The global sustainable finance market is evolving, driven by a blend of innovation and heightened scrutiny; and while overall issuance volumes have dipped from their 2021 peak, 2024 is seeing stable issuance levels, especially in key markets like Europe and Asia.

This year’s performance to date underscores a shift towards quality over quantity, according to research from Dutch bank ING, with green bonds maintaining their momentum and newer instruments like key performance indicator (KPI)-linked debt and transition bonds gaining traction.

In the first half of 2024, global sustainable debt issuance hit US$800 billion, matching last year’s levels. Although this represents a slight decline from previous years, it signals a stable market poised for growth.

Europe remains the epicentre of sustainable finance, benefiting from a comprehensive regulatory framework and a strong rebound in issuance; and, despite political shifts towards populism, the EU’s green agenda is unlikely to waver, ensuring sustained market leadership.

However, the Asia-Pacific region is emerging as a robust player in sustainable finance. The region’s rising investment in clean energy – coupled with fast-approaching sustainability reporting standards, particularly in China, Japan and a number of Southeast Asian countries – is creating a conducive environment for green finance.

Constructive changes

Still, challenges remain, the ING report points out, especially in implementing green debt principles in high-emission sectors. China, for instance, has made strides with its updated Green Bond Principles, yet state-owned enterprises still enjoy exemptions that dilute their overall impact.

Green bonds are the cornerstone of sustainable finance, with substantial issuances from governments and corporates alike, and the first half of 2024 saw notable green bond issuances.

Transition bonds are also gaining prominence, particularly in Japan, where they offer a pathway to decarbonization for hard-to-abate sectors. However, the market outside of Japan remains nascent, hindered by the lack of clear definitions. The International Capital Market Association’s (ICMA) new Green Enabling Projects Guidance, ING says, may provide the clarity needed to spur growth in this segment.

Sustainability-linked bonds and loans are undergoing constructive changes to enhance credibility. Despite some scepticism, these instruments remain crucial for companies with broad sustainability goals. The ICMA’s updated guidelines are expected to drive more principles-aligned issuance in the future, encouraging higher standards and greater market participation.

In conclusion, the global sustainable finance market, ING states, is on a positive trajectory. While issuance volumes may have plateaued, the focus on quality, transparency and innovation ensures that sustainable finance will continue to play a pivotal role in achieving global climate goals.