European Utilities Encouraged To Issue Green Bonds Under New EU Standards To Boost Investor Appeal – Report

In a strategic move to enhance attractiveness to investors and reduce transition risk, Europe’s largest electric utilities are advised to issue green bonds in compliance with the forthcoming European Green Bond Standard (EUGBS). The Institute for Energy Economics and Financial Analysis (IEEFA) has released new research highlighting that many of Europe’s leading green utilities are well-positioned to adopt these standards.

Starting in December 2024, the EUGBS will require issuers to demonstrate that their green project funding aligns with the European Union’s taxonomy. Although the standard is voluntary, it promises significant benefits for both issuers and investors.

The IEEFA report examines 12 European power utilities that issued a combined $21 billion in green bonds last year, primarily to develop renewable energy sources. Notable utilities with substantial renewable energy portfolios, such as Statkraft, Ørsted, Iberdrola, and EDP, have already established green financing as a key debt funding strategy.

The research praises these utilities for their transparency in reporting the allocation and impact of green bond proceeds. For example, Spain’s Iberdrola meticulously details allocated assets for each bond, including project name, location, start-up year, and installed capacity, while also securing external reviews to ensure alignment with EU taxonomy.

However, to earn the European Green Bond label, issuers will need to provide additional information on the estimated and actual contributions of bond proceeds. According to the IEEFA, utilities can meet these requirements without incurring significant costs, thereby better showcasing their commitment to renewable energy strategies.

“More transparent green bond issuances will make it easier for investors to predict and measure utilities’ decarbonization progress and environmental impacts,” said Kevin Leung, sustainable finance analyst at IEEFA and co-author of the report. “Issuers perceived to be better at transition planning by comprehensively displaying their commitments and project progress will likely attract more investors.”

The report notes that advanced power generators like Ørsted and EDP already allocate bond proceeds exclusively to wind and solar projects, inherently meeting the taxonomy’s substantial contribution conditions.

“Some of the 12 utilities have set an example of transitioning from conventional power generation to an almost entirely renewable mix, aiming for net-zero emissions by 2050 or sooner. This shift will enhance energy security, sustainability, and affordability,” said Jonathan Bruegel, co-author and IEEFA power sector analyst.

As these utilities enhance transparency, they can further motivate the impactful use of green bond proceeds by adopting a sustainability-linked structure in line with the EUGBS. This involves combining taxonomy-aligned use-of-proceeds criteria with incentives linked to sustainability performance.

The transition to green bonds under the EUGBS not only aligns with the European Union’s ambitious climate goals but also positions European utilities as leaders in sustainable finance, setting a benchmark for the global energy sector.