Last year was a constructive year for sustainable finance credit issuances — comprising mostly green, social, sustainability and sustainability-linked (GSSSL) bonds and perpetuals — with some significant developments and emerging trends highlighting the resilience and adaptability of the sustainable finance space.
This year is expected to be another constructive year, with GSSSL credit issuances forecast to be stable compared to last year, around US$1 trillion ($1.33 trillion). We explore key trends that may influence the environment for GSSSL credit issuance in 2025 as the sustainable finance market matures.
Fluctuating influence of financial institutions
The 2024 United Nations Climate Change Conference (COP29) was dubbed “Finance COP” with plans to scale up climate finance to developing countries from public and private sources to at least US$1.3 trillion annually by 2035. This was under the New Collective Quantified Goal on Climate Finance (NCQG), a priority for COP29. Within this, developed countries agreed to triple a previous commitment of US$100 billion annually in climate finance by 2025 to US$300 billion annually by 2035.
The various climate finance amounts discussed in COP29 reflect costed needs reported in developing countries’ Nationally Determined Contributions. However, a significant gap remains between developed countries’ financing commitments and developing countries’ financing needs. This possibly highlights greater expectations for financial institutions post-COP29 to participate in climate finance due to their ability to facilitate the movement of trillions of dollars in capital.
We previously wrote on the amplifying influence of sustainability for financial institutions in early 2023, but the ongoing influence of financial institutions on the wider sustainability movement may be at an inflection point.
While recent 2024 results announcements by financial institutions continue to highlight the solid progress made against their sustainable finance and investment targets, some are questioning their ability to support climate finance and key sustainability objectives.
See also: Exploring the concept of structural subordination
HSBC Holdings announced a delay in its emissions reduction targets for its operations (including travel and supply chain), which were initially set in 2020 to 2050 from 2030. Progress in Scope 3 supply chain emissions reductions is proving challenging without relying on carbon offsets. HSBC is also reviewing its emission reduction targets for lending to seven high-carbon sectors, given its customers’ slower pace of decarbonisation and transition.
Standard Chartered similarly highlighted challenges with meeting its global corporate renewable energy initiative of purchasing 100% renewable electricity with 77% of electricity for its operations from renewable sources in 2024 after matching consumption with renewable energy certificates. This was due to “market constraints and lack of renewable energy options” in certain African and Middle East markets, including Bahrain, Botswana, Ghana, Iraq and Tanzania.
Questions are also arising in other parts of the sustainable finance market. The European Commission is proposing a reduction in reporting requirements and supply-chain management obligations to protect European small business interests as part of the Corporate Sustainability Due Diligence Directive, while the United Nations-convened and industry-led Net Zero Banking Alliance (NZBA) is now considering changes to its membership terms including the removal of the requirement for members to align their portfolios with the 1.5 Celsius global warming limit.
See also: Constructive Asiadollar and Singdollar credit markets in 2024
This has been driven by the high-profile departures of US financial institutions from the NZBA, particularly in the current political climate. Goldman Sachs was the first to leave the NZBA in early December, followed by Wells Fargo, Citigroup, Bank of America, Morgan Stanley and JPMorgan Chase & Co.
While all banks have continued to emphasise decarbonisation’s importance and ongoing support for sustainability, the impact on sustainable finance is still unclear. So far, European and Asian banks are continuing their NZBA membership, although some have qualified that membership in similar groups remains fluid and dependent on current circumstances.
Strengthening green bonds’ popularity
Green bonds contributed the bulk of GSSSL credit issuances in 2024, predominantly by sovereigns, and this is likely to continue in 2025 as sovereigns seek to address the more pressing and obvious concern of climate change.
For example, the Kingdom of Saudi Arabia priced its debut EUR1.5 billion ($2.2 billion) green bond in late February 2025. The proceeds will be used for projects related to the country’s economic transformation plan and sustainability agenda.
However, what may further support their popularity in 2025 is the introduction of the European Green Bond Standard (EGBS) in December 2023, which took effect on December 21, 2024. This standard is part of the European Union’s (EU) effort to enhance market efficiency by minimising discrepancies and costs for investors evaluating green bonds, combat greenwashing, and promote further growth in the green bond markets.
An expected consequence of the EGBC is increased market confidence and acceptance of green bonds issued by issuers in industries that have historically issued fewer green bonds due to their industry’s sustainability credentials.
Issuers in sectors like utilities and real estate, where capital expenditures closely align with the EU taxonomy, are anticipated to be the leading participants and early adopters of the EGBS. Italian utility A2a and French transport authority Île-de-France Mobilités are the first two issuers using the EGBS, with their respective issues seeing strong demand and tight pricing relative to their existing bonds.
For more stories about where money flows, click here for Capital Section
Financial institutions are also expected to benefit. From 2025, financial institutions can issue green bonds under the EGBS, which may be relevant given the gap between financing commitments and financing needs mentioned above.
Several factors will determine how overall issuance volumes evolve under the EGBS for the remainder of the year. On the one hand, EGBS’s enhanced transparency addresses investor concerns regarding greenwashing, encouraging the issuance of GSSSL bonds.
On the other hand, market participants will weigh the costs versus benefits of issuing labelled bonds under this stricter regulatory framework, given the higher issuance costs against the potential increased investor demand and lower funding costs for issuers.
Financial institutions are initially expected to be slow in issuing under this standard, playing the waiting game to see who takes the first step in issuing under the EGBS and then further assessing the benefits and costs before taking it on. In addition, the issuance may also be concentrated on financial institutions with a bigger balance sheet size that typically can select enough taxonomy-aligned assets for a benchmark-sized deal.
Ongoing growth in transition in Asia
As Bloomberg mentioned, global investment in energy transition crossed US$2 trillion for the first time in 2024 — more than double the 2020 amount. Key sectors that saw the largest growth in investments were electrified transport, renewable energy, power grids, and energy storage, which hit record investment levels.
Conversely, the emerging clean technologies of nuclear, carbon capture and storage, hydrogen, clean shipping, electrified heat and clean industry saw lower investments year-on-year. In terms of regions, Asia Pacific grew the fastest since 2021 to above US$1 trillion in 2024 and was up 21% year-on-year against the 11% y-o-y global growth trend to contribute around half of global energy transition investment in 2024.
While mainland China accounted for the bulk of the rise in energy transition investment at US$818 billion (followed by the US with investment at US$338 billion), Asia Pacific contribution will also continue to be supported by Japan with the government’s plan to issue around JPY20 trillion of climate bonds over the next decade to cut greenhouse gases to zero by 2050.
Japan continues to be a huge advocate for transition bonds due to its heavily industrialised economy. The world’s first sovereign Climate Transition Bond Framework was published in November 2023, and the Japanese government issued the world’s first sovereign climate transition bond in February 2024 to finance the development of clean energy resources.
Japan continues to be active in the sustainable finance issuance space in 2025, with around JPY350 billion ($3.12 billion) in five-year climate transition bonds issued as part of plans to issue JPY1.2 trillion in green transformation or climate transition bonds 2025 covering the period July 2025 to March 2026. Proceeds are to be used on projects that meet the eligibility criteria identified in the Climate Transition Bond Framework based on Japan’s Green Transformation (GX) policy.
Away from the sovereign space, Sumitomo Corporation issued JPY20 billion in five-year green bonds under the Sumitomo Corporation Sustainable Finance Framework. This is the third green bond issued since May 2022, with proceeds to be used on renewable energy projects (wind, solar, geothermal), forestry businesses, railway-related projects, water-related projects, green buildings and energy efficiency.
Andrew Wong, Ezien Hoo, Wong Hong Wei and Chin Meng Tee are credit research analysts with OCBC’s global markets research team
