After a challenging 2025 for sustainable debt markets, Ahren Lester outlines some key trends to watch out for in 2026
The formal introduction of a distinct 'transition' label simultaneously in the bond and loan market is a significant boost for the prospects of the structure.
Quality over quantity
There is little doubt that 2025 has proven a difficult year for sustainable debt markets. Just taking volumes as an – admittedly imperfect – indicator of activity, there has been a slowdown in both labelled sustainable bond and loan issuance.
According to Environmental Finance Data, sustainable debt volumes stood at $1.2 trillion in the first nine months of 2025 – down 20% from $1.5 trillion over the same period in 2024.
Nonetheless, there are two observations to be taken from this as we head into 2026. First, volumes are still remarkably strong in both sustainable bond and loans markets, which indicates that such instruments have become a core part of global debt markets.
Second, this decline in volumes is both symptomatic of, and stimulated by, a renewed emphasis on ensuring the quality of the sustainable impact of these markets.
This trend is set to continue in 2026. Volumes will probably remain robust, but not record-breaking.
Meanwhile, beneath the surface, the real-world impact will continue to progress towards something more material.
Turning up the volume on transition
The remarkable change in the perception of where transition fits within the labelled debt markets reached its apogee in 2025, laying strong foundations for 'transition' bonds and loans to make material progress.
After years of inaction, as market participants discussed the merits and risks of a dedicated 'transition' label for tackling a real market need without tripping up existing green and sustainability-linked instruments, recent months have seen a dramatic shift in support.
Most prominently, has been the 'transition'-label guidance from the main influential loan and bond market association. The Transition Loan Principles (TLP) were published by the Loan Market Association (LMA), Asia Pacific Loan Market Association (APLMA), and Loan Syndications & Trading Association (LSTA) in October, quickly followed by the International Capital Market Association (ICMA)-administered Principles publishing Climate Transition Bond Guidelines – which are principles in all but name – in November.
Earlier this month, FirstRand published what is thought to be the first transition financing framework to align with these principles and guidelines.
Issuers and borrowers will still need to be brave to adopt the label in the early stages. This is partly because of the additional challenges these structures pose to issuers – especially in tackling the 'carbon lock-in' requirements – but also because of the cumulative caution the market has built around the label over the last eight years since we first saw a transaction labelled as 'transition'.
But the formal introduction of a distinct 'transition' label simultaneously in the bond and loan market is a significant boost for the prospects of the structure.
The fact that the transition loan and bond guidance align so closely with one another provides a strong foundation for what could prove a formative year for transition debt instruments.
Soaring sub-labels
The market should also expect more progress from sustainable debt utilising the established sub-labels to target underappreciated themes, in particular within the bond market.
For example, June 2025 saw 'nature bonds' formally secure approval from ICMA, and this could prove a potential catalyst. Debut transactions using this sub-label have demonstrated appetite for such an approach, but also highlight the challenges this theme still faces as a specific and scalable asset in the sustainable bond market.
Market initiatives towards climate adaptation and resilience bonds have also continued to strengthen over the course of 2025. After the Climate Bonds Initiative (CBI) published its Climate Bonds Resilience Taxonomy (CBRT) in late 2024, we saw the first 'climate resilience bond' issued under this taxonomy in 2025.
At the same time, there have been other important climate resilience investment-focused market initiatives during 2025. For example, Cadlas launched a climate resilience stewardship sourcebook for investors after identifying climate adaptation as a "missed opportunity" for sustainable bond markets.
For both of these sub-labels, however, there remains a long way to go in building both supply and demand. But 2026 could see a material shift in both.
Meanwhile, blue bonds continued to make progress during 2025, with multiple new issuers taking on the water-focused green bond sub-label.
Perhaps more importantly, blue bonds also attracted dedicated funds. Fidelity International (FIL) launched a dedicated 'blue bond' fund in late 2024, which was followed by T Rowe Price launching its own in September.
Tuning in to targeted impact bonds
These sub-labels highlight the growing appetite among investors for more "targeted" sustainable debt instruments.
This has become increasingly apparent during 2025 through cases including the Inter-American Development Bank (IDB) 'Amazonia Bond', Bank of Montreal (BMO) 'Indigenous Bond', and 'Orange' or gender bonds from Japanese conglomerate Itochu and pioneer the Impact Investment Exchange (IIX).
Meanwhile, there are expectations that the first 'methane abatement bond' should emerge in early 2026 – just months after industry-led guidance was published for methane emissions reduction focused financing instruments.
After a record-breaking year for debt-for-nature swaps in 2024, the market has also put together voluntary standards during 2025 to try and ensure greater consistency in these bespoke impact instruments and extend financed projects to include biodiversity and resilience. Meanwhile, key Caribbean development banks have launched a debt-for-resilience swap initiative for the region.
All of this points to the growing interest among investors for specific, targeted impact instruments and a willingness among issuers and banks to find ways to satisfy that demand.
EuGB: Big issuance and big influence?
The 'European Green Bond' (EuGB) label under the EU Green Bond Standard (EU GBS) has got off to a surprisingly strong start in 2025 since its debut issuance in January.
Indeed, the 'gold standard' label has already secured an 8% share of the European green bond market in 2025 – including from a remarkable diversity of issuers from banks, sovereigns, corporates and development banks.
As well as potentially seeing greater diversity of sectors and use of proceeds, the market will be watching to see whether non-European issuers begin to utilise the label and whether there is any pricing or demand perk for issuers compared with existing green bond structures – of which there is some positive evidence already.
Even beyond the vanguard issuers, there is already a clear indication that a broader set of issuers are being attracted to the EuGB structure. 2026 looks set to see a robust growth in issuance.
Perhaps most interesting to watch, however, will be the wider influence of the EuGB label in the green and sustainable bond market. If the additional requirements and expectations around the EuGB continue to attract stronger demand from investors, could we see elements of the standard becoming best practice more widely? If so, we could see early signs of this in 2026 as issuers adapt their frameworks to reflect EuGB elements even if still unable to currently meet the more onerous demands required of it.
Pointers towards a post-label world?
2026 could also see deeper discussions around post-label sustainable debt markets and how we can ensure its credibility.
This consideration has been a subtext to sustainable debt market conversations since the inception of labelled instruments more than a decade ago, but 2025 may have nudged market participants to contemplate this expected future reality as perhaps a more near- or medium-term evolution.
An example of this was in evidence during 2025 when sustainability-linked bond pioneer Enel stepped back from the instrument after it achieved its purpose. A senior source close to the decision told Environmental Finance that the "final task" was for issuers to "abandon the label," describing it as the "natural evolution" of the market.
As the senior source explained, Enel no longer needed the sustainable debt label to attract the highest sustainability ranking among its investors.
In 2026, this "natural evolution" could be accompanied by an "unnatural evolution" set in motion by the 'anti-ESG' backlash in some areas of the market. This has seen many issuers – especially in countries like the US – continuing to target sustainable investment and growth, but to do so away from the labelled debt market.
As a result, 2026 could see more open discussions about how to tell their sustainability story through conventional instruments at the long-term expense of labelled debt issuance in the short- and long-term.
