The EU has drawn up a set of standards to fight “greenwashing” in the bond market, the first step towards regulatory oversight for a fast-growing asset class that has so far largely governed itself.

The deal reached late on Tuesday night between the European Commission, parliament and member states could eventually lead to a sharp reduction in the volume of debt allowed to carry a sustainable label, say analysts.

Issuance of green bonds, a class of debt whose proceeds are earmarked for climate-friendly spending, has mushroomed in recent years — particularly in the EU — as investors clamour for assets that align with their environmental goals. But the rapid growth has sparked calls for increased regulation and a common standard, to clamp down on greenwashing, where dirty industries raise cash to fund a small part of their activities without changing their overall environmental impact.