Global sustainable finance market looks past volatility
The conversation may have shifted but investors worldwide still want green, says Climate Bond Initiative CEO Sean Kidney.
While headline growth remains strong, the sustainable finance market is evolving unevenly across regions and products, shaped by shifting policy priorities, geopolitical uncertainty and differing levels of issuance.
At a recent Sustainable Finance Breakfast hosted by Westpac Institutional Bank, Sean Kidney, the Co-Founder and Chief Executive of the Climate Bond Initiative likened the current political climate to choppy water.
But “the currents are still going in the same direction, and the currents of sustainable finance are still going in the same direction,” he says.
For example, the largest public pension fund in the US, the California Public Employees' Retirement System known as CalPERS, “is still investing in exactly the same way,” Kidney notes.
In Asia, green finance is booming. In Singapore it’s growing strongly and in China issuance was up by more than 50 per cent last year. “In fact, across the whole of Asia, from India to Japan, I never hear anyone talking about the US in a sustainable finance context. That's not even mentioned,” Kidney said.
In recent years, governments around the world have shifted focus from climate action to affordability initiatives in response to public demands. In reality, this impacts clean energy anyway, including through support for home solar panels and batteries.
A recent drop in the wholesale cost of power – by 47 per cent – has widely been attributed to the Australian Government’s support for home batteries, and rooftop solar continues to strongly grow everywhere, even in the US.
The greenium growth story
Some market participants from time-to-time will claim that climate bonds no longer attract a ‘greenium’ – a price premium over other similar but not climate-related debt instruments. However, Kidney noted that the consistent story with climate bonds has been over-subscription levels, and demand from investors remains very strong. Treasurers understand the benefits of increased investor demand.
The tracking indicator for this is secondary market pricing, with premium pricing the norm for green bonds, and consequent primary pricing, where a benefit is called a “greenium”. Kidney says that every few years a banker will tell him that the greenium is disappearing – and then someone like France’s Société des Grands Projects will announce another EUR 1 billion climate bond (to support an all-electric metro project in Paris) that’s 17 times oversubscribed. Pricing benefit follows.
For example, in October last year the Tokyo Metropolitan Government priced a EUR 300m five-year Climate Bonds Certified resilience-labelled bond, achieving a seven-times oversubscription and a five basis points greenium.
“Investors still want these bonds. When I talk to investors all around the world, they all say their biggest problem is supply – getting access to more green bonds. This applies in Canada, the US, Japan, China and Europe” Kidney said.
The climate bonds market continues to expand rapidly. It took 13 years for the first trillion US dollars of climate bonds to be issued and then six years to hit USD 7 trillion – in 2025. And Kidney said the market is on track to hit USD 8 trillion of issuance some time in August or September this year, a number he described as “proof of concept”.
Australian sustainable debt issuance reached record levels for a first half of a calendar year, hitting USD 37.5 billion in the six months to June, Westpac’s June quarter Sustainable Finance Market Update revealed.
The report noted that Australia’s sustainable finance market continued at two speeds, where sustainable bond issuance continues to grow, while sustainable loan volumes remain subdued relative to historical levels.
From ambition to implementation
Linh Quach, Director, Sustainable Finance – Debt Products at Westpac Institutional Bank, agreed that the market had remained resilient even as energy security and geopolitical uncertainty continue to test climate commitments.
“The sustainable finance market is at an inflection point, whereby the market shift is from ambition to implementation, and sustainable finance to me is just no longer about ethical investing. It is directly connected to risk management, resilience, and long-term value creation,” she told attendees at the breakfast.
The sustainable finance market in Australia has expanded its breadth and is no longer just focusing on emissions. “We are increasingly seeing interest driven around supply chain improvement, nature, water resilience and adaptation,” she says.
Michael Chen, Group Head of Sustainability at Westpac, outlined the bank’s broad approach to the attendees at the event. This encompasses three key sustainability focus areas - climate transition, housing affordability and regional prosperity.
“We're not engaging with sustainability as a standalone concept,” Chen says. “Instead, sustainability is seen as an enabler for things such as affordability. If we're helping customers with their affordability, if we're helping them with their resilience, whether it's business resilience or climate, that's what really resonates when we're talking about sustainability."
Running with resilience
Kidney highlighted that climate bonds are now being issued to help nations build resilience to the effects of global warming.
“The real impact of climate change is not gently rising sea levels. It's a lot more heat and water in the atmosphere. If you bring heat and water, it's a bit combustible,” he notes, pointing to the recent wildfires in the European summer and flooding in other parts of the world.
Tokyo’s resilience bond, for instance, is financing a whole new system of underground waterways and reservoirs to cope with extra rainfall.
And in France, EDF (Électricité de France) is investing EUR 8.7 billion to climate-proof its French nuclear, hydropower, and island generation assets against extreme weather and warming water.
“This is capex on steroids,” Kidney says.
Australia won’t be without its own climate resilience challenges. “We need to prepare for sudden and drastic change,” Kidney says. For example, building sea walls in a suburb like Rose Bay in Sydney’s eastern suburbs might seem unnecessary today, but in five or 10 years' time, you will likely be glad they got that sorted out, he suggests.
Headquartered in London, the Climate Bond Initiative was founded in 2009 to mobilise the USD 100 trillion bond market to fund climate change solutions.
It advocates for change, collects market data, carries out research, and develops climate bond standards and taxonomies.
Powering investor confidence
Taxonomies classify which economic activities, projects or assets can be counted as “green” or “sustainable”. They play a central role in driving climate bond issuance and providing confidence in the market, Kidney says.
“The point of the taxonomy is to try and make it easy. I am pushing hard for reduced cost of transaction,” he said.
Australia's Sustainable Finance Taxonomy was released by the Australian Sustainable Finance Institute last year, with the Climate Bonds Initiative acting as a technical advisor. The initial framework covers six areas: electricity generation and supply, minerals, mining and metals, construction and buildings, manufacturing and industry, transport, and agriculture and land.
It also has a resilience working group to produce standards for climate adaption investments and actions.
Kidney says taxonomies also help to combat greenwashing by setting out clearly what can be certified as a climate or green bond, rather than letting bond issuers do it.
Summing up at the event, he concluded: “It's not as if there's a fixed playbook about this. We're developing a market which is contributing towards creating a better world.”
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