Sustainable Finance 2025 in Review and 2026 Outlook

What You Need to Know:

• For ESG markets, 2025 was a year of recalibration as market participants reassessed targets and strategies amid policy shifts, regulation, and politicization.
• Sustainable finance remained resilient, proving durability in a challenging year.
• Investors continued to favour use-of-proceeds products over sustainability-linked products.
• Momentum into 2026 is anchored in energy security, infrastructure resilience and efficiency with a more pragmatic path forward.

The Environmental, Social and Governance (ESG) landscape underwent a recalibration in 2025 as it adapted to evolving regulations, diverging market trends and new rules of engagement on climate and sustainability issues.

Global regulations remained choppy and policy positions shifted, creating market uncertainty. As a result, many organizations restated interim targets or scaled back components of their sustainability strategy as they reassessed their approaches amid shifting market and policy signals.

Looking past the headlines, the underlying business case for sustainability continued to strengthen:

• More mandatory sustainability reporting laws were enacted than withdrawn.
• Global net-zero commitments rose for a fourth consecutive year.
• Carbon pricing schemes went live.
• Power demand surged and supply chains suffered.
• Capital continued to be put towards sustainability objectives.

Last year was the market's first real stress test of sustainable finance in a bear-ESG market. It proved resilient with US$1.6 trillion in global supply, down only 7% from US$1.7 trillion in 2024.

Entering 2026, sustainability remains firmly on the agenda but is being pursued with greater intentionality, anchored in priority areas such as energy security, infrastructure resilience, accelerating innovation and creating efficiencies.

Herein we share the key takeaways and learnings from 2025 that will likely continue to shape the outlook for 2026.

Sustainable Finance 2025 Market Highlights

• Assets under management in global sustainable funds rose to US$3.9 trillion in Q4 of 2025, up 15% from the previous year.
• Green bonds and loans notched new records as investors continued to favor use of proceeds products at the expense of five-year lows for linked-debt products.
• Sustainability-linked bond and loan issuance declined as pressure mounted on corporates to meet their 2025 performance targets, with heightened politicization in certain markets prompting issuers to adjust or withdraw KPIs altogether.
• Transition bonds and loans gained more traction as key jurisdictions and standard setters progressed transition taxonomies and roadmaps (ICMA, Australia, Canada, Japan).
• SSA issuance continued to dominate the sustainable bond market, but corporate issuers in key sectors such as industrials, energy, financials and utilities remained active.
• Politicization and key elections dragged on certain key markets early on, but increased policy certainty in the back half of 2025 will continue to benefit supply leading into 2026.

As organizations recalibrated their sustainability commitments in 2025, sustainable finance issuance reflected this shift - softening at the margins but expected to re-emerge in 2026 in a more mature, integrated form, grounded in themes of energy security, infrastructure resiliency and efficiency.

Global Sustainable Finance Market in Review

In 2025, the global sustainable debt market fell just short of US$1.6 trillion of supply, down 7% from US$1.7 trillion in 2024. Sustainable bond volumes stayed flat while loan volumes declined. Market share in both products fell as the broader bond and loan markets saw record supply in 2025.

Global Sustainable Debt Issuance & Market Share (USD Billions)

Global Sustainable Loan Market

Supply declined significantly in 2025, with sustainability-linked loans taking the brunt of the hit, decreasing from US$530 billion to US$418 billion.

Utilities (23%) and Energy (21%) were the leading sub-sectors of sustainable loan activity, while Materials saw the largest decrease year-on-year (68%). Materials includes metals & mining, chemicals, construction materials manufacturing, forest & paper products manufacturing and containers & packing.

While currency mix remained consistent with 2024 distribution, the British Pound was an outperformer, nearly doubling thanks to increased activity from Utilities and Industrials.

Global Sustainable Loan Market Snapshot

Global Sustainable Bond Market

Market trends in 2025 persisted from the prior year across products, sectors and currencies. The shift towards products with environmental use of proceeds (green and sustainability bonds) continued as target-based instruments and social bonds continued to lose ground. Financials notably gained more market share increasing to 21% in 2025 from 18% in 2024. Sustainable bonds had wide global reach across 47 currencies in 2025, with a notable ~50% uptick in supply from China.

Global Sustainable Bond Market Snapshot

Inaugural vs. Repeat Corporate Sustainable Bond Issuers

Issuers saw several large high-yield data center issuances in the U.S. leading to the trend favoring inaugural issuers. Meanwhile in Europe, borrowers with existing sustainable bond programs further increased their share of the overall market to an impressive 88% as such programs have become normalized across the region.

Sustainable Fund Flows

Globally, fixed income was the only asset class attracting fresh capital in 2025 Investors' stronger tilt toward fixed income over equity signals a more cautious approach amid ongoing economic uncertainty and rising geopolitical tensions.

Sector Spotlights

Corporate

The political climate and scaling back of green incentives in the U.S. and other parts of the world impacted corporate labelled debt issuances across North America and Europe. Corporates with established ESG frameworks maintained their presence in the market, but heightened scrutiny and insufficient pricing incentives created an imbalanced risk-reward model for many potential issuers.

Conversely, issuance from corporates in Asia experienced year-on-year growth, while SSAs saw a slight decline. The green transition is a key building block of China's broader economic and trade policy, which has translated to nearly 50% growth of green bond issuance from the region.

Key Tailwinds:

• Corporates, even in the most politically challenged regions, continue to deploy capital towards "green" activities like climate resilient infrastructure, energy efficiency, industrial decarbonization and grid technology. While not always under the sustainable debt label, the issuance of debt to support these capital expenditures continues.
• With the 2020-2021 issuance boom now maturing and releasing record capital back into the system, GSS maturities will climb to about US$520 billion in 2026, testing the market's refinancing muscle and investor appetite.
• Many corporate sustainable exchange traded funds (ETFs) outperformed traditional benchmarks in 2025, creating increased pools of capital chasing sustainable assets – even U.S. sustainable fund assets matched their 2021 peak in terms of growth, despite a continued period of outflows.

Key Headwinds:

• The continued politicization of ESG, particularly in the U.S., has pushed corporates to be more apolitical and in certain cases even forego the potential headline risk of labeled sustainable debt issuance.
• Considerable policy uncertainty around tax credits for sustainable infrastructure as a result of the OBBB has slowed or canceled project deployments in renewable energy-related sectors, slowing associated green funding needs.

Supranational, Sovereign and Agencies (SSAs)

SSA issuers remained the cornerstone of the market with US$517 billion issued. Year-over-year supply decreased marginally by 1.5%.

Key Tailwinds:

• Continued growth of MDB funding programs drove larger volumes of sustainable debt issuance.
• MDBs reaffirmed their commitment to strengthening and accelerating climate finance at COP30, with the aim to reach US$120 billion of their own resources and US$65 billion in mobilized private capital by 2030.
• SSAs continue to be leaders in product innovation, notably with the first ever bond for US$100 million to fund high-impact sustainable development projects across the Amazon region.

Key Headwinds:

• Key investment focus areas such as climate adaptation continue to struggle from fiscal constraints and limited investable projects.
• While many SSAs look to other forms of concessional capital, government support or private sector funding, the alignment of priorities and incentives often makes it difficult to effectively garner and mobilize capital.

Financials

Sustainable debt issuance from Financials increased by 5% in 2025, led largely by a significant increase in activity from Chinese state-owned banks. While the other segments remained relatively stable, the banking sector saw 25% growth and the financial services saw a 44% decrease in issuances year-on-year.

Key Tailwinds:

• Despite the collapse of the Net Zero Banking Alliance (NZBA) in 2025, the majority of global banks remain committed to achieving sustainable finance targets, with sustainable debt issuance being a key lever.

Key Headwinds:

• In 2025, financial-services social bond issuance faded sharply as DEI programs came under political scrutiny and many institutions scaled back or retired the targets that once anchored their social frameworks.

Sustainable Finance Outlook for 2026

Sustainable finance enters 2026 at a moment of transition, shaped by a turbulent 2025 that tested the resilience of the market yet ultimately reinforced the durability of long-term sustainability themes.

Looking ahead to 2026, several forces will steer sustainable finance markets:

• We expect sustainable debt issuance volumes on par with 2025 as issuance likely skews further towards Europe and Asia-Pacific.
• Global investment in renewables is poised to accelerate across regions, bringing sustainable debt volumes with it.
  • In the U.S., growth is expected to remain strong as datacenter expansion continues to drive demand for clean power despite political headwinds.
  • In Europe, rapid build-out by hyperscalers, combined with the increasingly strategic role of clean energy for security and competitiveness, should sustain momentum in 2026.
• Sustainable fund activity, namely openings versus closures, will be an important indicator of the market's forward trajectory. While fund flows have remained resilient over 2025, funds will need to continue sourcing a diverse supply of sustainable assets in order to meet return hurdles and sustainable investment targets

As organizations recalibrated their sustainability commitments in 2025, sustainable finance issuance reflected this shift - softening at the margins but expected to re-emerge in 2026 in a more mature, integrated form, grounded in themes of energy security, infrastructure resiliency and efficiency.

Key Terms:

SSA — Sovereign, supranational, and agency
SLL — Sustainability linked-loan
SLB — Sustainability linked-bond
MDB — Multilateral Development Bank
GSS — Green, Social, and Sustainability
OBBB — One Big Beautiful Bill