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Green social and sustainability (GSS) bond issuance continued its upward trajectory in 2024, reaching nearly $1 trillion issued in the year — marking the second time (after 2021) the market has achieved this milestone since its inception.
2025 is set to be a transformative year for GSS bonds, with growth projected to exceed $1 trillion again. Several key themes are likely to dominate the market:
1) Refinancing amid the maturity wall
Over 500 GSS bonds, worth more than $600 billion, are set to mature by 2026. Many issuers are expected to refinance through GSS bonds, with updated frameworks, with notable mentions of the European Investment Bank and the government of France, to align with evolving standards. This could spur additional activity and innovation in the market.
2) Sustainability-linked bonds: a critical year
2025 is poised to be a “make or break” year for Sustainability-Linked Bonds (SLBs), with 53% of all existing sustainability performance targets (SPTs) coming to completion. Investor confidence in SLBs has been shaken by accusations of greenwashing, but around 53% of issued volume is on track to meet SPTs.
3) Regulatory developments
The EU Green Bond Standard (EuGBS), effective from December 2024, is set to bolster the market in 2025. By requiring issuers to align 85% of proceeds with the EU Taxonomy, this standard enhances credibility and sets a high bar for global issuers.
ESMA’s new fund naming guidelines, aimed at mitigating greenwashing, require GSS bond funds to meet stringent Paris Aligned Benchmarks or Climate Transition Benchmark criteria. This “look-through” approach mandates due diligence on the projects financed by bonds, ensuring compliance with restrictions such as emissions intensity thresholds and the exclusion of controversial activities.
4) Transition bonds and their role
Transition bonds — designed to fund carbon-reduction projects in hard-to-abate sectors — will remain a niche – but critical – segment. While Japan leads in this space, other regions are less likely to embrace the label, with issuers favouring green or sustainability bonds.
Conclusion
In 2025, GSS bond issuance is projected to surpass $1 trillion once again, supported by favourable interest rates and investor demand. The introduction of the EuGBS and ESMA’s guidelines marks a pivotal moment, encouraging transparency and rigorous standards.
As issuers and investors adapt, the GSS bond market’s ability to maintain credibility and drive meaningful impact will be critical to its sustained growth.
Despite the political headwinds in the US and the retreat of some major asset managers from the Net Zero Asset Managers (NZAM) initiative, the GSS Bond market remains an attractive proposition for investors. The resilience of this market is largely driven by Europe’s robust sustainable finance regulatory framework, which continues to incentivize and prioritize these instruments.
The EU’s Sustainable Finance Disclosure Regulation (SFDR) and the EUGBs create a favourable environment, ensuring that capital continues to flow toward sustainable projects. Additionally, sovereign green bond issuance is expanding fast, with governments increasingly leveraging these instruments to finance climate transition efforts, reinforcing credibility and demand.
Beyond regulation, investors are also placing greater emphasis on measurable, tangible impact — moving away from “vague” ESG commitments and towards assets that demonstrate real-world environmental and social benefits. GSS bonds, with their structured reporting and clear use-of-proceeds frameworks, provide this level of transparency and accountability.
Furthermore, demand from institutional investors, particularly in Europe and Asia, remains strong as they seek long-term, stable, and sustainable returns. As a result, even as certain political and financial players shift their stance, the structural momentum and regulatory support behind GSS bonds ensure their continued relevance and growth.
This article first appeared on Environmental Finance
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