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In sustainable finance the greenwashing risk sits in the documentation, not in the advertising. A prospectus, a pre-contractual annex and an allocation report are legally binding documents. An issuer that promises too much in them runs a liability risk and a supervisory risk at the same time. Since 21 December 2024 a European standard for green bonds has existed that makes that risk manageable.

The short answer

The European standard for green bonds is voluntary, but strict. If you use the designation European Green Bond, or EuGB, one hard requirement applies. At least 85% of the net proceeds must go to activities that comply with the Taxonomy Regulation. You publish a factsheet, have it reviewed externally before issuance, and report afterwards on allocation and impact.

A separate track applies to investment products: the SFDR requires disclosure at entity level and at product level. Both tracks share the same core. The claim must match the underlying fact, and that match must be capable of verification. For the consumer side of greenwashing, see our main article on greenwashing and environmental claims.

What a green bond is in legal terms

A green bond is an ordinary debt instrument. The difference lies in the use of the proceeds and in the undertakings given about that use. The difference is contractual and informational, not proprietary. The investor generally holds no security interest in the green projects.

That makes the quality of the documentation decisive. A gap between the undertaking and the actual spending is either a breach or a misleading statement, depending on how the wording is cast. A framework drafted in non-binding terms limits the risk, but also weakens the proposition.

Alongside the European standard there are market standards, such as the ICMA Green Bond Principles and the Climate Bonds Standard. These remain perfectly usable. They are, however, self-regulation, and the reviewers working under them are not subject to public supervision.

The European standard for green bonds

The standard is set out in Regulation (EU) 2023/2631. It has applied since 21 December 2024. The designation EuGB is protected: you may use it only if you meet every requirement. The core obligations are these:

• Use of proceeds. At least 85% of the net proceeds must go to economic activities that comply with the Taxonomy Regulation. A flexibility pocket of up to 15% is available, intended for activities for which no technical screening criteria yet exist.
• Factsheet. Before issuance you publish a factsheet in a prescribed format, setting out the intended use of the proceeds.
• Pre-issuance external review. An external reviewer gives a positive opinion on the factsheet.
• Prospectus. An approved prospectus must be in place.
• Allocation reports. Annually, until the proceeds have been fully allocated, with external review.
• Impact report. Once allocation is complete, you report on the environmental effects of the spending.
• Availability. The documents must remain on your website until at least one year after the end of the bond’s term.

External reviewers are supervised by ESMA and must register. Registration is mandatory once the transitional regime has run its course. That is a material difference from self-regulation: the second line is itself checked.

In the Netherlands the AFM supervises the prospectus. It asks issuers to file the EuGB documentation with it. That means the factsheet, the external reviews, the allocation and impact reports and any capital expenditure plan.

The role of the Taxonomy Regulation

Regulation (EU) 2020/852 gives the standard its substance. Without the taxonomy, green would once again be an open-ended term. An activity counts as environmentally sustainable where it:

1. contributes substantially to at least one of the six environmental objectives;
2. does no significant harm to the remaining objectives, the do no significant harm principle;
3. meets the minimum safeguards on human rights and labour standards;
4. meets the technical screening criteria set out in the delegated acts.

The six environmental objectives are:

• climate change mitigation;
• climate change adaptation;
• the sustainable use and protection of water and marine resources;
• the transition to a circular economy;
• pollution prevention and control;
• the protection and restoration of biodiversity and ecosystems.

Note the practical consequence. Not every green activity has technical screening criteria. That is precisely what the flexibility pocket is for. Explain in the documentation which portion falls within that pocket, and why.

SFDR: disclosure duties for financial market participants

Regulation (EU) 2019/2088 requires financial market participants and financial advisers to be transparent. The obligations sit at two levels.

Entity level. You publish on your website your policy on sustainability risks in the investment process. You also disclose the adverse impacts of investment decisions on sustainability factors. And you explain how your remuneration policy is aligned with sustainability risks.

Product level. Additional obligations apply to products that promote environmental or social characteristics (Article 8) and to products with sustainable investment as their objective (Article 9). They run through pre-contractual disclosure, website disclosure and periodic reports, using the fixed templates in the regulatory technical standards.

On 20 November 2025 the European Commission presented a proposal to revise the SFDR. Its central feature is a move to product categories with fixed conditions. The proposal is going through the ordinary legislative procedure and has not been adopted. Until it is, the current SFDR applies in full. Allow for change, but base your documentation on the framework in force.

Fund names and marketing material

In practice a fund name is the claim that is read most often. ESMA therefore published guidelines on the use of ESG and sustainability-related terms in fund names. They have applied since 21 November 2024; for existing funds the final date was 21 May 2025.

The main rule is an 80% threshold: that proportion of the investments must serve the characteristics promoted or the sustainable objective. Exclusions apply as well. For terms referring to transition, social or governance aspects, you follow the exclusions applying to the Climate Transition Benchmarks. For environmental, impact and sustainability-related terms, the stricter exclusions applying to the Paris-aligned Benchmarks apply.

The effect is measurable. In an analysis of 17 December 2025 ESMA found that a large majority of the funds concerned had changed their name. Usually this was done by dropping ESG terms. Some funds tightened their investment policy at the same time.

Greenwashing risk in the prospectus and fund documentation

In a public statement of 11 July 2023 ESMA set out what it expects of sustainability disclosure in prospectuses. One point matters in particular: sustainability information that is material to the investment decision belongs in the prospectus, not only in marketing material.

ESMA also published thematic notes on 1 July 2025 on sustainability claims that are clear, fair and not misleading. It applies four principles. A claim is accurate, accessible, substantiated and up to date. Those principles serve as a useful test for every document you issue.

The risks cluster in four places:

• Inconsistency. The website says something different from the pre-contractual annex or the annual report.
• Overstatement. An ambition is worded as a result already achieved.
• Selectivity. One positive feature takes the stage while its weight in the portfolio is limited.
• Staleness. The methodology or the figures have changed, but the documentation has not.

Liability runs through prospectus liability, through Article 6:194 of the Dutch Civil Code on misleading statements between undertakings and, where retail investors are involved, through the doctrine of unfair commercial practices. The supervisory route runs through the AFM.

How to control the risk

1. Work from a single source file for sustainability data. Prospectus, website, annexes and reports all draw on it.
2. State the method, the system boundary, the data source and the reference date for every figure.
3. Word undertakings and efforts separately, using different verbs.
4. Record the sign-off route: who approves sustainability text, and when.
5. Schedule an annual consistency check between the financial documentation and your ESG reporting and, where applicable, your CSRD report.

Frequently asked questions

Is the European standard for green bonds mandatory?
No, the standard is voluntary. You may also issue a green bond under a market standard. Only the designation European Green Bond, or EuGB, is reserved for issues that comply with the Regulation.

Must all the proceeds be spent on taxonomy-aligned activities?
Not entirely. At least 85% of the net proceeds must go to taxonomy-aligned activities. A flexibility pocket applies to the remainder, to be explained in the documentation.

Is the SFDR about to change?
A European Commission proposal for a revision has been on the table since 20 November 2025. That proposal is still under consideration. The current obligations continue to apply in full until then.

Are you preparing a green issue, or would you like your fund documentation tested for greenwashing risk? We review your documents and how they hang together. Law & More has offices in Eindhoven and Amsterdam and works in Dutch and English. You are welcome to contact our specialists, for example our environmental law attorney.