A total of $1 trillion worth of sustainable bonds was issued in 2024 with the bulk going to green bonds. While the world’s needs for sustainable finance remain high, 2025 will likely see headwinds and tailwinds that could keep this year’s issuance total at the 2024 level, write Malika Takhtayeva and Xuan Sheng Ou Yong.
The countervailing forces include heightened scrutiny of greenwashing, changes in market standards, amid a fragmented regulatory and political environment with a retreat on climate policies amid a changing political landscape.
Moody’s Ratings forecasts issuance of $620 billion of green bonds in 2025, $150 billion of social bonds, $175 billion of sustainability bonds, $20 billion of transition bonds and $35 billion of SLBs. It adds 2025 would be the fifth straight year of issues totalling around $1 trillion, ‘consistent with an increasingly mature and established market’.
Other analysts expect the share of sustainable bonds issued in emerging markets to drop to 20% of the total from 27% in 2024. First-quarter issuance was down by 29% year-on-year at $43 billion. The reduction mimics the lower volumes in the overall market as compared to Q1 2024.
Asia Pacific – still committed
It is worth noting that in Asia Pacific, a substantial proportion of ESG-labelled bonds typically come from sovereign issuers and financial institutions. We believe the region is still committed to issuing these types of bonds despite the current political landscape. In Latin America, we
see continued interest, especially from sovereigns and corporates. First-quarter ESG-labelled issuance has been steady in the Middle Est and Africa region.
Among the challenges for emerging market issuers, analysts have cited a lack of standardised definitions of transition finance, the need for sustainability criteria adapted to the local context, issues with data availability and quality, and resource and technical capacity constraints.
Our sustainable bond team believes the slowdown in EM issuance is seen more in hard currency (USD and EUR) bonds than local currency issues. This is mainly because the hard currencies have become more expensive.
Sustainable bonds to continue to attract ESG-minded investors
For the global sustainable bond market, the team expects to see large-scale refinancing of bonds in 2025. One of the reasons is linked to this year’s 10th anniversary of the ratification of the Paris Agreement. Completion of the accord caused a flow of green bonds to be issued back then. As they mature, the bonds will need to be refinanced.
The team is positive on the outlook for the sustainable bond market and expects further growth over time. One of the drivers is likely to be an emerging shift in companies’ focus to climate adaptation as more frequent natural disasters weigh on business resiliency.
They expect sustainable bonds to continue to attract ESG-focused investors, giving issuers access to more capital. Improved regulation and standardisation, as well as hopes around the achievability of governments’ and companies’ sustainable targets, should also support growth. The new European Green Bond Standard will likely act as a catalyst for more issuance too.
