Sustainable Bonds Issuance to Reach 1 Trillion in 2025, According to Moody’s

The change of direction at the White House will not stop the issuance of sustainable bonds , which will also reach about a trillion dollars in 2025. This is predicted by a report by Moody’s according to which the anti-ESG wave will not stop investments in clean energy, in solutions for adapting to climate change and in those linked to nature. In particular, according to the data in the report, Moody’s foresees 620 billion euros of green bonds, 150 billion of social bonds, 175 billion for sustainability bonds, 20 billion of transition bonds and 35 billion of sustainability-linked bonds.

“This would be the fifth consecutive year that a level of around a trillion dollars of emissions has been reached , in line with an increasingly mature and consolidated market,” reads the text, which however also reveals how the volumes of sustainable emissions have underperformed compared to the strong growth of the overall bond market, with a global issuance share falling to 11% compared to 15% the previous year.

According to the rating agency, green bonds will remain the most popular sustainable bond instrument globally in 2025, in line with previous years, with issuance exceeding the previous record of $617 billion in 2021, albeit only 2% higher than the 2024 volume ($609 billion).

Green bond issuance will be driven by climate mitigation initiatives, with the support of private sector policies and commitments and the decline in clean energy costs that will support climate investments during the year. In fact, “although the outcome of the US elections may have a dampening effect on global climate action,” said Moody’s, “many countries will continue to invest in clean energy to achieve decarbonization, energy security and economic competitiveness goals.”

In contrast, social bond issuance is likely to decline to $150 billion, down 9% from the previous year. Social bonds are more concentrated, with government agencies and financial institutions accounting for about 70% of volumes in 2024. The forecast assumes a decline from the past five years due to a decline in pandemic-related financing and a lack of large social projects. Social bonds are still expected to reach much higher volumes than the $19 billion issued in 2019 before the pandemic.

For sustainability bonds that combine environmental and social projects, Moody’s expects them to remain stable next year

While supranational issuers accounted for 45% of sustainability bond volumes in 2024, the segment is more sectorally diverse than social bonds, as more issuers can reach benchmark size by combining green and social projects. Excluding the pandemic-related spike in 2021, such bonds have grown steadily over the past decade, and Moody’s forecasts that the segment will remain the second-largest among sustainability bonds in 2025.

Transition bonds based on the use of proceeds , on the other hand, will remain a relatively niche segment of the market . “We expect the market to remain largely concentrated in Japan, where the government accounted for over 85% of the global transition bond total in 2024,” the rating agency said. “However, with a growing focus on transition financing and greater awareness of transition bonds, there is potential for the segment to gradually diversify.”

Finally, SLBs, Sustainability-Linked Bonds , will remain under pressure in 2025. Although the expected $35 billion represents a 14% growth compared to 2024, this category of bonds would still be less than half the annual average of $80 billion reached between 2021 and 2023. “We expect many issuers to remain cautious in accessing the SLB market due to investors’ continued focus on the ambition of the targets and financial relevance,” the report reads.

The agency predicts that despite Trump’s statements and announced political agenda, other countries will continue on the path of the transition they have started thanks to political support, private sector commitments and the decreasing costs of clean energy technologies that will drive the growth of climate investments in 2025 and support the transition globally.

The main drivers of growth will be the EU and China, which have placed energy transformation objectives at the heart of their industrial policies. So much so that China and the EU accounted for 66% of global investments in clean energy in 2024.

Climate mitigation projects , including renewable energy, energy efficiency, clean transportation, green buildings and others, are the primary driver of sustainable bond frameworks. In a sample of more than 200 frameworks and proceeds instruments for which the agency has provided second-party opinions (SPOs) over the past two years, nearly half (46%) of the eligible categories were earmarked for climate mitigation projects.

And while climate mitigation projects will remain a priority in the coming year, “investment drivers will evolve with increasing electricity demand and a focus on the transition in hard-to-decarbonize sector.”

For example, artificial intelligence, cloud computing and data storage services will drive demand for data centre capacity in 2025. The sharp increase in electricity demand will contribute to a diversification of sustainable bond issuance by sector and project type.

“We expect to see increased financing of energy- and water-efficient data centres through the sustainable bond market. Companies such as Digital Edge (Singapore), Equinix and Switch have already introduced bond frameworks focused on financing data centres that meet specific efficiency metrics, with others set to follow as this segment grows,” the rating agency said. Nuclear power projects are also another potential growth area for Moody’s, with utilities and technology companies increasingly turning to this low-carbon energy source to meet data centre demand.

Finally, in hard-to-decarbonize sectors where low-carbon technologies are not yet available at scale – such as steel, cement, shipping and aviation – the introduction of new technologies is an essential element in decarbonization pathways: “The growth of emerging technologies in these and other sectors and the greater use of ICMA’s Green Enabling Projects Guidance will stimulate greater issuance of sustainable bonds,” the text reads.

Adaptation and nature finance on the rise in the face of emerging risks

In addition to climate mitigation projects, adaptation and resilience will also gain prominence on the political and investor agenda as the economic, financial and human costs of extreme weather events increase and the goals of the Paris Agreement are gradually moved away from being achieved. The growing focus on ecosystem conservation and biodiversity to slow down global warming and limit its impacts will also drive debt issuance for nature-based solutions.

According to Moody’s data, overall, adaptation and nature-related revenues have gradually increased in recent years, both in absolute and relative terms. “We estimate that these project-related revenues from green and sustainability bonds reached record levels in 2024 : $73 billion for adaptation and $113 billion for nature-related projects. These projects collectively accounted for about 23% of green and sustainability bond revenues, a share that has grown every year since 2020.”

The rating agency predicts that a growing number of issuers, particularly sovereigns and other public sector actors, typically at the forefront of addressing climate change, will include adaptation projects in their sustainable finance frameworks.

Similar to adaptation, nature-related financing has historically accounted for a small share of the proceeds of sustainability bonds earmarked for environmental projects. However, since the release of the ICMA Blue Economy Bonds Guide in September 2023, a growing number of issuers have begun financing marine and coastal projects using the “blue” label. For example, the Central American Bank for Economic Integration has included five categories of blue projects in its sustainability bond framework, covering projects ranging from sustainable water management to port infrastructure.

“Private sector issuers with ties to the marine economy and water projects in general will seek to leverage this type of label to highlight such projects to investors and other stakeholders. For example, Kelp Blue Trading (Pty)’s blue bond framework seeks to support the company’s efforts to grow kelp forests to support carbon sequestration,” Moody’s concluded.

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(Featured image by Ashes Sitoula via Unsplash)

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