Q4 2024 Sustainable Finance Market Update
In Q4 2024's Sustainable Finance Market Update, we cover trends in sustainable debt issuance globally and in the Australian-New Zealand markets, as well as industry insights such as updates to the Green Star Performance for building sustainability and ASFI’s progress on the Australian Sustainable Finance Taxonomy.
2024 Market Recap
Sustainable debt issuance has seen a year-on-year increase both globally, rising by 9.7% to reach US$1.49tn, and in Australia and New Zealand, where it grew by 5% to US$46bn. Sustainable bonds continue to dominate the sustainable finance market, accounting for 71% of global sustainable finance issuance, and 62% in Australia and New Zealand. According to Bloomberg, the share of sustainable bonds to total bond issuance has climbed to 4.7%, up from 3.6%.
Sustainable Bonds
- In 2024, green bonds captured 75% of total issuance across the Sovereign, Financials, and Corporates categories, growing by 6% from the previous year to reach US$688bn. Notable issuances included Sovereign Green Bonds from Italy (€9.7bn), France (€8.7bn), and the Australian Office of Financial Management's (AOFM) inaugural A$7bn Green Treasury Bond in June. Globally, renewable energy and clean transportation remained the preferred categories for the use of proceeds.
- Sustainability bond issuance reached US$251bn in 2024, reflecting a 27% year-on-year increase. Governments and Supranational Financial Institutions were the largest issuers, representing 72% of this total.
- Social bond issuance also rose by 8% year-on-year to US$168bn in 2024, driven by issuances from Financials, Corporates, and Municipals. Access to essential services emerged as the largest use of proceeds category, accounting for 23% of total Sustainability bond issuance and 43% of Social bond issuance.
- From their much smaller base, Sustainability Linked Bond (SLB) issuances continued to retract in 2024, falling 44% from 2023 to US$39bn, driven by increased scrutiny over structures and ambition of targets. In contrast, the transition bond label saw a significant boost, with issuances soaring to US$23bn from just US$3bn the previous year. This surge was predominantly driven by East Asia, with Japanese issuers alone contributing nearly US$22bn.
Sustainable Loans
- Sustainable loan issuance saw a year-on-year increase globally, rising by 13.5% to US$458bn, and across Australia and New Zealand, where it grew by 14% to US$17.7bn. The global market was primarily driven by Sustainability-Linked Loans (SLLs), which totalled US$272bn, up 12% year-on-year, and Green Loans, which reached US$178bn, a 15% increase from the previous year.
- SLLs remain the second most utilised labelled instrument in the market, following green bonds. In 2024, SLL issuances increased by 13% over 2023. This growth may reflect issuers appreciating the flexibility in the SLL structure, which sometimes includes less stringent disclosure of targets associated with their deals, relative to SLBs. This can help issuers manage concerns about greenwashing or anti-ESG sentiment while still promoting sustainability goals.
- In Australia, Green loans remain the sustainable label of choice (US$10.6bn), followed by SLLs (US$4.6bn).
2025 Market Forecast
- In 2025, sustainable bond issuance is projected to once again reach US$1tn1 . Despite potential headwinds, including political changes from the new US administration, this growth is expected to be driven by a continued focus on clean energy investments and the expansion of climate adaptation and nature-related projects. Macroeconomic improvements such as slowing inflation and decreasing borrowing costs are also anticipated to support this trend.
- Interestingly, Moody's does not foresee a significant decline in U.S. sustainable bond volumes in 2025. Despite reduced federal investment, this stability is expected to be maintained through increased private sector investment and support from certain state and local governments.
- Green bonds are expected to maintain their dominance in the sustainable bond market, propelled by well-defined frameworks, principles and regulations. This growth is further supported by climate mitigation initiatives, policy backing, private sector commitments, and declining costs in clean energy. Moody's also anticipates a continued diversification in green bond issuance, with increased financing directed towards adaptation and resilience projects, as well as nature-related initiatives.
- The market holds mixed views on social bond issuance volumes for 2025. Environmental Finance predicts a shift towards social bonds in the U.S. market, drive by a clampdown on green projects. Moody's, however, anticipates a decline in social bond issuance for 2025, attributing this to a scarcity of benchmark-sized projects and a reduction in pandemic-related social financing.
- Sustainability bond, SLB and Transition Bond volumes are projected to remain relatively stable throughout 2025. Noteworthy trends include:
- Transition Bonds, which emerged in 2024 with the Japanese Government’s inaugural US$11bn issuance, are expected to remain predominantly issued by Japan, with potential for growth driven by diversification to other issuers.
- SLB’s are anticipated to grow yet remain significantly below 2021-2023 levels, as the market faces ongoing scrutiny regarding the credibility and robustness of the bonds’ linked sustainability targets.
- Regionally, Europe is forecast to maintain its dominance with projected volumes of US$465bn in 2025 followed by the Asia-Pacific region.
- In Australia, the labelled bond market has seen a robust start in 2025, with A$12bn of supply year-to-date, anchored by an active Supranational, Sub-sovereign, and Agency sector (A$8.5bn) and strong transactions from New South Wales (A$1.5bn) and South Australia (A$2bn). In scale and composition, this mirrors the beginning of 2024, with attention now turning to the corporate reporting season and potential follow-on supply.
Notable Sustainable Finance Transactions in Q4-2024 in Australia
- In the final quarter of 2024, a surge of sustainable finance deals filled bank balance sheets, investor portfolios and cleared Treasury desks. Notable transactions included inaugural issuance from Levande’s A$1.5bn Sustainability-Linked Loan, the largest SLL in Australia’s retirement sector and BCI Minerals’ A$331m Green Loan. Frequent issuers also contributed, with the South Australian Government Financing Authority issuing a A$2.0Bn Sustainability bond and NSW TCorp a A$1.5bn Sustainability bond. Refinances from familiar names such as G8 Education Ltd Sustainability-Linked Loan, ColCap’s Triton 2024-3 Glass A10AU-G Green Bond were prominent, with Westpac acting as Sustainability Coordinator or Lead Manager for all the above deals.
- Amidst this wave of sustainable finance activity, two large, standout deals from the Australian REIT sector captured significant attention: Charter Hall’s A$3.35bn Green Loan and QIC’s A$3.75bn Sustainability Linked Loans, , both closing just before the festive season. Charter Hall’s A$3.35bn Green Loan, from its flagship Charter Hall Prime Office Fund, added to its platform-wide sustainable finance portfolio of over A$9bn, exclusively within the office sector. Westpac led the transaction as a joint Mandated Lead Arranger, Underwriter, and Bookrunner. Meanwhile, QIC converted A$3.75bn of standard loans into Sustainability-Linked Loans for two of its largest real estate funds—the QIC Property Fund and the QIC Town Centre Fund. These loans incorporate KPIs addressing the funds’ greenhouse gas emissions (scope 1, 2, and 3).
- Earlier in the quarter, Westpac played a pivotal role as Joint Lead Manager in Energie Baden-Wurttemberg AG's inaugural Kangaroo A$1.0Bn Green Bond transaction, supporting the German-based integrated utility business to achieve their climate transition commitment to carbon neutrality by 2035. While the success of the transaction was driven by the detailed framework, use of proceeds, and reporting, it was the comprehensive investor engagement, highlighting EnBW’s overarching strategy and the alignment between their funding and its environmental and social commitments, that set a new standard. This approach has since become a blueprint for subsequent issuers, particularly as investors increasingly focus on ‘whole-of-issuer’ analysis.
Sustainable Finance News
Australian Sustainable Finance Taxonomy Update and 2025 Release
The second and final round of public consultation on the development of an Australian sustainable finance taxonomy closed in December 2024, with the initial Australian taxonomy for climate mitigation expeced to be released by mid-2025 as outlined in the Government’s sustainable finance roadmap. The six priority sectors include: electricity generation and supply; minerals, mining and metals; buildings; manufacturing and industry; transport; and agriculture and land use.
Simplification of sustainable finance legislation and reporting in Europe
The discussion around simplification of EU sustainable finance legislation continues, with discussion on an omnibus legislative proposal expected by the end of February 2025. This proposal represents the latest effort to streamline various aspects of the EU’s sustainable finance legislation. It follows earlier European Commission announcements to reduce reporting obligations in the EU by at least 25% in general and by 35% for SMEs. ICMA released their Commentary and recommendations for the simplification of the EU Sustainable Finance legislation in February 2025, with 5 key recommendations for “bold reforms and modifications to EU sustainable finance legislation”.
Transition Finance
The evolution of transition finance also continues to gain momentum. In October 2024, the UK government released its Transition Finance Market Review, an independent assessment providing a framework and recommendations to scale the transition finance market both domestically and globally. The Loan Market Association (LMA) is also advancing its work on transition guidelines, while Japan has announced plans to update its transition finance guidelines in 2025. Additionally, the latest draft of the Australian Sustainable Finance Taxonomy includes transition criteria where applicable. These developments signal ongoing progress and will be closely watched throughout 2025.
Sustainable Finance Guidance Updates
Several key bodies governing sustainable finance have recently issued important updates:
- The Loan Market Association published draft provisions for Green Loans in Nov 2024
- ICMA updated its Guidance Handbook for the Principles in Nov 2024
- ICMA published a new paper on the role of commercial paper in the sustainable finance market in Oct 2024
- The Climate Bonds Initiative launched the new Agriculture Criteria in Oct 2024
The Big Conversations – COP29 & the World Economic Forum
For a summary on the key outcomes from COP29, refer to our December 2024 ESG Impact. Insights from the World Economic Forum's annual meeting in Davos can be found in our January 2025 ESG Impact.
Other key updates featured on Westpac IQ this quarter include:
- Mandatory climate reporting: What do you need to know?
- Understanding nature impact and dependencies may be easier than you think
Sustainable Finance Spotlight
Climate Adaptation & Resilience
While much attention has been given to climate mitigation within sustainable finance, it is also important to consider climate adaptation and resilience projects. These initiatives focus on enhancing the resilience of assets or systems in response to climate change. Examples include the construction of sea walls and the implementation of flood prevention systems.
Over recent years, the allocation of proceeds to climate adaptation projects within green and sustainability bonds has steadily increased. This trend reflects a growing understanding of the complex impacts of climate change, an increasing sophistication among companies, issuers, and investors, and an expansion of accepted definitions and eligibility criteria for financed projects. These projects can be eligible for sustainable finance, though instruments such as green bonds or loans.
Project selection criteria are guided by several taxonomies and guidelines, including the Climate Bonds Initiative's (CBI) Climate Resilience Principles, ICMA Green Bond Principles (GBPs), the EU Sustainable Finance Taxonomy, and the Multilateral Development Bank (MDB) Joint Methodology for Tracking Climate Change Adaptation Finance.
The choice of guidance depends on the issuer's jurisdiction and targeted investors, however the CBI's Climate Resilience Principles offer the most detailed guidance and support. It is also recommended that climate resilience investments align with local strategies and targets, with sovereign Green Bond Frameworks providing useful direction on national adaptation imperatives.
Events
KangaNews Sustainable Debt Summit
To stay infomed on the latest developments in sustainable finance, we invite you and your team to the KangaNews Sustainable Debt Summit in Sydney.
The Summit has built a strong reputation as the leading forum for sustainable finance market participants in Australia and beyond. It attracts a diverse array of participants, including corporate, financial, and government sector borrowers, institutional investors, policymakers, and service providers. It provides a platform to discuss market developments, share insights, and build connections. We look forward to seeing you at this event.
Climate Action Week Sydney
Returning for its second year, Climate Action Week Sydney (CAW.SYD) will take place in March, featuring a series of community-led events across Sydney that encompass all aspects of the climate action ecosystem.
The Sustainable Finance Team Recommends
Have a few more minutes? Our recent interview with Hannah Paterson from Westpac New Zealand Sustainable Finance offers valuable insights into the global and New Zealand perspectives on sustainable finance. It's a conversation filled with hope, optimism, and data! We hope you enjoy.
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