Bonds as Catalysts : Can They Expand the Horizon of Sustainable and Impact Investment?
In July 2025, the sustainable debt market reached USD 6 trillion of cumulative issuance and this, almost exactly 18 years after a first ever EUR 600 million green bond was issued in July 2007 by the European Investment Bank. (1), (2)
The market’s growth has been exponential, adding another USD 1tn to the market in just over a year, since the last milestone was reached in May 2024. However, even with this exponential growth, the sustainable debt proportion of the USD 140tn global debt market is (too) slowly, but surely, increasing, reaching around 4% of outstanding debt in H1 2025. Sustainable bonds – green, social, sustainable and sustainability-linked (GSS+) bonds – are hence a key financial instrument that expands the horizons of sustainable investment in terms of scale.
Beyond scale, GSS+ issuance has also shown remarkable global resilience against a tougher, and more volatile, recent macroeconomic background as well as political headwinds. While net outflows from ESG funds in Q1 2025 made international headlines, especially in the US, it is also true that the US was the primary issuer of both green and social bonds, in terms of number of transactions, in 2024 and Q1 2025 for example.(3)
The catalyst to this scaling up of sustainable investments is not just bonds themselves, taxonomies also play a key role in shaping the economy of the future.
At times dismissed as too technical, complex or dull, taxonomies are in fact the “shopping list for the future”: lists of economic activities that compatible with a 1.5°C world as well as the credible pathways that can lead to the greening of economic activities that are not currently aligned with 1.5°C.(4) On the one hand, a taxonomy is a powerful signal for investors: if an economic activity meets its criteria or pathways, it’s a green-light, literally, for future-proof investment. Issuers, on the other hand, use taxonomies to structure activities to be financed, and hence, their bond or loan framework. Belgium’s 2022 updated Green Bond (‘OLO’) Framework, to cite only one example, references the EU taxonomy. Also, issuers who seek to get their bond framework certified by Climate Bonds Initiative, make use of Climate Bonds’ voluntary taxonomy to structure the use of proceeds.(5)
Simple in theory, transformative in practice, this is what has led more than 50 governments worldwide to develop and implement national taxonomies over the last few years. This wave of implementation has been dubbed “taxomania” by some. It has also brought taxonomy to the fore and triggered justified debates on how to make taxonomies, most notably the EU taxonomy, more user-friendly and supportive not just of green activities, but also of economic actors that are seeking to transition their activities to green.
Green is (relatively) easy, transition is hard and climate finance is driving tomorrow’s economic competitive advantage.
Providing guidance to hard-to-abate sectors is crucial so that the private sector can finance its own transition – especially in a fiscally-constrained context. In 2024, the European Commission estimated that only 20% of large European companies’ capital investments (CapEx) were Net Zero-aligned.(6) While CapEx alignment is increasing year-on-year, a remaining 80% must still transform, an indicator of how much road there still is to travel for European industries. Investing to support the transformation, or transition, or economic activities so that they align with a Net Zero world is complex, difficult and essential. In China and emerging markets, climate finance is growing the fastest, turning the transition to Net Zero into an economic advantage in global markets.(7)
But whether for sovereigns or for corporates, a key determinant for the success of this transition is to plan how to do it, that is transition plans. The best way to think of those transition plans is to consider them as an integral part of a business plan, the key to the success of navigating tomorrow’s economy. With the added bonus that transition plans often support the issuance of labelled debt. In a 2024 paper on the transition of the global steel and cement sectors, we showed for example that having a transition plan was correlated with issuing credible sustainable-linked debt for 100% of issuing steel companies and 80% of issuing cement companies.(8)Going through the exercise of setting out a transition plan can already be the start of transformation and competitive advantage for industries.
Beyond scale, bonds can be catalysts for expanding the horizon of the type of sustainable and impact projects they finance, and this transformation has already started.
The transition to Net Zero poses important political economy questions. A simple point of illustration that can be observed in countries worldwide: some fossil fuel subsidies, which must be stopped to support the transition, are embedded in poverty alleviation programmes. In Belgium alone, around 30% of fossil fuel subsidies support poverty alleviation, directly or indirectly.(9) This can help explain why raising tax on fuel without considerations for a Just Transition may lead to uprising such as the Gilets Jaunes in France.
Such considerations can, and should, be included in bond frameworks. In a 2023 study, we showed that 21% of outstanding GSS+ bonds financing projects in the energy sector (or 21% of the overall GSS+ bond market), already included some measures that address questions of Just Transition.(10) This means that financing of the Just Transition via the debt market is already happening at scale, with the important caveat that 48% of those bonds were priced by development finance institutions. More can be done to support issuers, from both the public and private sectors, to integrate such considerations and this is an ongoing work.
In addition, as the effects of climate changes are materialising contributing to a more volatile world, building resilience is key. We are already seeing examples of bonds being deployed to finance resilience projects. In neighbouring Netherlands, flooding protection and other resilience and adaptation projects are financed via their 2019 Green Bond Framework.(11)In Fiji, the 2017 Green Bond Framework is supporting resilient reconstruction efforts post-cyclone.(12) The Climate Bonds’s Resilience Taxonomy (CBRT) has been developed together with issuers and market practitioners to further support the financing of resilience projects worldwide, as we anticipate resilience to become the larger market given the significant investment needs.(13)
Climate catastrophe is a useful reminder that we need action now. But fear rarely leads to the action we need. So let me leave you with the sense of how much is already changing and how much can be gained:
- The debt market is already mobilising trillions for the transition, and it does so by including considerations for the just transition and resilience
- Taxonomies are shopping list for the future and transition plans are your maps and compass to navigate that future economy.
- Corporates and sovereigns are showing every day that we can transition, and are innovating every day, finding new ways of how we will transition to reach our climate objectives.
Endnotes
(1) As recorded based on alignment with Climate Bonds Initiative dataset methodology for Green, Social and Sustainable (GSS+) bonds. https://www.climatebonds.net/news-events/press-room/press-releases/global-sustainable-debt-volume-aligned-climate-bonds-definition-hits-usd6-trillion-milestone
(3) Social bonds issuance in the US in Q1 2025 was driven by government-backed entities Freddie Mac and Ginni Mae https://www.climatebonds.net/files/documents/publications/Sustainable_Debt_Q1_2025_Final-Version.pdf
(4) Most taxonomies worldwide are calibrated on a 1.5°C global scenario, in line with the Paris Accord, even if actual global temperatures have already breached this threshold.
(7) The Climate Policy Initiative releases comprehensive data on the landscape of climate finance. https://www.climatepolicyinitiative.org/publication/global-landscape-of-climate-finance-2025/
(8) Paper published for the G20 Sustainable Finance Working Group under the 2024 Brazil G20 Presidency: https://g20sfwg.org/wp-content/uploads/2024/06/P2-G20-SFWG-CBI-Policymakers-mobilising-private-finance-ensuring-credible-and-just-transition-in-steel-and-cement-CBI_G20_01D.pdf
(9) Author’s own calculations, based on the 2025 Belgian Federal inventory of fossil fuel subsidies, available here: https://finances.belgium.be/sites/default/files/2405672_Climate_change_inventaris_FR_v3.pdf. Details of calculation available on request.
(11) Updated in 2023: https://english.dsta.nl/documents/2023/09/08/green-bond-framework---updated-8-september-2023
(12) Updated in 2029: https://www.rbf.gov.fj/wp-content/uploads/2020/03/Fiji-Sovereign-Green-Bond-Impact-Report-2019.pdf
(13) https://www.climatebonds.net/expertise/resilience-finance
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