EU Green Bond Standard: insights from early adopters

These were the questions at the heart of a recent episode of our podcast Inside Impact Investing, hosted by Portfolio Manager Rosl Veltmeijer. She was joined by Joop Hessels, Executive Director and Head of Sustainable Markets at ABN Amro, and Jeroen van Herwaarden, Portfolio Manager of Triodos Euro Bond Impact Fund. Their conversation offers a revealing look at the first months of the EU Green Bond Standard (EU GBS) in action.

What is the EU Green Bond Standard?

The EU Green Bond Standard (EU GBS) is a voluntary framework for 'use-of-proceeds' bonds, where the funds raised must be allocated to projects aligned with the EU Taxonomy, a set of criteria defining environmentally sustainable activities. As Joop Hessels explains: “The key element of the EU GBS is that you must align with the EU taxonomy. The standard is the law that links the EU taxonomy with the Green Bond Market. So far, it was all on a voluntary basis without a strict definition of green. That’s what the EU has changed now.”

To obtain the - still voluntary - EU Green Bond label, issuers must ensure full alignment with the EU Taxonomy for the use of proceeds. They are also required to publish a fact sheet detailing the bond’s green credentials and obtain an external review by an ESMA-supervised reviewer. This external reviewer scrutinises not just the environmental impact but also the 'do no significant harm' and minimum social safeguard criteria.

Early market developments: a slow but promising start

Since its launch, the EU GBS market has grown modestly, with around EUR 13 billion issued across 16 transactions, including the first sovereign bond issuance by the Kingdom of Denmark. Yet, the number of bonds remains limited and most issuers are utilities or financial institutions with relatively straightforward green portfolios.

Why the slow uptake? According to Hessels, the main challenge is data. “The difficulty with the taxonomy alignment is to obtain the right information, the right data to evidence that certain targets are met. That’s where the key problem is.” Many organisations, especially banks with diversified portfolios, report low taxonomy alignment - often under 10%, except in sectors like renewable energy.

Yet, Hessels sees this as a natural phase. “When I started with the first green bond for ABN Amro more than ten years ago, it was the same. The market was small and slow. I think that’s where we are right now again with a different standard. So, I see this market growing.”

The investor perspective: transparency, comparability and impact

For investors, the EU GBS offers clear advantages. Jeroen van Herwaarden: “The main objectives of its requirements  are, of course, to make the market more transparent and more homogeneous, as well as to prevent greenwashing. So, it provides more structure and it’s also a better basis for comparison for investors.”

However, alignment with the EU Taxonomy is not the only consideration for impact-focused investors like Triodos Investment Management. Van Herwaarden explains: “We are impact investors, which means that our definition of green differs from the EU definition. The way we look at positive impact is the extent to which projects or activities positively contribute to the transitions that we think are needed to build a more sustainable economy and a more inclusive society within planetary boundaries.”

Triodos Investment Management applies a rigorous screening process, assessing the positive impact of financed projects and the issuer’s overall sustainability profile, alongside a focus on additionality - whether the bond finances genuinely new green activities, rather than refinancing existing ones. “Triodos Investment Management doesn’t look for green side pockets, but for sustainable companies for real,” concludes Veltmeijer. This approach sometimes leads it to pass on bonds that meet the EU GBS, such as the recent ABN Amro issuance, due to insufficient additionality.

Challenges for issuers: data, reporting and regulatory hurdles

Issuing an EU Green Bond is not without its challenges. The most significant barrier is collecting and verifying the necessary data to prove taxonomy alignment, especially in countries or sectors where sustainability data is not readily available. Hessels: “I’ve spoken with many issuers who are really struggling with that part. They hear things like: no, we cannot share this information for privacy or other reasons. Then it more or less stops.”

There are also costs associated with obtaining external reviews, but these are often offset by strong investor demand. Still, as Hessels notes: “It’s not enough to incentivise our clients to invest greener. It would be fantastic if we could say: we’ll save 10 basis points and pass it on to our clients. That’s unfortunately not the case.”

Both guests expect the EU GBS market to expand as more data becomes available and  large issuers start setting the pace. The development of a social taxonomy could further broaden the market, making it more representative of the full spectrum of sustainability challenges. “The importance of the taxonomy is growing. So, there’s also more data becoming available,” says Van Herwaarden. “The adoption of the Green Bond Standard by large bond issuers could really be a catalyst for the market and make it more mature, with more issuers and more sectors joining.”

A clear opportunity for professional investors

Wrapping up, Veltmeijer concludes that the EU Green Bond Standard sets a new benchmark for sustainable finance, offering greater transparency and comparability while raising the bar for what counts as green. But the market is still young, and its success depends on active participation and scrutiny from both issuers and investors. Her call is clear: “Professional investors now have an opportunity to lead by example.”

By deepening their understanding of the EU Green Bond Standard and engaging actively with issuers, they can encourage higher standards of transparency and real-world impact. This is also a moment to develop internal frameworks that look beyond compliance, focusing instead on whether investments drive genuine additionality and positive change. “As the regulatory landscape evolves - especially with the potential introduction of a social taxonomy - investors will be at the forefront of shaping a more credible and impactful green bond market.”