Green Bonds Take Center Stage as GSS Market Matures

In 2025, the issuance of Green, Social, Sustainability, and Sustainability-linked (GSS) bonds exceeded $1 trillion, essentially in line with 2023 levels ($987 billion) and slightly below the $1.1 trillion recorded in 2024. Green bonds take center stage now.

The last 12 months have marked a key transition for the global sustainable bond market: after years of accelerated growth, the sector is entering a phase of maturity, characterized by high but stable volumes, greater qualitative selectivity, and an increasingly central role for regulation in shaping supply and demand dynamics.

That is according to the latest edition of the GSS Bonds Market Trends Report from MainStreet Partners, which shows that the market has now moved beyond its explosive expansion phase, entering a more structured and less cyclical phase.

Green bonds increasingly central to the GSS market

Within the GSS universe, green bonds continue to strengthen their position as the dominant segment. In 2025, they will represent 58% of new issuance, up from 53% in 2021. Sustainability bonds are also gradually expanding their presence, reaching 26% of the market, while social bonds and sustainability-linked bonds (SLBs) continue to decline, falling to 13% and 3%, respectively.

This evolution reflects a structural shift in investor preferences, increasingly oriented toward “use of proceeds” instruments that offer greater capital traceability and a direct link between financing and sustainable projects. Conversely, models based on issuer-level objectives, such as SLBs, are affected by a growing focus on credibility and measurable impact.

The geography of emissions is changing

2025 also confirms a significant geographic rebalancing of the market. Europe, while remaining a key region for sustainable bonds, has seen its share of global emissions shrink, falling from 52% in 2021 to 39% in 2025. Asia is benefiting most from this shift, more than doubling its share from 14% to 31% over the same period.

At the same time, a marked contraction is observed in the Americas, whose share of global emissions has fallen from 16% to 8%. The emerging picture is that of an increasingly multipolar market, with Asia set to play a growing role in financing the energy and infrastructure transition through sustainable bond instruments.

The largest refinancing cycle ever seen

One of the most significant elements highlighted by the report concerns the maturity cycle. Over €250 billion of GSS bonds matured in 2025, followed by approximately €290 billion in 2026. This is the largest refinancing cycle ever recorded in this segment.

The so-called “maturity wall” is largely attributable to the issuance boom of 2021, when many GSS bonds were issued with typically five-year maturities. The return of this capital is now creating the conditions for a new phase of activity on the primary market, especially for green bonds and sustainability bonds with high standards of governance, reporting, and regulatory alignment.

SFDR 2.0 and the strengthening of the role of green bonds

The report devotes considerable space to the implications of the European Commission’s proposed SFDR 2.0 reform, which represents a potential turning point for sustainable bond and multi-asset strategies. The new regulatory framework, geared toward clearer product classification and more stringent quantitative requirements, tends to reward instruments that demonstrate a measurable contribution to environmental objectives.

In this context, green bonds emerge as one of the most efficient and scalable tools for meeting sustainability requirements without compromising portfolio diversification. A relatively small share of high-quality green bonds can significantly contribute to meeting the required alignment thresholds, making them a true cornerstone of strategies compliant with the future SFDR 2.0.

The proposed SFDR 2.0 reform marks a paradigm shift from the current regulatory framework, shifting focus from a predominantly disclosure-based approach to one based on clearer and more measurable eligibility criteria. The new framework classifies products into three broad categories (ESG Basics, Transition, and Sustainable), each associated with stringent quantitative requirements regarding allocation and alignment with sustainability objectives.

A key element of the proposal is the introduction of a minimum 15% alignment threshold with the European Taxonomy, defined as a “safe harbor,” which allows bond and multi-asset funds to qualify as Sustainable or Transition even without achieving a 70% share of sustainable investments across the entire portfolio.

In this context, the ability to calculate alignment through “use of proceeds” tools significantly strengthens the role of green bonds, which emerge as one of the few instruments capable of offering, at scale, a measurable contribution to environmental objectives without compromising portfolio diversification.

Measuring impact: the carbon footprint of the emission versus that of the emitter

Another contribution of the report concerns the measurement of the carbon footprint of bond portfolios. The analysis conducted by MainStreet Partners on over 3,000 green bonds and sustainability bonds highlights a difference of 92 tons of CO₂ equivalent for every million euros invested between the traditional calculation at the issuer level and the one based on the projects financed, at the individual issue level.

This finding challenges the dominant approach to measuring climate impact, suggesting that issuer-level metrics tend to underestimate the true decarbonization contribution of use-of-proceeds bonds. The issue-level analysis, consistent with the most recent guidance from the Partnership for Carbon Accounting Financials (PCAF), offers a more accurate and decision-making-friendly representation.

The GSS bond market has moved beyond the experimental phase

Overall, the picture emerging from 2025 is that of a GSS bond market that has moved beyond the experimental phase. As Pietro Sette , Research Director at MainStreet Partners, points out, regulation, capital flows, and impact measurement methodologies are finally converging.

“For investors who act early, GSS bonds are moving from a niche allocation to a true structural pillar of portfolios. If the SFDR 2.0 proposal were to be approved as expected, it would significantly transform the construction of sustainable portfolios. Green bonds would offer one of the most efficient ways to combine regulatory alignment, diversification, and a measurable climate impact,” concluded Sette.

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(Featured image by Alin Andersen via Unsplash)

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