IFR ESG Roundtable 2025
As the green bond market enters a new phase, European public sector borrowers face a pivotal decision: whether to adopt the European Union’s new Green Bond Standard or continue issuing under ICMA’s more established Green Bond Principles. The choice is not merely technical.
Navigating the next phase of green bonds
The debate reflects a broader crossroads in sustainable finance of prioritising regulatory certainty and taxonomy-based alignment or retaining market flexibility and innovation through more principles-based approaches. It also highlights the tension between regulatory ambition and market practicality.
The EuGBS, formally adopted in 2023 and applicable from December 2024, offers a science-based, taxonomy-aligned framework to enhance transparency, prevent greenwashing and channel capital into sustainable activities. For issuers that have already begun aligning with the EU Taxonomy of sustainable activities, it provides a route to meet the demands of the most discerning green investors and potentially unlock pricing benefits.
Although voluntary, the EuGBS comes with stringent requirements—full taxonomy alignment, mandated and regulated external verification, audited reporting and regulatory supervision. Conforming to EuGBS requirements is challenging, costly and restrictive, particularly for borrowers managing large and diverse investment programmes, those outside the EU, and those funding transitional assets that are not yet taxonomy aligned.
Issuing under ICMA’s GBP offers greater flexibility for borrowers, including the ability to demonstrate partial taxonomy alignment through technical screening criteria, minimum social safeguards and “do no significant harm” principles. This wait-and-see approach may be less disruptive but comes with the risk of missing out on early-mover advantages such as potential premium pricing and delaying the timeline for market transformation.
This friction has implications for the broader development of labelled bond markets, particularly as interest grows in new thematic categories such as biodiversity bonds and sustainability-linked instruments for climate adaptation and nature-positive outcomes. These new labels often operate outside the EU framework entirely and instead lean on ICMA’s evolving suite of voluntary guidelines.
In May, IFR held the 2025 edition of its annual ESG Roundtable, bringing together a panel of representatives from European public sector credits to explore how issuers are navigating this new landscape – balancing the desire for regulatory alignment with the need for practical implementation.
As the use of EuGBS unfolds, the decisions made now will have lasting implications for green and thematic bond issuance – not just in Europe but the rest of the world as other jurisdictions consider similar frameworks. Its success or limitations will have global repercussions.