Amidst the challenges: what drives the continued resilience of green bonds?
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The green bond market has shown remarkable resilience, defying theoretical expectations and reaching a milestone of $6 trillion in cumulative issuance by the end of Q1 2025. This robust growth has been driven by a combination of factors, including growing investor demand, increased issuer engagement, and ongoing regulatory developments.
Clodagh Muldoon, the head of research at the Confederation of British Industry (CBI), commented on the trend, stating that global capital markets are increasingly recognising their role in financing the transition to a sustainable, resilient, and inclusive global economy.
In the United Kingdom, financial institutions have been at the forefront of this movement. The UK's green bond issuance volume saw a significant increase in 2025, with 64% of the total $14 billion attributed to UK-based institutions, up from 50% in the previous year.
The resilience of the green bond market can be attributed to several key factors. Firstly, there's the growing investor demand and issuer engagement. Investors are increasingly prioritising environmental, social, and governance (ESG) goals, driving demand for bonds with clear environmental benefits. Issuers, ranging from sovereigns to corporations, recognise green bonds as effective instruments for funding sustainable projects and signalling their commitment to sustainability. This often results in lower financing costs and reputational advantages.
Secondly, regulatory and framework enhancements have played a crucial role. Despite some regulatory uncertainty, continuous updates to global standards and the release of clearer guidance documents have reduced ambiguity, supported market integrity, and assisted issuers in aligning with evolving criteria. This regulatory progress has enabled greater trust and transparency in the green bond space.
Lastly, the maturity and financial innovation of the green bond market have been significant factors. The market has matured into a mainstream financing tool for climate and sustainability projects, now accounting for a significant portion of sustainable debt issuance. This maturity helps buffer the market against macroeconomic and geopolitical headwinds, as these bonds combine financial returns with positive environmental impact, which appeals to both ESG-focused investors and traditional asset managers.
Sean Kidney, CEO and co-founder of the Climate Bonds Initiative (CBI), views this resilience as indicative of the power of green bond markets. He believes that this bodes well for the future of the green bond market.
In Q1 2025 alone, over $262 billion worth of Green, Social, Sustainability, and Sustainability-linked (GSS+) bonds were issued in over 70 currencies across 107 countries. The European Investment Bank was the top non-sovereign green bond issuer, followed by the Agricultural Bank of China. Financial institutions and corporates followed closely behind in issuance volume.
The US is the world's largest source of GSS+ debt, contributing $827 billion in Q1 2025. The bond market's resilience is a significant factor influencing decisions such as the US government rolling back tariffs.
Kidney's message to the market is clear: "The bond market intimidates, so let's make it work for the planet." NZI Spark! Fixed Income is mentioned as a powerful lever in this context. Regulatory tailwinds, particularly the European taxonomy, have also helped European issuers in their green bond issuance.
Pietro Sette, research director at Mainstreet Partners, commented that green bonds have remained a resilient and credible instrument for sustainable finance, especially among seasoned issuers. The green bond market's ability to grow steadily to the $6 trillion cumulative GSS+ volume milestone by early 2025, despite broader economic and geopolitical challenges, is indeed a testament to this resilience.
- The growth of the green bond market has attracted interest from various fields, such as environmental-science and business, as investors and issuers recognize the potential of these instruments for funding climate and sustainability projects.
- Finance and investing sectors are embracing climate-change mitigation strategies, with an increasing focus on environmental, social, and governance (ESG) goals, which directly influences the demand for green bonds.
- The resilience of the green bond market is not only significant for the environmental impact but also for the business sector, as it provides opportunities for investing and financial innovation, demonstrating a convergence of economic and ecological interests.
