Enhancing Green Bond Regulation in the EU: Strengthening Oversight, Market Growth, and Climate Justice

Table of Contents: 1. Introduction. – 2. A fragmented path to regulation: the evolution of the EU green bond regulatory framework. – 3. Barriers to adoption: why the EUGB Regulation may struggle to gain traction. – 4. Addressing the barriers: regulatory and policy solutions to enhance the EUGB Regulation. – 5. Bridging the gaps in the EUGB Regulation: the untapped potential of the ECB and EIB. – 6. Integrating Climate Justice into the EUGB Regulation. – 7. Conclusion.

Abstract: Green bonds are a critical tool for financing sustainable projects, yet their effectiveness depends on robust regulatory frameworks. The European Union (EU) has taken a significant step with the European Green Bond Regulation (EUGB Regulation), aiming to enhance transparency, combat greenwashing, and align green bonds with the EU Taxonomy. However, the voluntary nature of the commitments enshrined in the EUGB Regulation, along with the interpretational ambiguities linked to the EU Taxonomy, may hinder adoption and market impact. This paper critically examines the EUGB Regulation, assessing its potential and limitations. It first explores the regulatory context surrounding the EU green bond market, highlighting the fragmented framework preceding the EUGB Regulation. It subsequently identifies potential barriers to the EUGB Regulation’s adoption by issuers. To strengthen oversight, the study proposes a complementary technical and advisory role for the European Securities and Markets Authority (ESMA), the European Central Bank (ECB), and the European Investment Bank (EIB), leveraging their expertise to enhance enforcement and market confidence. Furthermore, the paper advocates integrating climate justice into the regulatory framework. A fair burden-sharing mechanism among Member States could ensure equitable green finance distribution, aligning the EUGB Regulation with the EU’s Just Transition Mechanism. The contribution concludes that while the EUGB Regulation represents progress, refinements - including financial incentives and stronger enforcement - are necessary to maximize its impact. Strengthening oversight and incorporating social equity considerations could transform the regulation into a key driver of both market efficiency and climate justice in the EU’s green transition.

Keywords: Green bonds – EUGB Regulation – climate justice mechanisms – sustainable finance – financial oversight – greenwashing prevention.

1.   Introduction

Green bonds have emerged as a key instrument for directing capital into sustainable projects, playing a crucial role in the broader landscape of sustainable finance.[1] Sustainable finance encompasses a range of financial instruments aimed at supporting environmentally and socially responsible investments, including green bonds, but also social bonds, sustainability-linked bonds, and other financial products that align capital markets with environmental, social, and governance (ESG) objectives.[2] In particular, green bonds can be defined as ‘fixed-income securities which finance investments with environmental or climate-related benefits’,[3] such as renewable energy, clean transportation, and climate adaptation initiatives.[4] From a regulatory perspective, there is a fundamental distinction between conventional bonds and green bonds. The latter are indeed designed to finance projects that must deliver measurable environmental benefits. Such a difference cannot be ignored by the legislator, who should avoid applying the same framework to both instruments and instead provide specific safeguards for green bonds.[5]

Within this context, the European Union ranks among the leading jurisdictions in the green bond market. In 2024, Europe accounted for nearly half of all global aligned sustainable debt issuance, with green bonds alone exceeding USD 388 billion, namely more than half of worldwide issuance.[6] This consolidates the EU’s position as a central hub for green finance, even as competition from other regions intensifies. 

The rapid expansion of the green bond market has played, among other factors, a pivotal role in revealing the need for greater regulatory coherence. In response to these developments, the recent adoption of the European Green Bond Regulation[7] represents a paradigm shift from market-led initiatives to a more structured regulatory framework. While the commitments enshrined in this piece of legislation are designed to be voluntary, the regulation aligns green bond issuance with the EU Taxonomy Regulation,[8] and aims to enhance transparency, combat greenwashing,[9] and foster investor confidence. 

However, challenges seem to remain. The non-binding nature of the commitments enshrined in the EUGB Regulation, coupled with interpretational ambiguities and sectoral exclusions under the EU Taxonomy Regulation, risks limiting the EUGB Regulation’s effectiveness. Furthermore, the last-mentioned piece of legislation does not seem to take into account a fundamental climate justice profile, namely the need of putting in place burden-sharing mechanisms among Member States.

Against this backdrop, the present paper aims to examine the EUGB Regulation through a doctrinal and evaluative approach. While primarily legal in nature, the analysis also seeks to also considers the broader systemic implications of the mentioned Regulation, with a view to highlighting both the potential and the limitations of the current regulatory approach, offering reflections on possible avenues for improvement. 

To that end, firstly, the regulatory landscape of the EU green bond market, prior to the EUGB Regulation, will be explored. Secondly, the contribution will examine potential shortcomings of the regulation that may discourage issuers from adopting it, emphasising the importance of incentives, given the voluntary nature of the commitments enshrined in the EUGB Regulation. Thirdly, it will analyse the role of the European Securities and Markets Authority (ESMA) within the regulation, and provide reflections on the possibility of involving the European Investment Bank (EIB) and the European Central Bank (ECB) in a co-supervisory capacity. Fourthly, the EUGB Regulation will be looked at through the lens of climate justice, highlighting the necessity of integrating mechanisms that ensure fair burden-sharing across Member States.

Ultimately, it will be concluded that, even though the EUGB Regulation represents a significant step towards enhancing transparency and mitigating greenwashing in the green bond market, its voluntary nature, enforcement gaps, along with ambiguities in the EU Taxonomy, may limit its effectiveness. To fully realise its potential, the regulation might benefit from further refinement, stronger enforcement mechanisms, and financial incentives to encourage adoption. Additionally, integrating climate justice principles in the mentioned regulatory framework could ensure a more equitable green transition across Member States.

2.   A Fragmented Path to Regulation: the Development of the EU Green Bond Regulatory Framework

The EU has for a long time been at the forefront of attempts to regulate and structure the green bond market, thus developing a globally relevant EU green bond market.[10] Despite slow progress towards meeting the EU’s climate neutrality objectives,[11] with annual investments of euros 1.5 trillion required from 2031 to 2050 to achieve a 90 per cent emissions reduction target by 2040, financial instruments like green bonds play a crucial role in mobilising the necessary capital for the green transition.[12]

It should be noted at the outset that the green bond market is relatively recent. It indeed traces its origins back to 2007/2008, when Multilateral Development Banks (MDBs), such as the EIB and the World Bank, initiated its development.[13] For several years, the market has been dominated by public sector issuers, like MDBs, and governmental entities, with limited private sector involvement.[14]Subsequently, the launch of corporate green bonds by the European Development Fund (EDF), Bank of America, and Vasakronan in 2013 acted as a catalyst for the market’s expansion.[15]

From a regulatory standpoint, the development of the EU green bond market has been shaped above all by market-led initiatives and EU-level policies, with binding legislation entering the picture at a later stage. These different sources have often evolved in parallel, without always representing a coordinated effort. For the purposes of this discussion, before the EUGB Regulation, three primary sources of ‘regulation’ shaped the green bond market within the EU, namely (i) market-led initiatives (ii) EU-level policies, and (iii) regulation at EU and national levels.

The emergence of private initiatives, i.e. the first source of regulation, can likely be attributed to the need for enhanced transparency in the field of green bonds, compared to conventional bonds,[16] as well as to the necessity of ensuring a level playing field for all market participants.[17] Market-led regulation has arguably been the primary source of green bond regulation in the EU over the years. To that end, notable market initiatives include the International Capital Market Association Green Bond Principles (ICMA GBP)[18]and the Climate Bonds Standard and Certification Scheme (CBS) of the Climate Bond Initiative (CBI)[19]. On one hand, the ICMA GBP (first adopted in 2014 and most recently updated in 2025)[20] are voluntary guidelines promoting transparency, integrity, and standardisation in the green bond market, by providing a framework for issuers to allocate bond proceeds to environmentally sustainable projects. On the other hand, the CBS of the CBI is a voluntary labelling scheme that certifies bonds and other debt instruments, ensuring that the funds raised are allocated to projects aligned with the 1.5°C temperature rise limit set by the Paris Agreement. 

As previously mentioned, public policies and initiatives constitute the second source of green bond regulation. In this context, the EU’s commitment to sustainable finance, exemplified by initiatives such as the Europe 2020 Project Bond Initiative[21] – designed to mobilise private capital for priority infrastructure projects, including low-carbon transport and energy networks – has been instrumental not only in fostering market growth, but also in directing funding towards projects consistent with the Union’s climate and sustainability objectives. 

A more recent example is the issuance of euros 250 billion in green bonds under the NextGenerationEU (NGEU) recovery plan,[22] making the EU the world’s largest green bond issuer.[23] The Green Bond Programme under the NGEU has set a benchmark for both public and private issuers.[24]

With regard to the third source, i.e. regulatory measures, prior to the EUGB Regulation, the main regulatory framework for sustainable finance at the EU level was the EU Taxonomy Regulation.[25] Yet, the differentiation between the three identified regulatory sources for the EU market, as well as their interplay, has often been unclear. Market-led initiatives, such as the Green Bond Principles introduced in 2014, predated the Taxonomy and shaped the early development of the European green bond market. The Taxonomy was, however, conceived from the outset as more than a stand-alone classification tool: it was designed to form the backbone of a broader sustainable finance architecture, serving as the reference for future regulatory initiatives, including a possible European Green Bond Standard.[26] Both the 2018 and 2021 EU sustainable finance strategies explicitly envisaged this link and even mandated a feasibility study on such a standard by 2019.[27] Additionally, green bonds were subject to the main sources of general bond regulation, namely Regulation (EU) 1129/2017 (‘Prospectus Regulation’),[28] Directive 2019/2162/EU (‘Covered Bond Directive’),[29]Regulation (EU) 596/2014 (‘Market Abuse Regulation’),[30] Directive 2014/57/EU (‘Market Abuse Directive’),[31] and Directive 2014/65/EU.[32] Outside the purview of these regulations, and especially with respect to company law, bond legislation – including that for green bonds – was entirely left to national laws.[33] It thus emerges that bond regulation was fragmented, and insufficiently precise[34] before – and maybe even after – the introduction of the EUGB Regulation. This scenario must have called for an additional layer of transparency in the green bond market, to protect issuers (from a competition law perspective), bondholders, and, broadly speaking, the climate as a public good.[35]

In fact, the above-mentioned forms of regulation notwithstanding, challenges, mainly related to regulatory gaps, persisted both prior to and, to a certain extent, even following the introduction of the EUGB Regulation. For instance, the absence of clear, sufficiently detailed and effective criteria for green bond issuers has raised concerns regarding investor protection, transparency and coordination among Member States.[36] In light of these challenges, market self-discipline has come under fire for being insufficient, creating a regulatory gap, and contributing to the ‘legitimacy deficit’ issue.[37] Therefore, in order to fill the regulatory gap, the EU adopted the EUGB Regulation, which was intended to provide clarity on what constitutes a ‘green’ project and which safeguards are required of issuers.[38]

The EUGB Regulation,[39] published in the EU's Official Journal in November 2023, applies from 21 December 2024.[40] Its primary aim is to promote the funding of sustainable projects and strengthen investor protection against greenwashing, thereby advancing the EU's goal of a climate-neutral economy. Indeed, pursuant to – and following the application of – the EUGB Regulation, bonds can voluntarily use the ‘European Green Bond label’ (EUGB label), provided that they comply with the therein specified requirements concerning the use of proceeds, transparency, and external review. These requirements, while designed to enhance investor protection and credibility, also entail significant compliance costs for issuers. They include the need for detailed Taxonomy alignment assessments, extensive disclosure obligations, and reliance on accredited external reviewers, all of which may increase the administrative and financial burden of issuance.

Moreover, at least 85 per cent of the proceeds of each European Green Bond must be allocated to economic activities that are deemed ‘sustainable’, pursuant to the EU Taxonomy Regulation.[41] The remaining share of up to 15 per cent may be directed towards other activities, provided that they meet certain transparency requirements. This framework strengthens the connection between the EU Green Bond Standard and the Taxonomy, while leaving a limited flexibility window. Furthermore, the EUGB label can only be used for securities that fall within the scope of the EU Prospectus Regulation[42] and that do comply with the criteria set therein, i.e. bonds for which a prospectus has been published in accordance with said Regulation. The EUGB Regulation also sets out specific duties and requirements for issuers of EUGBs, both before and after the issuance.[43]

Moreover, art. 20 of the EUGB Regulation mentions optional disclosure guidelines, mandating the EU Commission to adopt them, for environmentally sustainable bonds and sustainability-linked bonds that do not aim to meet the EUGB criteria.[44] This distinction inevitably creates a two-tier system within the sustainable bond market, as only EUGBs are subject to the full set of regulatory requirements. This approach reflects the legislator’s decision to focus first on green bonds, which constitute the largest and most mature asset class within the sustainable debt market, both in the EU and globally. This rationale explains why the legislator decided to prioritise green bonds at this stage. The regulatory framework has since been further detailed through Level 2 legislation, in the form of delegated and implementing acts adopted by the European Commission, which specify the technical content and operational modalities of the EUGB Regulation.[45] These acts primarily regulate EUGBs, in particular by defining the standardised templates for pre-issuance and post-issuance disclosure, the structure and content of the factsheets and allocation reports, the methodology for external reviews, and the procedures for registration and supervision of external reviewers by ESMA. 

By contrast, the role of Level 2 legislation with respect to other sustainable debt instruments, such as sustainability-linked bonds and environmentally sustainable bonds not seeking the EUGB label, is more limited. In these cases, the Commission is only mandated to develop optional disclosure templates and guidance pursuant to Articles 20 and 21 of the Regulation, which do not impose binding obligations but merely aim to enhance transparency. This confirms that Level 2 legislation mainly consolidates the EUGB framework, rather than establishing a comprehensive binding regime for the broader sustainable bond market.

The EUGB Regulation is a paradigm shift from market-based private regulation, such as the ICMA GBP and the CBS of the CBI, and a remarkable step forward in filling the regulatory gaps frequently identified in the green bond market.[46] However, its overall impact remains to be seen, particularly in addressing persistent regulatory challenges and market limitations, as it will be seen in the following sections.

3.   Barriers to Adoption: why the EUGB Regulation may Struggle to Gain Traction

The EUGB Regulation undoubtedly marks a milestone for the EU green bond market, by providing a more uniform regulatory framework compared to private regulation.[47] If a sufficient number of issuers voluntarily adopts the EUGB label, this could enhance market efficiency by reducing discrepancies and costs for investors evaluating green bonds, strengthening the fight against greenwashing,[48] thereby promoting further growth of the EU green bond market.[49]

However, the voluntary adoption of the EUGB label appears unlikely, as several features of the Regulation, as discussed below, may make compliance burdensome or unattractive for issuers. In particular, the extensive transparency and disclosure obligations required under the Regulation create significant reporting and administrative burdens for issuers. It is therefore arguable that, without targeted incentives or regulatory adjustments, its impact on the EU green bond market may remain limited.

In fact, rather than offering a clear improvement over private regulatory frameworks, the EUGB Regulation largely builds upon existing market-led initiatives, while failing to address some of their key shortcomings.[50] Notably, the EUGB Regulation seeks to overcome some of the fallbacks of the ICMA GBP by introducing a clearer framework for accountability and by formally defining the consequences of non-compliance. [51] In fact, under the Regulation, failure to meet disclosure and transparency requirements may trigger administrative sanctions, including pecuniary penalties, and the withdrawal of the right to use the ‘European Green Bond’ designation.[52] However, enforcement remains partly fragmented: while ESMA is entrusted with the registration and supervision of external reviewers,[53] national competent authorities (NCAs) retain enforcement powers over issuers established in their jurisdictions.[54] This dual structure may lead to divergences in the application of penalties and remedial measures across Member States, which, in turn, leads to a similar situation compared to the one that emerged under the ICMA GBP. Moreover, the mentioned decentralised enforcement may ultimately weaken the deterrent effect of the EUGB framework and leave room for greenwashing claims to arise ex post, under both EU and national liability regimes.[55]

In other words, while the EUGB Regulation moves beyond the voluntary and largely self-regulated approach of the GBP by introducing a legal basis for sanctions, its current enforcement architecture remains limited in scope and fragmented in practice. This gap will be further examined in the following sections, which explore possible institutional solutions to enhance oversight and post-issuance accountability.

Similarly, the EUGB Regulation has a broader scope of application than the CBS developed by the CBI, while drawing from the structure of its certification scheme.[56] However, some structural shortcomings of these market-led initiatives persist, which the EUGB Regulation could have addressed more effectively. For instance, limitations persist in post-issuance enforcement, with weak or undefined consequences for non-compliance. Furthermore, while the regulation enhances transparency, it does not fully address weaknesses in the management and tracking of proceeds, nor does it provide standardized impact reporting guidance, making it difficult to compare and quantify environmental outcomes effectively.[57]

Furthermore, like the CBS, the EUGB Regulation determines project eligibility for the ‘green label’ based on the EU Taxonomy Regulation.[58] However, the EU Taxonomy Regulation remains subject to significant interpretational controversies, as evidenced by the ongoing litigation at the EU level.[59] In In particular, the actions Republic of Austria v European Commission[60] and ClientEarth v European Commission[61] have challenged the inclusion of gas and nuclear energy within the Taxonomy’s delegated act, arguing that such classification undermines the scientific credibility and environmental integrity of the framework. While these actions were initially brought in 2023, the proceedings are no longer pending, as the General Court delivered its judgment in September 2025, thereby clarifying the legal status of the contested Taxonomy classifications. Such litigation reveals the tension between political discretion and scientific criteria in defining what qualifies as ‘sustainable’ under EU law, thereby creating regulatory uncertainty for issuers and investors alike. Additional proceedings have also concerned the prospective inclusion of sectors such as shipping and aviation within the EU Taxonomy framework, further illustrating the contentious and evolving nature of the classification system and its exposure to judicial scrutiny.

Against this backdrop, the legal uncertainty surrounding the EU Taxonomy creates additional risks for issuers, who may be reluctant to commit to a framework that could be subject to future reinterpretation or judicial scrutiny. In other words, the legal uncertainty surrounding the EU Taxonomy creates additional risks for issuers, who may be reluctant to commit to a framework that could be subject to future reinterpretation or legal disputes. Moreover, the stringent criteria set by the EU Taxonomy Regulation may reduce the number of eligible green projects that could otherwise be financed through green bonds.[62] These factors, all revolving around the EU Taxonomy Regulation, collectively, could discourage voluntary adoption of the EUGB label and hinder the growth of the green bond market. 

Additionally, one of the primary objectives of the EUGB Regulation has been declared to be ‘to allow investors to more easily assess, compare and trust that their investments are sustainable, thereby reducing the risks posed by greenwashing’,[63] thereby benefitting investors and boosting their confidence in the green bond market.[64] However, this objective does not seem to be fully achievable. In fact, the voluntary nature of the EUGB label means that compliance with the regulation’s requirements is not mandatory. Additionally, the EUGB Regulation allows for a flexibility pocket of up to 15 per cent of the proceeds, which may be allocated to individual projects not yet covered by the EU Taxonomy, pursuant to art. 5 of the EUGB Regulation.[65] This may result in a discrepancy in the treatment of bonds adopting the EUGB label, depending on the nature of the specific projects financed with the proceeds. This nuance is particularly relevant for financial institutions, which often issue green bonds to finance a wide variety of projects rather than to reflect their own core business activity. 

Another disparity arises from the fact that disclosure obligations for environmentally sustainable and sustainability-linked bonds (which do not adopt the EUGB label and therefore do not conform to the regulation’s criteria) remain optional. Although the European Commission is expected to publish templates for such issuers, pursuant to art. 20 and art. 21 of the EUGB Regulation,[66]said requirements will remain voluntary, and distinct from those applicable to EUGBs. This is highly likely to create confusion, and thus uncertainty, in the market. In other words, it seems difficult to understand why bonds that, albeit called differently (EUGBs, environmentally sustainable, and sustainability liked bonds), all pursue sustainable objectives, are subject to differing regulatory treatment, complicating investor comparisons. 

Fourthly, art. 8 of the EUGB Regulation includes a grandfathering provision, stipulating that issuers of EUGBs must initially allocate proceeds in alignment with the technical screening criteria in place at the time of issuance.[67] If these criteria are amended post-issuance, issuers are allowed up to seven years to align unallocated proceeds and capital expenditure-related allocations with the new criteria.[68] This clause could incentivise issuers to allocate all proceeds immediately after the issuance of the bonds, in order to avoid being subject to amended Technical Screening Criteria (TSC),[69] which may result in market instability due to the unpredictability of TSC changes. Additionally, it may not be economically viable for some participants to modify their green bond frameworks to align with the EUGB Regulation requirements, especially in light of the just described market volatility. 

Against this backdrop, some argue that it would have been more appropriate for the EUGB Regulation to require that projects for EUGBs were aligned with the issuers’ existing green bond framework or the ICMA GBP, rather than with the EU Taxonomy Regulation.[70] Such an approach might have reduced interpretational ambiguities and regulatory gaps, thereby incentivising voluntary compliance with the EUGB framework and boosting the green bond market. However, this solution would have legitimised, rather than resolved, the challenges posed by the lack of comparability between financial products, as it would have entrenched issuer-specific standards and hindered comparative market assessment.

4.   Addressing the barriers: regulatory and policy solutions to enhance the EUGB Regulation

It therefore seems that, without substantial incentives or regulatory adjustments, the EUGB Regulation risks remaining a marginal framework within the green bond market, as issuers may find it more practical to continue relying on existing private initiatives. To enhance its effectiveness, the EUGB Regulation should be streamlined to eliminate uncertainties and barriers to adoption. The most suitable way to achieve this objective does not lie in removing references to the EU Taxonomy Regulation from the EUGB framework, but rather in recalibrating its role so as to reduce excessive rigidity while preserving its function as a benchmark for environmental integrity. Indeed, by revising and adapting its provisions, the EUGB Regulation could have served as a pivotal opportunity to address the uncertainties and challenges posed by the EU Taxonomy, providing a more flexible and pragmatic framework that better aligns with market needs. Nevertheless, detaching the EUGB framework entirely from the EU Taxonomy would require careful safeguards to avoid reproducing the very fragmentation that the Regulation sought to overcome. In the absence of a common classification system, issuers might indeed revert to developing proprietary green bond frameworks or rely once again on market-led principles, such as the ICMA GBP, thereby reintroducing inconsistencies and heightening greenwashing risks.

Against this backdrop, a viable alternative would not entail abandoning the Taxonomy altogether, but rather streamlining its use through a tiered or reference-based approach. For instance, the EUGB Regulation could retain the Taxonomy as a benchmark for environmental integrity, while allowing limited flexibility through clearly defined sectoral thresholds or equivalence criteria approved at EU level. This would preserve comparability and regulatory coherence, while mitigating the rigidity and interpretational uncertainty currently associated with the Taxonomy’s technical screening criteria. In this way, the Regulation could combine the benefits of a harmonised EU framework with the adaptability needed to reflect market realities.

Additionally, financial incentives could be put in place in order to encourage issuers to comply with the EUGB Regulation standards. To that end, the EU could introduce fiscal or financial incentives to promote the issuance of EUGBs, following examples already implemented in other jurisdictions.[71]

Within the EU, such measures remain limited: only a few Member States, notably the Netherlands and Luxembourg, have adopted forms of tax relief related to green bonds or green investment vehicles.[72] In fact, the Netherlands provides exemptions from capital gains tax for investments made through certified green banks or funds, while Luxembourg offers a partial reduction of its subscription tax for investment funds financing Taxonomy-aligned green bonds.[73] Malta, while not providing tax benefits, grants a 50 per cent reduction in listing fees for issuers qualifying under its Green List.[74]

Beyond the EU, Singapore has developed one of the most structured incentive schemes through its Sustainable Bond Grant Scheme, administered by the Monetary Authority of Singapore, which reimburses up to SGD 125,000 per issuance to cover costs of external reviews for green, social, sustainability, sustainability-linked and transition bonds, valid until 31 December 2028.[75] In China, fiscal and regulatory support has been crucial to the rapid expansion of its sustainable debt market, which surpassed RMB 3.3 trillion by mid-2021, driven by instruments such as carbon-neutral bonds, the Green Bond Endorsed Projects Catalogue (2021), and the Common Ground Taxonomy.[76] Across Asia more broadly, green bonds account for over 70 per cent of total sustainable debt issuance, supported by fiscal incentives, regulatory streamlining and central-bank-backed programmes.[77]

These examples show that targeted fiscal measures, whether in the form of tax relief, subsidies or cost-reimbursement schemes, can substantially reduce compliance costs and encourage wider market participation. Introducing comparable mechanisms at the EU level could therefore enhance the attractiveness and competitiveness of the EUGB framework within the global green bond landscape.

These subsidies could be financed through existing EU funding mechanisms, such as the InvestEU programme,[78] established by Regulation (EU) 2021/523 of the European Parliament and of the Council,[79] which provides an EU budget guarantee to mobilise public and private investment in sustainable infrastructure and climate-related projects, or the Innovation Fund,[80] created under the EU Emissions Trading System,[81] which supports the deployment of innovative low-carbon technologies. Future allocations within the EU budget dedicated to sustainable finance could also reinforce these instruments. Indeed, several initiatives, such as the issuance of NextGenerationEU green bonds,[82] have already been undertaken to channel finance into the EU green bond market, and similar approaches could be adopted for EUGB Regulation-aligned bonds. 

To sum up, enhancing the EUGB Regulation requires a combination of regulatory refinement and targeted financial support. A clearer and more flexible linkage with the EU Taxonomy, coupled with EU-level incentives to offset compliance costs, would not only facilitate wider adoption among issuers, but also strengthen the Regulation’s credibility as a benchmark for sustainable finance. By aligning legal certainty with market feasibility, the EUGB framework could evolve from a voluntary label into a genuinely effective instrument to advance the Union’s green transition.

5.   Bridging the Gaps in EUGB: the Untapped Potential of the ECB and EIB

When analysing the green bond market in the EU, it appears that private actors have mainly played the role of regulators, with limited involvement from public entities in the regulatory process. This reliance on self-regulation is exemplified by the ICMA GBP, which have served as the de facto standard for green bond issuance,[83] even influencing the European Commission’s approach in the NGEU programme.[84] This regulatory model clearly presented significant shortcomings, particularly in terms of enforcement and market integrity, warranting greater public oversight.[85] In fact, a historical analysis of the EU green bond market shows that self-regulation is inadequate. This does not only stem from the fact that public and independent actors are inherently better suited to regulate markets, but also because market self-regulation can be detrimental in terms of competition, climate justice, burden distribution, and transparency.[86] Furthermore, even if the market possessed comparable regulatory capacity to public or independent bodies, it lacks supervisory authority, meaning that breaches of privately established market standards may go without consequence.[87]

Public actors have primarily been engaged in other (than regulation) areas of the green bond market. Member States and other public entities, agencies and supranational entities have been – and are expected to persist in[88] – financing initiatives, such as subsidies, support for research and development, public infrastructure projects, building decarbonisation, and other expenditures. A notable example is the European Commission's involvement in the NGEU Recovery Plan.[89]

It is worth clarifying that the present paper does not argue that public actors should withdraw from financing the green bond market. Indeed, corporate issuers - despite contending with the current high-interest rate environment and presently constituting around 28 per cent of green bond issuers - will continue to rely on these public funds.[90] It is instead here suggested that the respective roles of public and independent actors should not be limited to injecting finance in the market and that they should also undertake regulatory and supervisory responsibilities, which are inherently linked to effective market governance. 

The EUGB Regulation appears to acknowledge the need for more robust supervision and enforcement, and thus regulation. For example, it mandates pre-issuance and post-issuance external reviews, moving beyond the ICMA GBP's recommendation-based approach.[91] Additionally, the EUGB Regulation entrusted the ESMA with supervisory and enforcement powers, so to ensure compliance with the rules by external reviewers and issuers of EUGBs.[92]

Yet, the current supervisory framework established by the EUGB Regulation remains incomplete and somewhat fragmented. On one hand, ESMA is entrusted with the direct supervision of external reviewers - including powers to register, monitor, suspend, or revoke their authorisation, and to impose administrative sanctions or publish the outcome of enforcement actions (‘naming and shaming’).[93] On the other hand, NCAs retain oversight over issuers established within their jurisdictions. This dual structure, although intended to balance centralised oversight and subsidiarity, risks creating disparities in enforcement practices and levels of scrutiny across Member States.

In fact, the current framework entails that, while ESMA can ensure consistency in the supervision of external reviewers, the effectiveness of issuer-level enforcement still depends on the resources, priorities, and interpretative approaches of NCAs. The result is a supervisory architecture that remains partly decentralised and potentially uneven. Consequently, even though the Regulation provides for both monetary and reputational sanctions, the deterrent effect of the framework as a whole may still be limited by the lack of a coherent and coordinated enforcement strategy at EU level.

A more effective approach would have been to integrate the supervisory roles of the ESMA with the powers of other entities, so to ensure market-wide compliance. More specifically, there seem to be two authorities which could have been entrusted with specific co-supervisory roles, alongside with the ESMA, namely the ECB and the EIB. In fact, it is here argued that a combined regulatory approach involving the ESMA, the ECB, and the EIB could have strengthened enforcement mechanisms, at least from a policy perspective.

To that end, the ECB, as one of the EU institutions, ‘shall work for the sustainable development of Europe’, according to art. 3(3) Treaty on the European Union (TEU).[94] This provision is further supported by the cross-sectoral requirement in art. 11, TFEU.[95]While neither art. 3 TEU nor art. 11 TFEU can be invoked to expand the competence framework of the ECB defined in art. 127 TFEU,[96] climate considerations fall within the ECB’s secondary mandate, with the maintenance of price stability as its primary objective, to which monetary policy remains instrumental.[97] In fact, the ECB has already demonstrated its commitment to green objectives through initiatives,[98] such as incorporating green bonds in its portfolio, in order to fund the green transition, alongside with considering climate change in its asset purchase programmes. [99] The ECB has also recognised the relevance of green bonds within its monetary operations, accepting them as eligible collateral and for asset purchase programmes, without requiring compliance with the European Green Bond Regulation.[100]

A possible step forward could have been for the EUGB Regulation to entrust the ECB with a co-supervisory function, thus institutionalising the activities that the independent body in question has been carrying out throughout the years in order to foster the green transition. By linking access to liquidity facilities or preferential financial conditions to adherence to stringent green bond criteria, the ECB could have provided stronger market incentives for compliance. Such an approach would not require amendments to the EU’s primary legal framework, but would significantly enhance the enforceability of green bond standards.

The EIB is a public bank owned by the EU’s Member States. While it does not possess a formal legislative mandate, art. 308 and art. 309 TFEU[101] establish its role in supporting the EU’s policy objectives through its financing activities. The EIB itself has described its mission as that of a ‘policy-driven bank’,[102] and it has played a pivotal role in the EU green bond market shaping process.[103] As previously noted, the EIB was the first institution to issue an EU green bond, and its extensive experience in evaluating environmental impact and financing sustainable projects underscores its potential role in co-supervising the green bond framework.[104] The EIB has been instrumental in shaping the EU’s Green Bond framework by acting as a policy entrepreneur,[105]advocating for the development of a standardised regulatory approach. It played a key role in coalition-building efforts that led to the creation of the European Green Bond Standard, leveraging its expertise as the world’s first issuer of Green Bonds with its CAB in 2007. Furthermore, the EIB actively participated in expert committees and regulatory discussions, providing technical input that helped in laying the foundation for the EUGB Regulation.[106] Through its sustained involvement, the EIB has significantly contributed to the expansion and formalisation of the green bond market within the EU. Given its longstanding leadership in green finance, the EIB is uniquely positioned to assess the environmental impact of funded projects.[107] Unlike ESMA, whose supervisory powers under the EUGB Regulation primarily concern the registration and oversight of external reviewers – including the monitoring of their compliance with disclosure and review requirements pursuant to Article 44 and related provisions – NCAs retain supervisory and enforcement powers over issuers, including with respect to the disclosure obligations applicable to EUGBs. In this context, the EIB could have played a complementary role by ensuring that green bond proceeds were allocated effectively. Furthermore, as a lender, the EIB could have imposed stricter sustainability requirements on recipients of green bond financing, thereby reinforcing compliance beyond mere transparency obligations. In fact, although the EIB does not have a direct policy-making function, its operations are intrinsically linked to the Union’s strategic priorities, as reflected in art. 309 TFEU,[108] which mandates the EIB to facilitate financing for projects of common European interest and support economic cohesion. By aligning its investments with EU priorities and influencing market standards, the EIB has effectively contributed to policy implementation within the Union. 

Building on this policy-oriented role, the EIB’s influence could also extend to its own financing practices. By tightening the sustainability conditions attached to its lending activities, the EIB could further enhance compliance with EU environmental objectives. At present, the EIB’s lending framework already requires that projects financed through its Climate Bank Roadmap and Sustainability Awareness Bonds align with the EU Taxonomy and the EIB’s Environmental and Social Standards.[109] These conditions primarily concern environmental integrity, project screening, and reporting obligations, yet they do not establish uniform ex-ante verification requirements comparable to those under the EUGB Regulation. Strengthening these criteria, for instance, by linking disbursement tranches to verified sustainability performance or by aligning disclosure obligations with EUGB standards, would have enabled the EIB to assume a stronger quasi-regulatory role. In doing so, the EIB could bridge the gap between market-based practices and EU-level oversight, further consolidating its position as a key institutional actor in the Union’s green finance architecture.

In conclusion, one of the primary shortcomings of the EUGB Regulation is its lack of clear and adequate consequences for non-compliance. While the ESMA has the authority to require disclosures and impose fines, the absence of substantive enforcement measures limits the deterrent effect of the regulation. If the ECB and EIB had been integrated into the supervisory framework, enforcement mechanisms could have been strengthened at both a regulatory and policy level. The ECB, through its monetary policy instruments, could have created incentives for compliance, such as linking access to liquidity or preferential financial conditions to adherence to stringent green bond criteria. Simultaneously, the EIB could have conditioned its financing programmes on compliance with the EUGB framework, alongside with elaborating stricter sustainability requirements in a hypothetical complementary technical and advisory function with the ESMA.

6.   Integrating Climate Justice into the EUGB Regulation

With respect to EU green finance, the concept of climate justice can be examined as a twofold phenomenon. On one hand, it pertains to the establishment of a European legislative framework that ensures fairness among Member States. This can be done by promoting equitable burden-sharing in addressing climate change, thus accounting for Member States’ diverse economic, social, political, and legal vulnerabilities.[110] On the other hand, it focuses on access to justice, enabling civil society to assert their fundamental and human rights in courts,[111] including initiating legal actions to hold states accountable for their commitments to reducing greenhouse gas emissions under international and European law. This second dimension of the phenomenon falls outside the scope of the present contribution.

Regarding the first dimension of climate justice in the context of green finance, the emphasis lies on the fair distribution of the benefits and burdens of climate policies, particularly for vulnerable communities disproportionately impacted by climate change.[112] The effective and accountable participation of all EU Member States in implementing the Paris Agreement’s climate targets is crucial, based on principles such as precaution, ‘polluter pays’,[113] prioritisation of energy efficiency, transparency, and ‘no-harm’.[114] These principles are indeed embedded in the broader concept of climate justice and have been considered in key EU initiatives, including the Green Deal, which links climate policies to social objectives.[115]

Some doubts have been raised concerning whether green finance can contribute to climate justice – rectius, to its first dimension - in light of the Paris Agreement. Despite the fact that these doubts have been superseded,[116] the EUGB Regulation does not integrate a burden-sharing mechanism to promote climate justice. In fact, the current green bond framework prioritises environmental outcomes, while inadequately addressing issues of social equity. 

To that end, comparing EU green bond policies with international examples provides valuable insights. Herrera’s empirical study on municipal green bonds (MGBs)[117] in Africa and Latin America sheds light on the challenges of applying the 'green label' in regions with diverse socio-economic conditions.[118] In the mentioned areas, the ‘green label’ indeed often legitimised existing inequalities rather than promoting transformative change. More specifically, Herrera notes that, while green bonds are often marketed as environmentally beneficial, they do not always serve the communities most impacted by climate change, often neglecting critical social justice issues.[119] To that end, the emphasis on environmental impacts alone, without sufficient attention to social equity, may limit the effectiveness of green bonds in fostering a truly sustainable future.[120] Thus, the need arises to ensure that the proceeds benefit the communities most affected by climate change. Similarly, as in the regions examined by Herrera, in the EU, where socio-economic conditions vary among Member States, it is essential to consider mechanisms that ensure green bond proceeds are directed towards those countries most in need.

Despite these concerns, the EUGB Regulation does not differentiate between Member States, with varying financial capacities, potentially neglecting the diverse financial backgrounds across the EU.[121] This omission is highly likely to exacerbate existing inequalities rather than addressing them. It would be worth considering initiatives – at EU level – not only promoting investment in green bonds, but also ensuring that those investments are calibrated, in order to be addressed towards the financial markets of the Member States that most need it. A stronger alignment between the EUGB Regulation and the Just Transition Mechanism could enhance the effectiveness of green finance in addressing climate justice.[122] This could be achieved by integrating explicit social criteria into green bond issuance requirements, ensuring that investments actively contribute to reducing socio-economic disparities linked to climate change and financial capabilities among Member States. Such an approach would be consistent with the principles of Common but Differentiated Responsibilities (CBDR)[123] and the principle of solidarity enshrined in Article 3(3) TEU,[124]which call for tailored solutions that acknowledge the varying capabilities of Member States in contributing to collective climate goals while respecting their individual economic and social contexts. 

The issues explored thus far, all of which relate to the first aspect of climate justice, i.e. burden sharing, could be tackled integrating burden-sharing mechanisms in the EUGB Regulation, in order to address the different financial capabilities and backgrounds of Member States, implementing the solutions proposed in the preceding paragraphs. In particular, the aforementioned integrated supervisory approach to the EU green bond market regulation could play a pivotal role in advancing climate justice. While the EUGB Regulation does not distinguish between Member States, and the ESMA’s mandate does not empower it to do so, the ECB could (if authorised) exercise discretion in enforcing the EUGB Regulation and incentivising investment in the EU green bond market in a climate-equitable manner. More specifically, the ECB could leverage its monetary policy instruments, such as preferential refinancing conditions and, although the main asset purchase programmes under the Corporate Sector Purchase Programme (CSPP) and the Pandemic Emergency Purchase Programme (PEPP) have now been discontinued, draw on similar liquidity and collateral frameworks to incentivise investments in green bonds issued – and/or the proceeds of which are used to finance projects – in given Member States. This could be achieved through its collaboration with other central banks within its network. Simultaneously, the EIB could play a complementary role by providing targeted financial support and ensuring that green bond proceeds are directed towards projects that align with both environmental and social equity objectives, particularly in Member States with weaker financial capacity. 

From an operational perspective, this outcome could be achieved by entrusting the ECB and the EIB with co-supervisory powers, as previously suggested. More specifically, a process could be put in place which begins with a thorough assessment of the financial needs of each Member State, considering factors such as gross domestic product, public debt, and vulnerability to climate change. Based on this assessment, funds would be allocated proportionally, with Member States facing greater financial constraints receiving a larger share. Institutions involved, like the ECB and the EIB, would play a key role in overseeing and managing this process, ensuring that resources are used efficiently. A central fund, managed by these institutions, could be created to redistribute the proceeds from green bonds, ensuring that investments are directed towards Member States most in need.

To ensure that green bonds effectively contribute to climate justice, a mechanism ought to be established for proportional burden-sharing, ensuring that Member States contribute to climate finance in accordance with their financial capacity and benefit from it in proportion to both their contribution and their needs. Stated otherwise, the argument is that the EUGB Regulation should encompass a system in line with the Just Transition Mechanism, an integral part of the EU Green Deal.[125]

7.   Conclusion

The EUGB Regulation represents a milestone in the EU green bond market, seeking to overcome the previously fragmented landscape of voluntary guidelines and diverse practices.[126] The new piece of regulation aims at enhancing transparency and mitigating the risks of greenwashing by aligning green bond issuances with the criteria of the EU Taxonomy. However, as it has been shown, the EUGB Regulation’s effective implementation is likely to face significant hurdles. 

A fundamental challenge lies in the voluntary nature of the commitments enshrined in the EUGB Regulation.[127] To that end, issuers are not obliged to use the EUGB label for their green bonds, which means that the regulation’s success strongly depends on the willingness of market participants to opt in. Therefore, if adopting the mentioned label is perceived as too burdensome, issuers might simply choose to issue bonds outside the new EU framework, thereby limiting its market uptake. Moreover, the EUGB Regulation’s reliance on the EU Taxonomy, while intended to ensure environmental integrity, further complicates the scenario. It is indeed widely known that the EU Taxonomy Regulation currently is the subject of massive EU-wide litigation and interpretational ambiguities.[128] Such legal and interpretative uncertainties may deter some issuers from adopting the EUGB label. It thus follows that, while the EUGB Regulation sets a crucial common standard, its voluntary commitments and Taxonomy-dependent criteria could hinder widespread adoption and diminish its market impact, unless the Regulation is streamlined to eliminate uncertainties and barriers to adoption. 

Against this backdrop, the present paper suggests the introduction of targeted financial incentives, which could boost the voluntary adoption of the EUGB label. Since participation in the framework is optional, directly incentivising issuers can make the EUGB route more attractive. To that end, financial incentives introduced at EU level could represent another useful tool, since public grants could offset the verification and reporting costs associated with EUGB compliance.[129]

In addition to adoption challenges, the current regulatory framework presents remarkable gaps in post-issuance monitoring and enforcement. Pursuant to the EUGB Regulation, an issuer that adopts the EUGB label is obliged to follow certain disclosure and reporting requirements. Supervision is, however, divided between NCAs and ESMA:[130] while NCAs monitor compliance by issuers established within their jurisdictions, ESMA is responsible for the registration and oversight of external reviewers, including powers to suspend or revoke their authorisation. This shared structure seeks to balance centralised oversight with subsidiarity, yet it may also result in uneven enforcement practices across Member States. Moreover, the consequences for non-compliance remain relatively weak, given the limited scope of substantive penalties. These enforcement limitations may undermine the credibility of the EUGB framework. Robust post-issuance monitoring, coupled with meaningful enforcement, is therefore essential to uphold the integrity of the EUGB framework.

To address these shortcomings, the present contribution suggests that a more integrated supervisory approach is needed to bolster the effectiveness of the EUGB Regulation. In particular, involving key European institutions, such as the ECB and the EIB, in a a complementary technical and advisory role, alongside the ESMA, could significantly strengthen enforcement and market confidence. Each of these institutions brings unique competencies that, if marshalled together, would complement the regulatory framework.[131]

Furthermore, the importance is here highlighted for the EUGB framework to also embed climate justice principles, namely a burden-sharing mechanism among Member States. In fact, the fight against climate change should not only be an environmental imperative, but also a social one. In spite of this consideration, at present, the EUGB Regulation focuses on environmental criteria and does not differentiate between issuers or projects based on the socio-economic context of different Member States. As discussed, this one-size-fits-all approach risks overlooking social and financial disparities across the EU. To integrate climate justice within the EUGB framework, the regulation could incorporate a burden-sharing mechanism that accounts for these differing capacities and needs. In practice, this means ensuring that support and capital mobilised via green bonds reach the regions that need them most.[132] By doing so, the EUGB Regulation’s implementation would reflect the EU’s fundamental solidarity principle[133] and the concept of CBDR,[134] acknowledging that, while all Member States must contribute to climate goals, not all start from the same position. 

In light of the above, a more holistic approach to green bond regulation in the EU is both necessary and achievable. The EUGB Regulation can evolve from a well-intentioned initial step into a central pillar of the EU’s sustainable finance architecture, if it is refined and supported through these multi-dimensional improvements. This entails clarifying standards and ensuring a more flexible and nuanced use of the EU Taxonomy Regulation, so as to reduce ambiguities while preserving its role as a common benchmark, strengthening oversight, and providing incentives to encourage broad participation, all while anchoring the framework to climate justice, so that no Member State is left behind in the green transition. Not only would the adoption of such a comprehensive approach bolster the effectiveness and credibility of green bonds as a tool for environmental financing but also align the market’s growth with the EU’s wider social and climate objectives.