU legislation, and concerns about greenwashing further complicate adoption.

To overcome these challenges and expedite GBS uptake, a proactive approach is essential. Emphasizing the value of the Taxonomy beyond mere regulatory compliance can encourage stakeholders to engage constructively. Gradual alignment with the Taxonomy, coupled with clear communication and monitoring of progress, can facilitate transition and incentivize disclosure of improvements.

Promoting Constructive Engagement and Sustainable Growth

The European Commission and the EU Platform on Sustainable Finance advocate for such an approach, promoting voluntary gradual alignment strategies and offering guidance to market practitioners. The European Investment Bank (EIB), a pioneer in green bond issuance, has embraced this approach, aligning its Climate and Sustainability Awareness Bonds with evolving EU standards.

Aldo Romani, head of sustainable finance, finance directorate, and a Member of the PSF at the European Investment Bank in Luxembourg in a recent interview stated: “Issuers should be helped to look at the EU GBS as a business opportunity and a source of competitive edge in their dialogue with investors, rather than as a matter of pure operational and legal risk.”

Global Perspectives on Corporate Sustainability

According to the 2024 OECD Global Corporate Sustainability Report:

• From the investors’ perspective “climate change is a financially material risk for listed companies representing 64% of global market capitalization. An analysis of the 100 listed companies with the highest disclosed GHG emissions globally shows that institutional investors hold the largest share of the equity (41%) and that the public sector is also an important shareholder, with 18% of the equity.”
• From the boards of directors’ perspective “companies representing more than half of the world’s market capitalization have a committee responsible for overseeing the management of sustainability risks and opportunities that reports directly to the board. In the United States, 75% of companies by market capitalization a committee responsible for sustainability and in Asia (excluding China and Japan), Europe and other advanced economies, more than 50% have such a committee. […]Executive compensation is linked to sustainability matters in 80% of companies by market capitalization in Europe and 60% in the United States.”
• From the stakeholders’ engagement perspective: “Among the various ways to promote stakeholder and shareholder engagement, companies may establish mechanisms for employee participation and develop policies on stakeholder engagement. Companies representing 14% of global market capitalization include employee representatives on the boards of directors, ranging from 62% in China, 38% in Europe and 11% in Latin America.”

Ensuring Integrity and Impact

In conclusion, the EU Green Bond Standard represents a significant milestone in advancing sustainable finance within the EU. By navigating challenges and embracing gradual alignment strategies, stakeholders can further enhance the credibility and impact of the green bond market, contributing to a more sustainable future.

Organizations and all nations that issue green bonds should ensure transparency in communicating the positive outcomes of such investments, while also guarantee that they can function as an effective tool for Sustainable Development.

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