Over the past five years, sustainable bonds have become an important force in capital markets. By 2024, the outstanding amount of corporate sustainable bonds reached USD 2.4 trillion – 7% of all outstanding corporate bonds – while in the official sector the outstanding amount totalled USD 2.2 trillion, representing 3% of all bonds issued by governments, agencies and multilateral institutions. Green bonds have been the predominant form of sustainable bond issuance across sectors throughout the past decade, and Europe accounts for half of all issuance.
The development of the market is encouraging. When proceeds fund projects that deliver real environmental and social benefits at reasonable cost, both investors and society win. But realising these benefits depends on regulatory frameworks and institutional arrangements that ensure markets work efficiently and protect investor interests.
Based on analysis of global sustainable bond market, the OECD identifies five key actions policymakers and regulators could consider to safeguard investor interests while supporting the continued development of the sustainable bond market.
Regulatory authorities should encourage the interoperability of sustainable bond standards and taxonomies across borders
Sustainable bonds are still new instruments, but the standards and taxonomies around them emerged quickly in the market. Standards provide rules or guidelines that foster consistency against a benchmark, while taxonomies classify economic activities by providing a common definition of what counts as a “sustainable” activity.
Although most issuers follow principles developed by the International Capital Market Association (ICMA), regional and national standards are emerging, resulting in a fragmented global standard landscape. Similarly, various taxonomies are used to classify bonds as sustainable. Strengthening interoperability among the existing frameworks would help investors compare bonds across markets while reducing excessive complexity for issuers operating internationally.
Regulatory authorities could work with standard-setters to improve comparability between national, regional and international frameworks. This could be informed by scientific evidence and public policy objectives, while recognising that what works for the official sector may not suit corporate issuers, and vice versa. Differences in issuer capacity and economic development across jurisdictions should also be considered.
The disclosure of sustainability-related metrics relevant to holders of sustainable bonds should be reliable, consistent, and comparable
Investors need trustworthy information to assess whether their money is being used as promised. For use-of-proceeds bonds, this means knowing if funds went to the intended environmental or social projects. For sustainability-linked-bonds, it means tracking issuer performance against specific targets. Disclosure should follow internationally recognised disclosure standards and be assured by independent, qualified attestation service provider. For use-of-proceeds bonds, investors should receive transparent, project-specific information annually – though less frequent disclosures may be appropriate when data collection costs are excessive.
Between 2015 and 2024, corporate issuers primarily directed proceeds towards “clean energy” and “green buildings”, while governments and multilateral institutions focused on social expenditures. Yet OECD analysis reveals that, on average, 4% of corporate sustainable bonds and 5% of official sector bonds allocate proceeds to a “general purpose” category. This creates an investment scope with no clearly defined sustainability objective – undermining the bond’s purpose and investor confidence. Clear disclosure ensures allocation commitments remain credible.
Standard-setters and regulatory authorities may consider the extent to which refinancing concluded projects using the proceeds of green, social and sustainability bonds should be allowed, and if so, what the appropriate disclosure practices should be
Should issuers be allowed to use sustainable bonds proceeds to refinance completed projects? This practice creates a gap between capital raised and new investment in eligible projects – a distinction many investors may not recognise. It may also limit the sustainable bond market’s ability to improve the environmental and social impact of issuers.
Among 88 use-of-proceeds bonds issued between 2017 and 2024, three-quarters explicitly allowed refinancing in their legal documentation. Yet none disclosed the planned split between financing new projects and refinancing existing ones, despite ICMA recommendations.
One possible solution is to require issuers to state upfront in offering documents how proceeds will be divided between financing and refinancing. This would give investors clarity and ensure sustainable bonds have an actual impact.
Key service providers, such as second party opinion providers, may warrant treatment comparable to that of external auditors and credit rating agencies
Second party opinions – independent assessments of whether a bond aligns with sustainability standards or taxonomies – have become a common practice. In 2024, 81% of corporate sustainable bonds and 69% of official sector bonds used these services, up from previous years.
These service providers play a role similar to external auditors and credit rating agencies, and they face comparable conflicts of interest. Issuers hire and pay the firms meant to provide independent assurance – a relationship that can create conflicts of interest.
Given their importance to market transparency and credibility, second party opinion providers may need to be treated in the same way as auditors and rating agencies. Specific codes of conduct, regulation or supervision could help manage conflicts of interest and protect the public interest.
Institutions setting stewardship codes may consider adopting guidance on institutional investors acquiring sustainability-linked bonds, including the importance of analysing whether they have ambitious sustainability-related performance targets
Sustainability-linked bonds can be powerful tools for aligning investors’ sustainability-related preferences with real-world impact – but only if the targets are ambitious.
Analysing the legal documentation of 57 sustainability-linked bonds, all but three had the same consequence for missing sustainability performance targets: a coupon rate increase, typically up to 25 basis points. If targets are insufficiently ambitious or rate increases are low, these bonds function as conventional debt – they do not influence the issuer’s decision-making process or deliver sustainability impact.
Institutional investors need to assess whether targets are effective. Stewardship codes can complement regulation, encouraging institutional investors to monitor targets and engage with companies.
Supporting credible growth
The sustainable bond market has developed rapidly and attracted significant capital. But continued growth depends on credibility. Inconsistent standards, opaque disclosure and weak oversight risk undermining investor confidence and diluting environmental and social impact.
The five recommendations outlined here aim to protect investors while supporting healthy market development. By harmonising standards, strengthening disclosure, clarifying refinancing practices, addressing conflicts of interest and encouraging investor stewardship, policymakers can help ensure sustainable bonds deliver on their promise.
