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Today’s Sustainable Bond Market: Boosting Confidence in Sustainable Bond Issuances

Posted on June 14, 2023

Ian Holroyd
Ian Holroyd
Editorial Manager, ESG and Sustainable Finance

The demand for sustainable investment is growing and with that growth comes a call for increased quality assurance. Stakeholders are paying closer attention to issuances while investors demand improved reporting and disclosure of critical details. The popularity of sustainable debt instruments, such as green, social and sustainability bonds, has raised concerns about misleading environmental claims, also known as greenwashing. This has attracted the attention of regulators across multiple jurisdictions looking to provide more oversight to reinforce investor confidence.

The sustainable bond market is at a turning point, with regulators, governments and voluntary standards organizations working together to devise ways to increase transparency, develop standardization and discourage greenwashing. These new rules and regulations aim to strike a balance between bolstering investor confidence and encouraging market growth.

A resilient sustainable bond market is integral to climate change mitigation and low-carbon transition efforts, and for laying the groundwork to meet international climate goals such as those set out in the Paris Agreement. In this blog, we examine the kinds of sustainable bonds offered in the market, some of the key regulations being developed in different markets and the current initiatives to improve the quality and credibility of issuances.

What is the Sustainable Bond Market?

The sustainable bond market is a fixed-income market that includes green, social, sustainable, transition and sustainability-linked (GSS+) bonds. Green, social, sustainable and transition bonds are known as use of proceeds bonds and are issued to finance or refinance green and social projects that align with the International Capital Markets Association’s (ICMA) Green Bond Principles or Social Bond Principles. Sustainability-linked bonds are a little different. The proceeds from these bonds can be used for general corporate purposes, but the bonds’ characteristics (i.e., coupon rate) are tied to meeting ambitious sustainability performance targets. The total cumulative GSS+ bond volumes topped US$3.7 trillion at the end of 2022 and are forecast to reach US$5 trillion by 2025.1

Steering the Sustainable Bond Market

The European Union is leading the charge, formulating innovative ways to standardize the sustainable finance market, especially when it comes to green bonds. Recently, the EU Parliament and Council reached a provisional agreement on the EU Green Bond Standard (EU GBS). This voluntary guideline will align more closely with the EU Taxonomy, which defines what economic activities or projects the European Commission considers environmentally sustainable. The EU GBS is intended to enable investors to identify EU Taxonomy aligned green bonds and environmentally responsible companies, while hindering greenwashing.2

In the United Kingdom, the Financial Conduct Authority (FCA) published a consultation paper on Sustainability Disclosure Requirements, seeking input not only on green bonds, but on the sustainable investment landscape as a whole.3 With a focus on cultivating trust in sustainable investment products, the paper focuses on greenwashing by clarifying sustainable investment labels, detailing disclosure requirements, and restricting certain sustainability-related terms in marketing materials. In addition, the FCA released the Climate-Related Financial Disclosure requirements, which directs asset managers and asset owners in the U.K. to provide annual climate reporting aligned with the Task Force on Climate-Related Disclosures recommendations.4

Asia and Sustainable Bond Market Reform

Although there is international guidance when it comes to green bond issuances, such as ICMA's Green Bond Principles, some Asian jurisdictions have taken it upon themselves to develop their own guidelines to address regional conditions. 

China’s Green Bond Standard Committee, for example, issued its first China Green Bond Principles in 2022, better aligning China’s green bond market with international standards.5 However, China goes a step further, making their guidelines mandatory as opposed to voluntary, which is the case with other international frameworks. In addition, under China’s Green Bond Principles, 100% of the proceeds generated by a green bond issuance must be invested in green projects as opposed to the previous 70%.6 Improved reporting requirements were also introduced.

In India, the Securities and Exchange Board is in the process of updating its guidelines for green debt securities to align with ICMA’s Green Bond Principles.7 The most significant change is the requirement of having an independent evaluation conducted on both pre- and post-issuances. The intended goal of these amendments is to improve the confidence of foreign investors in India’s green bonds and help direct investment to the country’s energy transition efforts.8

Building Confidence in the Investor Community

Despite the progress made in the standardization of sustainable bond issuances, concerns over quality persist. According to Responsible Investor, fund managers reject a fifth of green bonds because the bonds do not meet expectations on sustainability.9 Investors are eager to differentiate companies trying to capitalize on green debt instruments from those companies legitimately trying to make a difference. One way for an issuer to prove their intentions are genuine is to engage a second-party opinion provider to evaluate their bond framework and issuance. A second-party opinion signals to investors that an issuer’s bond is aligned to relevant market principles and standards, such as the ICMA’s principles, and that the intended uses for the proceeds are directed towards generating a positive environmental or social impact.

To ensure the lasting growth and maturity of the sustainable bond market, it is imperative that legislators continue to improve principles, regulations, and guidelines to promote confidence through standardization and transparency. While some commentators describe the quality of sustainable issuances as “relatively good” despite the market operating on largely voluntary principles,10 it is clear there is plenty of work that still needs to be done to solidify the market and encourage sustainable investment long term. 


1 Climate Bonds Initiative. 2023. “2022 Market Snapshot: And 5 big directions for sustainable finance in 2023.” Climate Bonds Initiative. January 30, 2023.

2 Schranz. J. 2023. “Legislators strike deal on a new standard to fight greenwashing in the bond markets.” European Parliament. Feb. 28, 2023.

3 Financial Conduct Authority. 2022. CP22/20: Sustainability Disclosure Requirements (SDR) and investment labels. Oct.

4 Department for Business, Energy & Industrial Strategy. 2022. “Mandatory climate-related financial disclosures by publicly quoted companies, large private companies and LLPs.” February 21, 2022.

5 Shen, S. Goh, B. 2022. “China tightens green bond rules to align them with global norms.” Reuters. August 24, 2022.

6 Ibid

7 Srivastava, S. Trivedi, S. 2023. "Indian capital market regulator's updated green debt guidelines: Unlocking the potential of sustainable finance." Institute for Energy Economics and Financial Analysis. March 29, 2023.


9 Webb, D. 2022. “Fund managers rejecting a fifth of green bonds as quality concerns continue.” Responsible Investor. Nov. 3, 2022.

10 Ibid


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