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For sustainable finance, 2024 was the best of times and the worst of times.
On the positive side, issuance of impact bonds, sometimes called “GSS+” bonds (green, social, sustainability, and sustainability-linked instruments) totaled $1.1 trillion, according to provisional data published by the Climate Bond Initiative (CBI) in January.
However, on the red side of the ledger, the global coalition to contain climate change seemed to be fracturing by the end of the year. The 2024 US presidential elections brought to power the new Donald Trump administration; and Trump immediately ordered US withdrawal from the Paris Agreement, the world’s main treaty to fight climate change.
Given the need to more than double spending on clean energy supply, storage, and grid infrastructure to $300 billion/year for developing countries and $1.3 trillion/year for developed countries by 2035 “to keep the 1.5 target alive” (to achieve the goal of limiting global warming to an increase of no more than 1.5°C), “2024 failed to live up to what is needed,” says Gregor Vulturius, lead scientist and senior adviser on climate and sustainable finance at SEB.
Many market observers, however, still see the glass half full—especially looking beyond North America. “The outlook for 2025 is growth in sustainable finance,” says Timothy Rahill, a credit strategist at ING (Netherlands). “We ended 2024 with an increase over 2023. Of course, in 2021 and 2022, the levels of sustainable-finance issuance were very high, and outliers in the initial rush to do green issuance.”
According to CBI’s preliminary numbers, green bonds dominated in 2024, accounting for approximately 61% of the $1.1 trillion GSS+ debt accrued that year, compared with social and sustainability bonds (34%) and sustainability-linked bonds (1%).
Rahill explains that the EU’s Green Bond Standard (GBS), which took effect in December, should eventually push green bonds further. The standard aims to boost investor confidence by setting “a clear gold standard for green bonds” in the EU.
Still, “Many other issuers, such as sovereigns, view the rigorous new requirements [of the GBS] as a significant hurdle,” according to a late-January blog post by global investment firm Franklin Templeton. “They will likely adopt a wait-and-see approach to understand all potential implications before committing to issuing a [European green bond].”
According to Moody’s Ratings, overall bond issuance soared 35% in 2024, while sustainable bonds remained flat; and the latter’s share of the overall bond market fell from 15% in 2023 and 2022 to 11% in 2024.
However, Rahill predicts that in 2025, “Issuers will return their focus to green/sustainable finance issuance.” Moody’s mostly agrees, anticipating new green bond volumes rising to about $620 billion, 2% more than in 2024, “but eclipsing the previous record of $617 billion in 2021.”
Globally, “Social bonds will be constrained by a lack of benchmark-sized projects, while transition-labeled bonds and sustainability-linked bonds (SLBs) will remain niche segments as they navigate evolving market sentiment,” the ratings agency posted on its website.
For sustainable bonds, “Market conditions will remain the same as 2024,” says SEB’s Vulturius, who predicts growth of around 10%. According to SEB’s data, 2024 saw approximately $1.2 trillion in new sustainable bonds versus roughly $1.1 trillion in 2021, the previous record year, though SEB’s numbers, like CBI’s, are still preliminary.
What about the new administration in Washington, D.C.?
“I don’t expect the sustainable finance market will see a major headwind with the Trump administration. I still think we will see growth in 2025, even in US dollar debt,” says Rahill, though some corporations may not commit until the second quarter.
The CBI identified several factors that will encourage issuance in 2025, including new taxonomic definitions and increased spending by governments, development banks, and corporations on efforts at climate change impact adaptation and resilience. The CBI also expects increased visibility from insurance companies regarding sustainable finance in 2025.
Institutions focusing on sustainable finance in its various forms will have plenty to keep them busy in 2025. With that in mind, Global Finance presents its fifth annual Sustainable Finance Awards, with winners from seven regions and 53 countries, territories, and districts; and global honorees in 14 categories.
CREDIT: GlobalFinanceMagazine