Green and growing: why quality is the new benchmark in GSS bond issuance

In a year when global Green, Social, and Sustainability (GSS) bond issuance fell 15% year-on-year, some might conclude that sustainable debt markets are losing steam. Inflationary pressures, persistent geopolitical tensions, and a “higher-for-longer” interest rate environment have created a cautious backdrop for issuers and investors alike.

Yet beneath the surface, a different picture emerges.

While broader GSS bond issuance softened, Green Bonds proved more resilient. In the UK alone, issuance reached the equivalent of $14bn in the first half of 2025, with Green Bond volumes up 10% year-on-year.

Across the EU, the introduction of the EU Green Bond Standard (EuGB) has sparked momentum. By mid-year, over €8.5bn had been raised under the new label, with high-profile issuances from the European Investment Bank, Iberdrola, and A2A drawing strong order books.

Three structural drivers underpin this resilience.

First, regulatory clarity is improving. The EU Taxonomy, though still evolving, has provided a clearer framework for defining “green.” The EuGB label builds on this, introducing rigorous disclosure and verification requirements that enhance investor confidence.

Second, alignment is improving. Our analysis shows that company-level EU Taxonomy eligibility and alignment both increased in 2024, with alignment up by a tenth. Further, GSS bond issuers show higher exposure to sustainable activities than non-GSS peers, suggesting a stronger link between capital raised and green outcomes.

Third, sovereign and quasi-sovereign issuers are setting benchmarks. From the UK’s Green Gilt programme to the EIB’s record-sized EuGB, large, high-quality deals are reinforcing liquidity and transparency in the market.

Some challenges persist

Even with this positive trajectory, the path ahead is not without difficulties.

• Alignment Gap: Eligibility doesn’t guarantee alignment. Many issuers report green activities but fall short of full regulatory compliance due to technical screening or incomplete reporting. This is especially true in sectors like real estate, construction, and transportation, where alignment often trails eligibility by 40–60 percentage points.

• Issuer Concentration: In markets like the UK, issuance is dominated by financial institutions (~64% in 2025). While important, a narrow issuer base may limit sector diversification.

• Global Fragmentation: Europe is moving toward harmonisation, but global standards remain patchy. The US lacks a unified green bond framework, relying on voluntary ICMA principles, while Asia displays wide differences in maturity from Japan’s advanced system to developing economies where data and verification are challenging.

• Access for Smaller Issuers: The high standards of the EuGB improve quality but may be demanding for smaller or less experienced issuers. This could moderate market expansion in the near term and make it harder for high-impact projects in emerging markets to secure capital.

A global market in transition

Europe’s resilience is mirrored, though unevenly, across other regions. Asia-Pacific remains the second-largest Green Bond market, led by China and Japan, while ASEAN countries expand frameworks to fund infrastructure. In the US, municipal issuers dominate a growing market, though the lack of a binding taxonomy leaves room for greenwashing risks. Emerging markets rely heavily on multilateral banks and blended finance vehicles to mobilise capital, often at concessional rates.

Taken together, these dynamics show a market not in retreat, but in transition. Slower issuance growth reflects a shift from volume to quality, with standards such as the EuGB and the UK’s SDR pushing issuers toward greater transparency, accountability, and alignment. For professional investors, this means fewer but higher-quality deals, more robust reporting, and clearer evidence of real-world impact.

In an otherwise cautious fixed-income environment, Green Bonds are no longer a niche—they are becoming a foundational tool in sustainable finance. The challenge, and the opportunity, lies in navigating an uneven global landscape with a focus on quality, alignment, and long-term value.