Global issuance of sustainable bonds is projected to hold steady at around $1 trillion in 2025, marking the fifth consecutive year at this level, as per Moody Ratings. This consistency comes despite political shifts and increased scrutiny. The sustainable bond market’s resilience is fueled by a growing global emphasis on sustainable development, clean energy investments, and climate adaptation.
Green bonds are anticipated to take center stage in the sustainable bond market this year, with issuance expected to hit a record $620 billion, slightly surpassing 2024 levels, according to Moody’s analysis. These bonds, primarily geared towards climate mitigation, are set to benefit from policy support, private sector commitments, and declining costs in clean energy technologies. Additionally, there’s a noticeable shift towards financing adaptation projects as the impacts of extreme weather events escalate.
Investments in energy- and water-efficient data centers, nuclear energy projects, and emerging green technologies for hard-to-abate sectors could further boost green bond volumes. Nature-related projects are also gaining traction, driven by a growing focus on ecosystem conservation and biodiversity to combat global warming. In 2024, around 23% of green and sustainability bond proceeds were allocated to adaptation and nature-related projects, a trend expected to expand in 2025.
Social bond issuance is projected to decline by 9% in 2025 to $150 billion, reflecting a shortage of benchmark-sized projects and reduced pandemic-related social financing. Despite this decrease, social bond volumes remain notably higher than pre-pandemic levels, indicating sustained interest in funding social initiatives. Sustainability bonds, which fund a mix of green and social projects, are expected to remain stable at $175 billion, showcasing steady growth over the past decade with the support of a diversified issuer base.
Transition bonds, a niche market that debuted in 2024 with Japan’s $11 billion issuance, are forecasted to remain flat at $20 billion in 2025. While Japan currently leads in this segment, there’s potential for diversification as more issuers adopt transition finance strategies to meet low-carbon goals. Sustainability-linked bonds (SLBs) could see a 14% growth to $35 billion this year, although this remains below the $80 billion annual average seen between 2021 and 2023. Investor scrutiny over the credibility and robustness of SLB targets continues to hinder their growth, yet they offer an alternative for issuers without immediate capital investment needs for green or social projects.
The sustainable bond market in 2025 will exhibit diverse regional dynamics influenced by political, economic, and regulatory factors. Europe is expected to maintain its leading position in sustainable bond issuance with projected volumes of $465 billion, supported by the implementation of the European Green Bond Standard in late 2024. Asia-Pacific’s sustainable bond issuance is forecasted at $238 billion, slightly below 2024 levels, with a focus on transition finance and sustainable finance policies. North America’s sustainable bond issuance is expected to remain subdued, reflecting a 30% decline from 2021 to $124 billion in 2024, despite private-sector initiatives and state-level efforts.
In Latin America and the Caribbean, issuance could rebound in 2025, driven by COP30 in Brazil and increased activity from regional issuers. The Middle East and Africa, while accounting for a smaller share of sustainable bond issuance, are focusing on clean energy investments and carbon transition risks to support long-term growth. Climate financing will play a vital role in addressing global energy needs and accelerating the green transition in 2025, driven by policy support, private-sector pledges, and declining costs of clean energy technologies.
China and the EU, which accounted for 66% of global clean energy investment in 2024, are at the forefront of driving climate investments with a focus on renewable power, energy efficiency, and low-emissions technologies. Sustainable bond issuance, particularly green and sustainability bonds targeting climate mitigation projects, is on the rise, covering categories such as renewable energy, clean transportation, and green buildings. However, emerging markets face significant climate finance challenges, with annual funding needs surpassing $1 trillion.
In 2024, sustainable bond issuance from emerging markets declined by 8% to $145 billion. Nevertheless, increased climate investments from advanced economies, multilateral development banks, and innovative financing solutions could stimulate a rebound in emerging markets’ sustainable bond issuance this year. Emerging technologies in hard-to-abate sectors like steel, cement, and aviation are influencing sustainable bond frameworks, while adaptation and nature-related financing are scaling up in response to rising climate risks and biodiversity conservation goals.
As more public and private issuers embrace adaptation and resilience projects, sustainable bond frameworks are expanding. For instance, the Netherlands’ green bond framework supports long-term flood management strategies, while U.S. utilities are investing in grid resilience to address wildfire risks. Nature-focused financing, including blue bonds for marine and coastal projects like kelp forest cultivation for carbon sequestration, is also gaining traction.
The sustainable bond market in 2025 is poised for another year of steady issuance at $1 trillion, showcasing maturity and resilience amid challenges. Green bonds are expected to maintain their lead, supported by climate mitigation and adaptation initiatives. As the market evolves, addressing concerns around greenwashing, regulatory complexity, and political uncertainty will be crucial to its continued growth and impact.
