Marcus Pratsch, managing director, global head of sustainable bonds & finance at DZ BANK, says sustainable finance is reaching a turning point – with cause for optimism
Sustainable finance in the crossfire
In 2025, sustainable finance faced a great deal of headwinds. The main reasons were, among other things, the backlash for sustainable finance in the US, ongoing geopolitical and economic uncertainty around the world, the question of how to reconcile sustainable transformation and competitiveness in Europe, and a regulatory environment that remains too complex and difficult to understand.
This had a noticeable impact on the global sustainable bond market, which had enjoyed almost uninterrupted success until then, causing it to take a little breather.
While much of the criticism of sustainable finance is exaggerated, some of it is certainly true. Is this a cause for concern? Or even the sword of Damocles? The good news is, after the storm, the all-clear can be given.
Rather than being at a crossroads, sustainable finance is reaching a turning point. Currently, it is undergoing a necessary evolution that we should view less as doom and gloom and more as an opportunity. These opportunities will gradually become apparent in the sustainable bond market.
ESG is 'dead' – sustainable finance is here to stay! Nevertheless, it is time for a brief moment of silence, as ESG as we knew it is 'dead'.
There are three main reasons for this. Firstly, the traditional ESG view neglects the economic dimension of sustainability. Therefore, a more effective approach would be 'EESG'. When making decisions in the capital market, it is essential to consider the interdependent interactions between the four dimensions of sustainability: Economic, Environmental, Social and Governance. Secondly, the traditional ESG approach was often backward-looking and reflective of the status quo. However, as in traditional financial analysis, it is important to consider the future.
Sustainability in capital markets is neither a snapshot nor a rigid construct. Hence, there is an increasing focus on identifying tomorrow's sustainability champions.
This becomes particularly clear when we consider sustainable transformation. This is accompanied by the credo 'Transform rather than divest', which is gaining popularity among an increasing number of investors.
Thirdly, in some regions of the world, the term 'ESG' has disappeared or will do so in the future.
But that's no reason to bury our heads in the sand. One thing is clear: ESG as we knew in the past is 'dead', but sustainable finance is here to stay. It is no longer a niche, but a transformative force and will emerge from the trough of disillusionment and reinvent itself on a healthy plateau of productivity.
Sustainable Finance 2.0: shaping the architecture for further growth in the sustainable bond market
Sustainable finance is maturing and evolving, as are discussions in the sustainable bond market.
Enormous funding is required to address the global sustainability agenda. In fact, the funding gap has even widened in recent years. 2025 was the third warmest year on record. Without protecting nature, there is no way to tackle climate change. Hence, there will be no net-zero without nature-positive. Furthermore, building an efficient adaptation economy is a critical component of the long-term global response to climate change. Global progress towards the Sustainable Development Goals is also alarmingly off track.
Thinking in extremes will not get us anywhere. The journey is often the reward (not a radical change). Black-and-white thinking is unhelpful. Transition is key. We must be open to technologies (both established and new) and willing to discuss new (sometimes controversial) topics. Sustainability cannot be reduced to a simple 'yes/no' analysis; it is an ongoing process.
Competitiveness and sustainability are not mutually exclusive. Sustainable transformation is a major opportunity for the real economy. And it is not irreversible. The leading corporates of tomorrow will be the ones who successfully leverage sustainability as a competitive advantage. And that also applies to financing and funding.
Global sustainable bond market: new issuance volume 2022-2026e
Sustainable bond market Asia Pacific: new issuance volume 2023-2025
However, the concerns of the business community must be addressed, and bespoke solutions must be established. This is particularly important for small and medium-sized enterprises (SMEs), which form the backbone of most economies. There is no one-size-fits-all solution. Sustainability always has a cultural component that we must consider. Transition does not happen overnight. Less or simplified regulation does not necessarily mean less ambition. If regulation is applied, it should promote market growth rather than hinder it.
The market cannot afford to turn a blind eye to the new reality
Given the new geopolitical reality, an evolving sustainable finance agenda must acknowledge what is happening in the real world.
For several years now, the letters 'EESG' have also represented topics such as economic resilience, energy, security and geopolitics. In this changing world, defence, security and resilience are key as they give us the ability to survive. Therefore, the debate on sustainable finance must address these themes objectively.
One thing is clear: sustainable bonds will continue to be ruled out as a means of financing controversial or weapons of mass destruction in the future. However, it is important to objectively examine which aspects of the broad field of defence, security and resilience will be compatible with sustainable funding.
Green bond segment Asia Pacific: new issuance volume 2024 vs 2025
Sustainable bond market – what next?
Despite its remarkable success and resilience over many years and new records in the green bond segment, the global sustainable bond market was not immune to the challenges facing sustainable finance last year. Nevertheless, after facing a small 'valley of tears' in 2025, it will emerge in the medium term and resume a path of healthy, qualitative growth. However, this will require a bit of patience.
As sustainable finance is currently reaching a turning point and is on the verge of further development, we do not expect any quantum leaps in 2026.We forecast a global new issuance volume of around $950 billion in 2026.
With the largest number of sustainable and responsible investors in the world, Europe will remain at the forefront of new sustainable bond issuance, accounting for an estimated 42% of the new issuance volume in 2026. As new records in sustainable bond maturities are expected in the coming years, particularly in the green bond segment, European issuers in particular will face enormous refinancing needs.
New issuance volume of green bonds in China 2024 vs. 2025
In addition, the Asia-Pacific region has emerged as a key market for sustainable finance, becoming the second-largest source of sustainable bonds after Europe. Consequently, global institutional investors are increasingly targeting the region for sustainable and responsible investments. The Asia-Pacific region boasts a robust sustainable finance ecosystem, with several major sustainable finance hubs having emerged. Taxonomies form a key part of this ecosystem.
In 2025, the Asia-Pacific region proved itself to be a reliable source of sustainable debt. While the global market saw a decline in issuance volume, the Asia-Pacific market remained robust, growing by around 4% year on year.
The green bond segment set new records with growth of 31% compared to the previous year. It accounted for around 63% of the total new issuance volume in the Asia-Pacific sustainable bond market. This was largely due to China's strong performance, with the volume of new green bond issuances almost doubling in 2025 compared to 2024. Consequently, China accounted for around two-thirds of the total volume of new green bonds issued in the Asia-Pacific region.
To find out more about DZ Bank's services, https://www.dzbank.com/content/dzbank/en/home/products-and-services/institutional-customers/Sustainable-finance.html
Bonds: digital and sustainable – a perfect fit
Frank Scheidig, managing director, global head of senior executive banking, DZ BANK
The digital transformation is an important element of the sustainable transformation. The growing adoption of Distributed Ledger Technology (DLT) in financial markets is transforming sustainable finance, leading to the emergence of digital sustainable bonds and other sustainable capital market instruments.
Digitalisation can provide the sustainable bond market with several significant advantages. Digital sustainable bonds, leveraging cutting-edge technologies like blockchain and DLT, are poised to significantly transform and enhance the sustainable capital markets. They offer benefits in terms of security, transparency, efficiency, market accessibility and advanced functionalities for sustainable finance instruments.
Enhanced security, transparency and trust
- Fraud prevention: The immutability of blockchain ledgers minimises fraud and unauthorised data alterations, creating a highly secure environment for sustainable bond transactions.
- Transparency and accountability: the decentralised ledger technology enables real-time tracking of sustainable bond proceeds, ensuring that funds are genuinely allocated to eligible sustainable projects. This increases investors' trust in issuers as they can continuously monitor how their invested funds are being allocated and utilised.
- Prevention of greenwashing: Since data is natively digital and can be traced in real-time, it becomes significantly harder to engage in "greenwashing". Investors can have a high degree of confidence that their funds are being used appropriately, knowing that blockchain ensures full transparency and accountability.
Increased efficiency and significant cost reduction
- Automation: Manual processes are automated and intermediaries are eliminated, leading to lower underwriting fees, administrative overhead, and transaction costs.
- Faster processes: DLT enables faster and more efficient transactions, as well as measurement, reporting, and verification processes. The reduction in manual steps and the automation of processes lead to a significant acceleration of the entire bond issuance process, making digital sustainable bonds a more agile and cost-effective option for financing sustainable projects.
- Real-time settlement: Real-time settlement reduces delays and counterparty risk.
Greater market accessibility and enhanced liquidity
- Fractional ownership: Blockchain technology makes it possible to own a fraction of a sustainable bond, enabling smaller investors to participate in a market that was previously dominated by large institutional players.
- Increased liquidity: An expanded investor base and more efficient settlement processes foster market liquidity.
Advanced features and automation for sustainable bonds
- Versatility: Digital bonds can be used for both use-of-proceeds and target-linked structures.
- Real-time impact data and reporting: Digital bond formats have the potential to provide sustainable bond investors with real-time impact data. Through blockchain-enabled hubs, investors can access live data and continuously monitor the sustainable impact of their investments.
- Automation of sustainability-linked bonds (SLBs): Performance-based features of SLBs, such as coupon adjustments, can be automated through "smart contracts." This ensures the immediate and undisputed application of financial penalties for missing sustainability targets, which would be administratively cumbersome in a paper-based world.
These combined advantages make digital sustainable bonds a powerful tool for accelerating the financing of sustainable projects, fostering greater investor confidence, and driving the development of innovative sustainable finance.
The Government of the Hong Kong Special Administrative Region is one of the pioneers in the issuance of innovative digital sustainable bonds. The latest issuance of digital green bonds, which took place in November 2025, marked another important milestone in the government's journey towards bond tokenisation. This follows two successful issuances in 2023 and 2024.
The latest issuance retained the same innovative features as previous ones, including:
- Digitally native format: The bonds were issued in a fully digital format.
- Access via traditional market infrastructure: Investors continued to have the option to access the bonds through traditional market infrastructures.
- Integration of green bond disclosures: Green bond disclosures were integrated with the digital assets platform.
- Furthermore, this issuance introduced new innovative features and achieved breakthroughs in the following areas:
- Expansion of the issuance volume, tenor, currencies and reach.
- The incorporation of digital money into the settlement process.
- Increased use of global standards and an expanded adoption of the International Capital Market Association (ICMA) Bond Data Taxonomy. The latter aims to facilitate the consistent exchange of issuance information between the various parties and systems involved in traditional capital markets and the digital industry. This improves interoperability and enables end-to-end automation.
