The EU wants to issue €225bn of green bonds as part of its recovery fund © Reuters

Is the European Commission’s bid to become the world’s biggest issuer of green bonds an elaborate exercise in “green-washing”?

Commission president Ursula von der Leyen last month announced that Brussels would use its substantial new borrowing powers to issue €225bn of its €750bn recovery debt in the form of sustainable bonds. It’s a promise that would elevate Brussels to the world’s single biggest issuer in this nascent but fast-growing portion of the sovereign debt market.

Green bonds, as the name suggests, are debt instruments whose proceeds go towards funding sustainable and environmentally friendly spending. They give investors who want to help save the planet an extra degree of legal certainty that their cash will be used to those ends.

Column chart of Global green bond issuance ($bn) showing Rapid rise of green bonds

But in a new paper from the Hertie School/Delors Centre published on Monday, authors Lucas Guttenberg and Sebastian Mack warn against taking the commission’s ambitions at face value without digging into what they really mean. The pair think there’s a risk that green bonds could prove to be a ruse to smuggle in some not-very-green recovery spending if the bonds are not done right.

As it stands, the commission wants 37 per cent of the €750bn recovery fund’s loans and grants go towards environmentally-friendly investment in its member states. The green bonds are part of this goal. However, as the paper rightly points out, the true assessment of whether or not that goal will be reached has nothing to do with whether the commission raises “conventional” or “green” debt on the markets.

The first step for the recovery fund will be the submission of national plans from EU governments, which need to lay out how they want to spend the money by next April. Brussels then has the crucial task of assessing whether the plans are up to scratch — including measuring them against environmental targets. The investments will have already been approved and money earmarked before the bonds are even issued. “It is very unlikely that issuing EU bonds as green bonds will make the expenditure under the Recovery Instrument any greener”, say the authors.

But that’s not to say that the commission's green bonds can’t be a significant moment for Brussels and debt investors. It’s just that it won’t be easy to define in law what is green or not.

EU officials say the commission will most likely rely on Brussels’ so-called “taxonomy” for green investment as the legal underpinning to define what a green bond can or can’t be used for. A proposal from a commission-hired expert group for an EU green bond standard based on the taxonomy suggests that it will be much tougher and more exclusionary that the current definition the commission is likely to rely on when approving the recovery fund plans. Right now, Brussels is working with loosely-defined metrics that state certain percentages of an investment as being green. Critics have said it is hardly robust.

This gap between methodologies is cause for concern, say Mr Guttenberg and Mr Mack, who warn that a failure to use the taxonomy would result in a markedly lower standard for EU green bonds. “Projects that will be financed under the Recovery Instrument will significantly contribute to defining which measures qualify for green bond financing in the EU. This will not only foreshadow future EU legislation on the matter; it will also likely set a global standard.”

All in all, it is likely to mean that the already highly sensitive process of policing national recovery plans (see: Frugals) has even more riding on it than just politics. Investors are watching too.

Chart du jour: a mythical trade-off

The FT’s stellar data team has produced a numbers-rich dissection of everything we know about the pandemic so far. It includes a series of visualisations of the initial outbreak and its subsequent management around the world. The chart above shows that an often cited trade-off between saving lives and saving the economy has not borne out in reality: the economies of countries with the worst Covid-19 record have suffered the most. Read it for free here.

As of Monday, stricter socialising rules and partial lockdowns will kick in across Europe, amid growing evidence that the continent is heading for a double-dip recession.

Around Europe

  • Flanders accounts for 85 per cent of total Belgian exports to the UK — and that’s discounting the fish problem. With fresh talk of a no-deal Brexit looming, the region’s businesses — from carpet makers to fruit producers — are braced for serious disruption. More from the FT’s Big Read.

  • Brussels is being urged to send independent electoral observers to the US to ensure fair elections and the peaceful transition of power if Donald Trump loses on November 3. The call has been made by leftist MEP Martin Schirdewan in a letter to the European Commission seen by Der Spiegel.

  • Cyprus’s decision to end its “golden visa” passport scheme is encouraging other countries to fill the gap, further exposing problems within the EU about so-called citizenship-for-sale schemes. Michael Peel has more. (FT)

  • The Dutch government has suffered another Covid-19 embarrassment after prime minister Mark Rutte gave permission to the country’s royal family to go on holiday in Greece days after he announced a partial lockdown. The monarch and his wife were forced to fly back after one day. (Volkskrant)

Coming up on Monday

EU chief Brexit negotiator Michel Barnier and his UK counterpart David Frost hold a phone call on Monday afternoon to discuss what’s next for after the UK government has accused the EU of abandoning the talks. (FT) Didier Seeuws, the EU Council’s top Brexit official, might be drawn on the topic around 13.00 (CET), when he takes part in a webinar hosted by the Belgian Financial Forum on Brexit and the financial services industry.

In Luxembourg, EU agriculture and fisheries ministers meet on Monday morning for a two-day council traditionally reserved for the early negotiations on annual fishing quotas. But Brexit uncertainty has put paid to all that for a few weeks at least.; @mehreenkhn

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