By Pietro Sette, GSS bond director at MainStreet Partners
In a year when global green, social, and sustainability (GSS) bond issuance declined by 15% year-on-year, one would be forgiven for feeling pessimistic. Inflationary pressures, geopolitical uncertainty, and higher-for-longer interest rates have made 2025 an environment where caution often trumps conviction. Yet, beneath the surface of aggregate numbers, a more nuanced and optimistic view could be taken.
While the GSS Bond market overall has shown softness, green bonds have proven notably resilient. In the UK alone, overall issuance reached $14bn in the first half of 2025, with green bond volumes up 10% compared to the same period in 2024.
This is not an isolated blip. Across Europe, the introduction of the EU Green Bond Standard (EuGB) has sparked a wave of high-quality issuance, with over €8.5bn raised by mid-year under the new label. Investor appetite for these instruments remains robust, underscored by oversubscriptions such as A2A’s inaugural EuGB deal, which was nearly 4.4 times covered.
Structural driver of resilience
The persistence of green bond issuance in an otherwise subdued fixed-income environment speaks to several structural factors.
First, regulatory clarity is improving. The EU Taxonomy, though still evolving, has provided a clearer framework for defining “green”. Even as the “Simplification Omnibus” has delayed certain Corporate Sustainability Reporting Directive (CSRD) obligations, particularly for smaller firms, the direction of travel remains clear: more disclosure, more comparability, and more accountability. For investors, this translates into a greater ability to discern credible green financing from marketing spin.
Second, alignment with the EU Taxonomy is inching upward. According to our analysis, average Taxonomy eligibility and alignment both improved in 2024, with alignment rising around 10% on a relative basis. Though absolute alignment still lags eligibility, the trend is moving in the right direction, especially among GSS bond issuers, who on average report higher exposure to sustainable activities than their non-GSS peers.
Third, sovereign and quasi-sovereign leadership is providing a strong signalling effect. From the UK’s green gilt programme to the European Investment Bank’s €3bn EuGB issuance, large-scale transactions from highly rated issuers are setting benchmarks for liquidity, pricing, and disclosure quality.
The UK shows resilience
In the UK, macroeconomic drag has not supressed momentum. Approximately 64% of green bond issuance in H1 2025 came from financial institutions – up from 50% in 2024 and nearly double the global average. This suggests sustainable finance is embedding itself within the funding strategies of mainstream issuers, not just in public entities or climate-first companies.
Additionally, the UK’s alignment of policy and market practice with broader European standards, supports market integrity and cross-border capital flows. The UK’s first phase of the Sustainability Disclosure Requirements (SDR) has also bolstered transparency and investor confidence.
Labelling regimes, minimum sustainable investment thresholds, and stronger KPIs are helping ensure that green bonds are much more than just a marketing label.
The market is maturing
It is tempting to see a year-on-year decline in issuance as a retreat from sustainable finance goals. But the trajectory of green bond issuance suggests the market is maturing.
As the EuGB raise the bar for disclosure and verification, issuers are taking more time to meet these standards, resulting in fewer but higher-quality deals. For long-term investors, a smaller market today signals a more credible, investable one tomorrow.
From a portfolio construction standpoint, the increased credibility of green bonds enhances their appeal. Given that investors are under pressure to demonstrate measurable ESG outcomes, the combination of rigorous standards and clear use-of-proceeds reporting offers a straightforward solution. This is particularly important for institutional allocators facing regulatory scrutiny and stakeholder demands for impact accountability.
Outlook into 2026
Driven by three key factors, the outlook for green bonds into 2026 appears bright:
- Investor demand: Oversubscriptions and tightening spreads on high-quality green bonds indicate strong buy-side appetite, even in a risk-averse market.
- Sectoral breadth: While utilities and transportation continue to lead in taxonomy alignment, financial institutions are increasingly channelling capital toward renewable energy, green buildings, and clean transport.
- Global spillover: The credibility of the EU Green Bond Standard could influence non-EU markets, creating opportunities for globally minded investors.
Challenges remain. Alignment levels still trail eligibility, and smaller issuers may struggle with the cost and complexity of meeting new standards. But these are growing pains of a market that is becoming central to capital formation.
In a bond market where headlines focus on contraction, green bonds offer a counter-narrative showing resilience, innovation, and higher quality issuances. The UK’s growth against a global decline, coupled with the early success of the EU Green Bond Standard, signals that sustainable finance is not a cyclical fad, more a reorientation of capital toward long-term value creation.
The opportunity in green bonds lies not just in yield or duration positioning, but in their role as instruments of structural change. In 2025, the market may be taking a breath, but it’s doing so on a higher step of the ladder.
