By Huw Jones

LONDON (Reuters) - The European Union said on Wednesday it had reached a deal on the world's first set of comprehensive rules for issuing green bonds to meet the bloc's net zero goals, although compliance will be on a voluntary basis.

EU member states and the European Parliament jointly agreed on Tuesday standards for companies that want to use the term "European green bond" or EuGB.

Currently investors are faced with a plethora of national practices on green bonds which can be hard to compare, though an attempt to make the EU norms mandatory failed.

The rules will enable investors to identify high quality green bonds and companies, thereby reducing greenwashing or exaggerated environmentally-friendly claims, parliament said.

"Tonight the EU has taken a big step to green this massive market by adopting the first regulation in the world on green bonds," lawmaker Paul Tang said in a statement.

The green bond market broke through the half trillion dollar mark in 2021 for the first time, with Europe accounting for just over half of the issuance. Green bond issuance, however, is still only about 3-3.5% of total bond issuance, parliament said.

Investments must be in projects aligned with the EU's taxonomy, or guidebook, on sustainable projects.

The Association for Financial Markets in Europe (AFME), an industry body, said the new standards will complement existing norms, but more work was needed on making the taxonomy usable. The bloc has pledged to issue guidance on applying the taxonomy in practice.

The rules also put in place a clear reporting process on the use of the proceeds from the bond sale, and standardise how external reviewers verify that a bond is green, parliament said.

Companies issuing a green bond will have to show how the investments feed into their plans for transitioning to net zero, it added.

EU states and parliament need to formally rubber stamp the deal, which would apply a year after its entry into force.

(Reporting by Huw Jones; Editing by Mark Potter and Angus MacSwan)