Problems of corporate greenwashing have recently made headlines in Europe and elsewhere. The EU Commission has proposed a tougher regulation of Europe’s green bond market, and the legislative process is currently under way. When the European Parliament's committee on Economic and Monetary Affairs asked Max Weber Fellow Nikolai Badenhoop to prepare an expert assessment, he seized the opportunity. The report was published in April 2022.
In the study, Badenhoop compares the Commission’s proposed Green Bond Standard with existing EU legislation on sustainable finance and financial regulation and contextualises it in the EU green bond market. This assessment covers key regulatory aims, advantages of voluntary and mandatory options, different types of sustainable bonds, alignment with the Taxonomy Regulation, corporate and sovereign bonds, transparency requirements, review and supervision, enforcement and sanctions and international aspects. On each aspect the author provides policy recommendations to the co-legislators.
Among his recommendations to legislators, Badenhoop prioritises transparency duties and strong enforcement mechanisms as the most effective ways to protect investors and markets from greenwashing. He makes the case for a binding standard for all bonds that are labelled 'green' and issued or marketed in the EU. Issuers would have to make transparent to what extent the financed activities are 'green' and relate to the EU’s taxonomy legislation.
Badenhoop puts a particular emphasis on strong enforcement mechanisms and proposes a mix of public and private enforcement. Public authorities would supervise the green content of bonds from the issuance onwards. Investors would be entitled to claim damages against issuers if they breach the standard. The proposed measures would tackle the problems of greenwashing, enhance the transparency and credibility of the EU’s green bond market and ultimately help prevent climate change.
This policy advice has a strong societal impact for an EU that seeks to achieve climate neutrality by 2050 and is a global pioneer in legislating on green finance. The study was influential in shaping the European Parliament’s position in the current legislative process. Badenhoop’s report has also been picked up and summarised by Bloomberg and the Financial Times’ Sustainable Views.
Nikolai Badenhoop is a lawyer whose research covers European Union law, financial regulation, competition, contract and tort law, corporate governance, consumer protection, professional secrecy and Brexit. The focus of his Max Weber Fellowship at the EUI is sustainable finance: starting from the European Green Deal, he is investigating how existing regulatory tools impact sustainability goals and how the tools can be enhanced to increase sustainability. At the Robert Schuman Centre's Florence School of Banking and Finance, he will teach on ‘Green bonds and the sustainable bond market'.