Sustainable Finance Market Update Q2 2026

By

Charlotte Plaisant Millecamps

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,

Kaitlin Edwards

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&

Welcome to our Q2 2026 Sustainable Finance Market Update, which also includes a two-minute video highlighting key developments across the sustainable finance landscape. In this edition, we review first-half market activity, highlight notable sustainable finance transactions and explore how sustainability-linked and use-of-proceeds financing are supporting the continued evolution of Australia's Living sector. We also reflect on a quarter that saw the Federal Budget handed down and important regulatory and policy developments for the sustainable finance market.

Market recap - Q2 2026

Figure 1 – Global Sustainable Finance Issuance by Year. Source: Bloomberg/Westpac

Figure 1 – Global Sustainable Finance Issuance by Year. Source: Bloomberg/Westpac

Figure 2 – Australian Sustainable Finance Issuance by Year. Source: Bloomberg/Westpac

Figure 2 – Australian Sustainable Finance Issuance by Year. Source: Bloomberg/Westpac

Global sustainable debt issuance reached USD 846bn in the first half of 2026, continuing the strong momentum seen across labelled debt markets over the past few years. Australia recorded a record first half, with sustainable debt issuance reaching USD 37.5bn, up from USD 32.4bn in H1 2025 and well above historical levels. However, the market remains increasingly two-speed in nature. Sustainable bond issuance continues to grow, while sustainable loan volumes remain subdued relative to historical levels. Much of this divergence reflects the moderation in Sustainability-Linked Loan issuance, which has not recovered to the levels observed during 2021 and 2022, while Green and Sustainability Bond issuance continues to underpin volumes across labelled loan markets.

Sustainable Bonds

Globally, sustainable bonds continued to dominate overall issuance, accounting for almost 90% of total sustainable debt volumes during H1 2026. Sustainable bond issuance reached a record USD 735bn, supported by strong activity across Green, Social and Sustainability Bonds.

Green Bonds remained the largest labelled debt product globally and in Australia.
Social Bond and Sustainability Bond issuance also remained strong, contributing to record global sustainable bond volumes.
Australian sustainable bond issuance reached USD 24bn in H1 2026, reflecting continued demand for labelled bonds and a healthy pipeline of domestic and Kangaroo issuance.

Sustainable Loans

While sustainable debt markets reached new highs, sustainable loan issuance remained subdued relative to the peaks observed during 2021 and 2022.

Global sustainable loan issuance totalled USD 110bn during H1 2026, down on previous years and almost half of 2025 volumes.
Green Loans remained the dominant loan sub-label globally and in Australia.
Australian sustainable loan issuance totalled USD 6bn in H1 2026, with Green Loans accounting for the majority of activity and Sustainability-Linked Loan issuance continuing to moderate.

Themes and Trends

Renewable energy remained a dominant theme across green bond issuance in the first half of 2026, alongside continued activity in green buildings and clean transportation. Together, these three categories accounted for more than 60% of green bond use-of-proceeds allocations, underscoring the continued focus on established decarbonisation sectors. From a regional perspective, Europe, the Middle East and Africa had a particularly strong start to the year, representing approximately 40% of total labelled issuance across H1 2026. Despite record sustainable debt volumes, labelled debt as a share of total market issuance has remained relatively steady around the 5% mark, recording 4.6% in May.

Notable Sustainable Finance Transactions - Q2 2026

The Living Company: Retirement Living Core Fund – Sustainability-Linked Loan

The Living Company, home to Scape, Aveo and BTR, established a Sustainability-Linked Loan for the Retirement Living Core Fund, Australia’s second-largest retirement village portfolio, spanning 67 villages and approximately 10,400 operational units. The SLL is linked to portfolio-wide sustainability targets aligned to the fund’s operating profile, including Green Star Performance ratings, emissions and energy efficiency, biodiversity projects and resident mental health outcomes. The transaction is supported by a Second Party Opinion from DNV Australia, which confirmed alignment with the Sustainability Linked Loan Principles. Sustainable Finance is a known path for The Living Company, who also delivered on a AUD2.8bn SLL for their Scape Core Fund in December 2025. Check out this quarter’s Spotlight below for a deep dive on the ever-expanding living sector.

Westpac acted as a Joint Sustainability Coordinator.

Vena Energy – Green Loan

Vena Energy has secured approximately AUD1.4bn in green financing facilities to support solar and battery energy storage assets across Australia. Structured across two transactions, the facilities combine greenfield funding and refinancing of existing facilities. Proceeds will support operational and under-construction solar capacity and battery storage across the Tailem Bend and Wandoan South precincts in South Australia and Queensland, as well as battery storage assets in New South Wales. The financed solar assets are expected to generate enough renewable power to supply the equivalent annual electricity needs of approximately 198,000 Australian households.

Westpac acted as a Joint Green Loan Coordinator.

Australian Office of Financial Management (AOFM) – Green Bond

The AOFM recently printed its second Green Treasury Bond, following the inaugural Green Bond in 2024. The new AUD7.5bn bond saw strong offshore and domestic demand across a broad range of investors, with orders exceeding three times the trade volume.

Notably, a number of domestic investors participated, with several acknowledging allocations to label specific (green) mandates. The AOFM now has AUD17.5bn of green bonds on issue as it continues to fund projects across the eight eligible ICMA categories. Ahead of the transaction, the AOFM released its updated Allocation and Impact Report in March 2026, covering FY2024-25, which put cumulative allocation at AUD9bn.

Westpac acted as a Joint Lead Manager

BPCE SA – Social Bond

One of France’s largest banks BCPE SA returned to the Australian market in May, with a dual-tranche AUD1.4bn transaction, including a AUD400m "Local Economic Development" (LED) social label tranche. With a strong orderbook lead by key domestic investors, the LED tranche will support financing to BPCE’s Social Funding Framework, specifically targeting conservation and creation of employment by financing and refinancing loans to small & medium enterprises and non-profit entities that benefit people living or working in economically and socially disadvantaged areas across France.

Westpac acted as a Joint Lead Manager.

OCBC – Green Bond

June also saw an offshore bank hit the Kangaroo market with OCBC (via its Sydney branch) printing AUD1bn of Green Bonds. Like the AOFM and BCPE SA trade, the transaction saw strong order demand, with closing bids exceeding AUD3.7bn well spread across domestic and offshore investors. Net proceeds will be applied to eligible green assets under OCBC's Sustainability Bond Framework, spanning renewable energy, green buildings, clean transportation and pollution prevention. OCBC's most recent allocation reporting demonstrates a strong track record under the framework, with ~AUD1.08bn allocated across eligible assets ranging from green buildings and renewable energy in Australia and Singapore, supporting an estimated ~189,000 tonnes of avoided CO₂e emissions annually.

Westpac acted as a Joint Lead Manager.

Sustainable Finance Spotlight - The Living Sector

Housing, housing and more housing. That has been the consistent message from governments, financial institutions and community groups over the past few years. The housing dream is an Australian cultural ideal that places homeownership at the heart of housing security, built on decades of post-war suburban development. A range of factors, including rising prices relative to wages, changing demographics and an emerging investor class, has placed this dream under increasing pressure for many Australians.

In response to these pressures, and against the backdrop of growing populations in Australia's capital cities, new sectors have emerged with innovative ways to house our neighbours. The Living sector incorporates Purpose-Built Student Accommodation, Retirement Living, Affordable and Social Housing and Specialist Disability Accommodation and supports an increasing number of Australians across a range of housing models.

It is generally accepted that Australia faces a structural undersupply of homes. Demographic changes resulting from an ageing population, growing student numbers and households seeking alternative or more affordable options, continue to drive demand. This is one of the reasons Westpac has identified Housing Affordability as a key Sustainability Focus Area, with attention on new housing supply, alternative pathways to ownership and availability for underserved communities.

As Australian capital cities (particularly Sydney, Melbourne and Brisbane) become denser and as the market moves away from single-dwelling homes toward integrated living solutions, the case for thoughtfully designed housing and a broader range of choice for residents becomes more important. These changes in living habits have reinforced the growing role of the Living sector in Australia's housing mix. Governments have also stepped back from direct development and construction, with private and institutional capital now underpinning the bulk of new housing supply. Instead, Government focus has shifted to stimulating supply through initiatives such as the Housing Australia Future Fund, planning and development concessions for affordable and social dwellings and funding through the National Disability Insurance Scheme. This is where institutional capital directed into the Living sector, backed by Sustainable Finance labels, could deliver a growing number of sustainable, resident-centred options for more Australians.

Housing sits at the intersection of two of the most important themes globally: the energy transition and social inclusion. That position makes it uniquely well placed to benefit from Sustainable Finance; supporting capital flows to Living sector developers across a varied selection of dwelling options, with the intention of delivering on environmental objectives while meeting a growing social need.

Westpac has been proud to support a number of valued partners in the sector, including:

Joint Sustainability Coordinator for the Retirement Living Core Fund's inaugural Sustainability-Linked Loan, tied to clear environmental and social targets.
Sole Sustainability Coordinator for Eureka Group, supporting affordable housing options as well as the financing of green upgrades within those villages.
Green Loan Lender for Keyton, financing green buildings that meet energy efficiency standards, in support of its ambition to be 'Australia's most sustainable retirement village'.
Joint Lead Manager for ColCap Financial Group's social Residential Mortgage-Backed Securities issuance, with a tranche dedicated to financing Specialist Disability Accommodation.

These transactions highlight that sustainable finance can be layered throughout different Living sector financing structures, with a consistent focus on driving sustainability outcomes alongside addressing the broader social challenge of housing supply and affordability.

Looking ahead, international experience suggests further innovation will continue to evolve within the Australian context as alternative housing models prove out their position in the market. The small but growing Build-to-Rent pocket of the property landscape is gaining ground in Australia, although it remains behind the more mature markets in the United Kingdom, Europe and the United States. With this growth comes embedded sustainability outcomes that can also benefit residents financially. Increasingly, BTR developments are fossil fuel free and include rooftop solar installation, improving building energy efficiency, reducing emissions and can reduce ongoing costs for residents.

Further pockets of innovation emerge when holistic, place-based approaches to long-term economic and social value creation are combined. Renewable energy developers and community housing providers, for instance, have partnered to deliver an affordable housing initiative that links renewable energy investment with longer-term community housing outcomes.

Building on this momentum, Westpac convened a CEO Roundtable to explore ways to support additional supply and drive sustainable growth within the sector.

As demand for housing in Australia's capital cities continues to grow, rethinking how intentional and affordable homes are delivered will be central to the response. Collaboration between governments and the Living sector points to innovation that can provide more residents, young and old, and families, with better designed, energy efficient and affordable housing for the future. By placing sustainability at the heart of this design, whether through energy efficient buildings financed via Green Loans or sustainability upgrades supported by Sustainability-Linked Loans, the great Australian dream may be ready to be reimagined.

Sustainable Finance News

SLB 2025 reporting: a mid-stream analysis of this watershed year

A recent analysis of 2025 sustainability-linked bond reporting highlights an upcoming test for the market, with the largest cohort of SLBs now reporting against target observation dates. Of 282 bonds reviewed, 151 have reported, representing 68% of outstanding volume. Positively, 84% of SLBs by volume have met all targets, although 20% by count recorded at least one miss. The analysis also points to emerging patterns, including higher miss rates among smaller issuances, bonds with larger coupon step-ups and energy sector issuers. Overall, the findings provide a status check on SLB performance and target calibration.

Extension to ASIC position on Second Party Opinion providers

ASIC has extended its no-action position for Second Party Opinion (SPO) providers until June 2028. The relief means that SPO providers will not be required to hold an Australian Financial Services Licence when providing SPOs that involve general financial product advice to wholesale clients only.

For sustainable finance markets, the extension provides continued regulatory certainty for issuers seeking external review of green, social, sustainability and sustainability-linked frameworks or instruments. ASIC noted that the extension allows further consideration of how mandatory climate reporting developments may affect these services. The decision reinforces the role of independent external review in supporting market integrity and credible sustainability claims, particularly as the SPO market continues to evolve following Sustainalytics’ recent exit.

New standard for scienced backed standards

The Science Based Target Initiative (SBTi) has released an updated Corporate Net-Zero Standard (V2.0) that strengthens requirements on implementation, transparency and ongoing accountability for emissions. The June 2026 update moves the focus from target-setting to delivery by embedding decarbonisation into core business decisions. The update also introduces a range of approaches to tracking progress and demonstrating real-world emissions reductions.

SBTi develops methodologies and validates corporate emissions targets to ensure alignment with a 1.5°C pathway under the Paris Agreement. Established in 2015, it provides companies with a consistent framework for setting and verifying credible climate targets, now adopted by more than 11,000 organisations worldwide.

Federal Government and Sustainable Finance

The Australian Federal Government handed down the 2026-27 Federal Budget in May. From a sustainability and sustainable finance perspective, key callouts included:

Climate-related financial disclosures: funding was included to support implementation of Australia’s mandatory climate reporting regime, with some timing and transition adjustments.
Household electrification: the Cheaper Home Batteries Program was extended, supporting residential battery uptake and distributed energy storage.
Electric vehicles: changes were made to EV incentives despite continued growth in Australian EV sales. The Government will begin a phased decrease in the subsidy from 2027, winding down the popular policy that was first introduced to incentivise the uptake in electric vehicles.
Nature and regulation: funding was included for the establishment of a National Environmental Protection Agency, following recent reform of the Environmental Protection and Biodiversity Conservation Act.
Transition investment: continued funding was provided under the Future Made in Australia initiative, including for the National Reconstruction Fund Net Zero Fund, low-carbon liquid fuels, the Boyne Island aluminium smelter and Australia’s co-hosting role for COP31.

Australia endorses ‘Electrify Now’ movement, joining a global coalition to meet 2035 electrification target

Australia has joined a global push to accelerate electrification, endorsing the “Electrify Now” initiative and backing a new target to lift electricity’s share of global energy use to 35% by 2035 (from around 21% today). The commitment announced alongside international partners including the European Commission, UK and Türkiye, aims to reduce reliance on fossil fuels and strengthen energy security. Electrification across transport, buildings and industry is seen as a key lever to cut emissions and stabilise energy costs. The initiative is supported by analysis conducted by the International Energy Agency and the International Renewable Energy Agency and will also promote investment, grid upgrades and clean energy deployment to support the transition.

Australian Electric Vehicles reach new highs

Australia’s electric vehicle market hit a new milestone in May and June, with EVs accounting for one in four new car sales, recording the highest monthly share on record. Combined with hybrids and plug in hybrids, electrified vehicles made up around half of total sales, reflecting a change in consumer preferences and continued conflict in the Middle East. The most popular class amongst Australians, SUVs, saw petrol and diesel sales volumes fall sharply, while plug in hybrid volumes surged and the Tesla Model Y retained its place as Australia’s most popular new car. This strong growth has been supported by increased model availability, particularly from Chinese manufacturers and ongoing heightened fuel security concerns with drivers.

The growth in EV adoption is also being reflected in sustainable finance markets. In July 2025, FleetPartners completed a AUD$400m Australian asset-backed securitisation, which included a dedicated green tranche to exclusively fund leases for electric vehicles. Westpac acted as a Joint Lead Manager on the transaction.

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