Four months of European Commission consultations with insurance companies, academics and others ends Friday, aimed at agreeing by next year what really counts as “green” in projects funded by such debt. That’s needed as the bloc itself is set to unleash as many green bonds as the world issued last year, and the risk of “greenwashing” rises amid the rush to tap surging demand for clean finance.


“A widely-accepted standard is good for any financial market,” said Richard Gustard, head of European securities trading at JPMorgan Chase & Co. “The signs are that both issuers and investors are fully on board with green bonds and it’s going to be an increasingly important part of the market.”


It wouldn’t be the first time the European Union led the charge. Data protection, financial research, chemicals and the climate are examples of areas where the world’s largest trading bloc implemented rules that countries and companies in other parts of the globe adopted.


The EU needs to create a framework before it begins offering its planned 225 billion euros ($264 billion) of green securities. Even though it’s late to the game, with governments and companies selling a record amount of debt last month, it’s set to be the biggest issuer.


Greenwashing Green bonds are defined by proceeds being ringfenced for environmental projects, but there’s been debate in Europe over whether that should include investment in the nuclear industry. For corporate bonds, concern about the standards were raised in 2017 when Spanish oil company Repsol SA became the first major refiner to sell the securities.


And then there’s the matter of “greenwashing,” when a climate-friendly tag on debt doesn’t necessarily live up to the hype. One solution may be to give such securities ratings that gauge their environmental credentials. The Bank for International Settlements recommends rating the companies themselves.


“The risk of greenwashing exists until that taxonomy becomes fully operational,” said Imogen Bachra, European rates strategist at NatWest Markets Plc, adding that the European Central Bank will also be paying close attention given its own commitment to buying green assets.


While this may be more of a problem for emerging markets than Europe, with Sweden’s bonds rated as “dark green,” the bloc faces challenges to wean itself off coal. Dutch investor NN Investment Partners said last month it ditched its holdings of green bonds from Poland, citing an unclear climate policy by the EU’s most coal-reliant nation.


It underscores the need for standards in the industry. Even though an EU technical expert group report last year recommended that any criteria should be voluntary to start with, JPMorgan’s Gustard said similar standards for trading credit defaults swaps “revolutionized” those markets.


“Ultimately, it’s going to stand or fall on investor behavior and issuer behavior,” Gustard said, adding that green bonds could increase exponentially if the guidelines are widely accepted.