This chapter focuses on the key issues and trends in sustainable bond markets. First, it analyses sustainable bond issuance and outstanding amounts over the past ten years, for both the corporate and official sectors. It also describes the reporting standards and taxonomies used. Second, it explores the main reasons investors allocate capital to sustainable bonds; the dynamics driving issuers to use sustainable bonds; and some key elements that may affect the protection of investors.
Asia Capital Markets Report 2025
Abstract
Over the past five years, sustainable bonds have emerged as an increasingly important source of market-based financing, with global issuance by corporations in 2024 amounting to USD 522 billion and USD 473 billion by the official sector. At the end of 2024, the outstanding amount of sustainable bonds issued by the corporate and official sectors totalled USD 2.4 trillion and USD 2.2 trillion respectively. In Asia, the total amount issued through sustainable bonds by corporations and the official sector was four and seven times larger in 2020-24 than in 2015-2019, respectively.
In 2024, green bonds were the dominant type of sustainable bond issued by both corporations and the official sector with, respectively, USD 382 billion and USD 257 billion. In Asia, green bonds accounted for two-thirds of all sustainable corporate bonds and half of the official sector sustainable bonds.
Ninety-three % of the total sustainable bond issuance in 2024 used the standards developed by the International Capital Market Association (ICMA) to classify bonds. Both globally and in Asia, issuers refer to third-party taxonomies for sustainable activities or to their own classification for eligible projects. The most-often used taxonomies in 2024 were the Climate Bonds Taxonomy and China’s Green Taxonomy.
Across a sample of green, social and sustainability (GSS) bonds reviewed in this chapter, 75% of the bonds’ prospectuses mention that the refinancing of existing eligible projects with the proceeds is allowed. Additionally, no prospectus explicitly mentions that the proceeds would not be used for refinancing, nor do they refer to a contractual penalty if the issuer does not use all proceeds to finance or refinance eligible projects.
An analysis of a global sample of matched conventional and sustainable bonds shows no statistically significant evidence that sustainable bonds benefit from a premium at issuance.
The share of sustainable bonds assured by second-party opinion providers has grown in recent years, reaching 81% of corporate bonds and 69% of official sector bonds in 2024. These service providers verify whether the bond contract is aligned with a specific sustainable bond standard, enhancing investor protection.
Sustainable bonds can be classified into two major categories. “Use of proceeds bonds” are bonds whose proceeds should be used to either partially or fully finance or re‑finance new or existing eligible green, social or sustainable projects. Use of proceeds bonds include green, social and sustainability bonds (GSS bonds). “Sustainability-linked bonds” (SLBs) are bonds for which the issuer’s financing costs or other characteristics of the bond (e.g. its maturity) can vary depending on whether the issuer meets specific sustainability performance targets within a timeline, but whose proceeds do not need to be invested in projects with an expected positive environmental or social impact.
This chapter analyses the key characteristics of both categories of sustainable bonds and their implications for companies, investors, and the entities comprising the official sector (the latter category includes national and subnational governments and their agencies, as well as multilateral institutions).
Over the past five years, sustainable bonds have become an important source of market-based financing for both the corporate and official sectors. Globally, companies issued USD 522 billion in sustainable bonds in 2024, while the official sector issued USD 473 billion. The total amount issued through corporate sustainable bonds was four times larger in 2020-24 than in 2015‑2019. Similarly, the amount issued by the official sector in the last five years was five times larger compared to 2015‑2019. Globally, in 2021, a record amount of USD 728 billion was issued by corporations, of which 58% was issued by non‑financial companies (Figure 4.1, Panel A). Corporate issuance fell slightly in the following two years, only to slightly rebound in 2024. Sustainable bonds issued by the official sector reached the record amounts of USD 599 billion in 2021 and USD 473 billion in 2024 (Figure 4.1, Panel B).
Sustainable bond issuance in Asia has followed global trends. Corporate issuances grew fourfold in the region over the past five years (2020-24) and the official sector issuance grew sevenfold. Notably, Asian companies issued USD 145 billion in 2024, accounting for 28% of the global sustainable bond issuance. Mirroring global trends, non-financial companies are the most active issuers of sustainable bonds in Asia, accounting for 58% of regional corporate issuance. In the official sector, sustainable bonds issued in Asia amount to USD 87 billion, representing only 18% of the global issuance. In this case, 60% of sustainable bonds were issued by agencies and local governments, just over one-third by central governments and the remaining 2% by multilateral institutions.
Global sustainable bond issuances have increased sharply since 2020, both in the corporate and official sectors
Note: In Panel B, agencies and local governments include national government agencies (e.g. KFW), local governments (e.g. Prefecture of Shiga), and national development banks (e.g. Brazilian National Development Bank). The category Multilateral Institutions includes organisations formed by three or more jurisdictions (e.g. International Finance Corporation) and the European Union.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
In 2024, the global outstanding amount of sustainable bonds issued by the corporate sector totalled USD 2.4 trillion against USD 2.2 trillion by the official sector. The outstanding amount of sustainable bonds issued by the non‑financial corporate sector accounted for USD 1 294 billion, representing 8% of the total stock of corporate bonds. Financial companies’ outstanding amount of corporate bonds totalled USD 1 121 billion, which is 6% of the outstanding amount of all bonds issued by financial companies (Figure 4.2, Panel A).
The outstanding amount of sustainable bonds issued by Asian companies was USD 572 billion at the end of 2024, of which non-financial companies issued 56%. The use of sustainable bonds by corporations has been growing rapidly and they now account for 8% of all outstanding non-financial corporate bonds and 4% of all outstanding financial corporate bonds in the region. The stock of bonds issued in Asia accounts for 24% of the global sustainable bond market. This share is similar to Asia’s contribution to the global bond market as a whole, including both conventional and sustainable bonds.
The global outstanding amount of sustainable bonds issued by the official sector in 2024 reached USD 891 billion for agencies and local governments, USD 718 billion for multilateral institutions and USD 612 billion for central governments (Figure 4.2, Panel B). When examining the proportion of sustainable bonds within the total outstanding bonds issued by the official sector, multilateral institutions are the most active issuers, with sustainable bonds making up 34% of total issuance. In contrast, sustainable bonds represent 8% of the outstanding bonds from agencies and local governments, whereas only 1% of bonds issued by central governments are labelled as sustainable.
In Asia, the outstanding amount of sustainable bonds totalled USD 244 billion in 2024, of which 61% corresponds to bonds issued by agencies and local governments (2% of all outstanding bonds issued by Asian agencies and local governments). The outstanding amount of official sector bonds in Asia accounts for 11% of the official sector’s global outstanding amount. This share is roughly half, in percentage terms, of Asia’s overall share of the global total of outstanding bonds (25%).
Multilateral institutions are the most active issuers, with 34% of global outstanding amounts
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Asian corporate sustainable bond issuance represents a significant 30% of global issuance over the last 10 years (Figure 4.3). However, the official sector lags behind other regions in the use of sustainable bonds. In particular, central governments in Asia have made little use of the sustainable bond market. Europe has been the most active region in the use of sustainable bonds. From 2015 to 2024, 45% of the global amount issued through corporate non-financial sustainable bonds was raised by European companies. China and the United States follow with 17% and 13%, respectively. A similar trend is also observed in the financial sector, with 54% of issuances by European companies, followed by China (15%) and Asia (excluding China and Japan) (10%) (Panel A). In the official sector, sustainable bonds issued by central governments have been mainly issued by European countries (65% of global issuance by central governments in 2015-24), followed by Latin American governments (15%) (Panel B).
Corporate sustainable bonds in Asia account for one-third of global sustainable issuances
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Green bonds were the most important type of sustainable bonds issued in 2024 both for the corporate and the official sectors with, respectively, USD 382 billion and USD 257 billion globally (Figure 4.4).
Corporate green bonds accounted for almost all sustainable issuance before 2020 (92% on average). However, in the last five years, other types of sustainable bonds have increased in importance. Sustainability-linked bonds (SLBs), which were issued for the first time in 2019, reached 10% of the total sustainable issuances between 2020 and 2024. In 2024, social, sustainability and sustainability-linked bonds averaged, respectively, 9%, 11% and 7% of the total amount of corporate sustainable bonds issued. After a record issuance of SLBs in 2021 (USD 115 billion), these instruments have seen a decline in prominence in global corporate issuance, with only USD 35 billion issued in 2024 (Figure 4.4, Panel A).
The issuance of green bonds is less prevalent in the official sector, representing about half of the global amount issued in the last three years. Governments and multilateral institutions have commonly used social (22%) and sustainability (26%) bonds over the last three years (Figure 4.4, Panel B). SLBs were issued for the first time by central governments and multilateral institutions in 2022, making up only 1% of the share of sustainable bonds issued in 2023 and 2024 in the official sector.
In 2024, green bonds accounted for two-thirds of Asian sustainable corporate bond issuance, while social, sustainability bonds and SLBs accounted for 9%, 11% and 7%, respectively. In the official sector, green bonds accounted for half of the region’s sustainable bonds issued in 2024, while social bonds one-third. Sustainable bonds and SLBs took smaller shares at 10% and 1%, respectively. Green bonds were by far the most popular bond in the region in 2024. In China, for example, they accounted for 80% of sustainable bonds issued by the corporate sector and 59% of those from the official sector. In Japan, they represented 46% of corporate sustainable bonds and 62% of official sector sustainable bonds. Social bonds are widely used by official sector issuers in Asia (excl. CN & JP).
Almost 80% of sustainable corporate bonds between 2015 and 2024 were issued with a medium-term maturity, ranging from 2 to 10 years. Meanwhile, short-term corporate sustainable bond issuance (with a maturity of less than two years) remained low, accounting in 2024 for only 3% of corporate sustainable bonds.
Green bonds are the most widely used type of sustainable bond globally
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Sustainable bond issuers have shown a preference for medium-term issuances over the past decade
Note: Bonds with maturity of less than one month are excluded.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Globally, the official sector has on average issued sustainable bonds with longer maturities than those issued by the corporate sector. Indeed, while in 2024 long-term bonds accounted for 18% of the total amount issued by the corporate sector, long-term bonds by the official sector amounted to 36% (Figure 4.5, Panel A). In Asia, 89% of corporate sustainable bonds were issued with medium-term maturity in the past decade. Nevertheless, an increase of both short- and long-term issuances has been recorded since 2019 (Panel B).
Sustainable bond maturities are highly influenced by some large issuance, and therefore their maturity is less stable when compared to all bonds (including both conventional and sustainable bonds). On average, sustainable bonds issued by non‑financial corporates have a value‑weighted maturity of 12.3 years against a maturity of 9.4 years for all bonds issued by non‑financial corporations (Figure 4.6, Panel A). In contrast, sustainable bonds issued by financial corporations display on average a slightly shorter value‑weighted maturity of 6 years against 6.9 years for all bonds issued by financial corporations.
Multilateral institutions show the same maturity (8.2 years) for sustainable and all (i.e. conventional and sustainable) bonds, although agencies and local governments’ maturity averages 8.5 years for sustainable bonds and 10.1 years for all bonds (Figure 4.6, Panel B). In the case of bonds issued by central governments, since 2017 the maturity of sustainable bonds has been almost twice as long as that for all issued bonds.
Sustainable bonds exhibit greater volatility in value-weighted maturity compared to the global bond market
Note: Bonds with maturity of less than one month are excluded.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex details.
4.1.1. Corporate sector
In 2015, sustainable bonds made up just 0.6% of the total global issuance by non-financial companies (0.07% in Asia). An upward trend was observed among financial companies, where the proportion of corporate bond issuance classified as sustainable jumped from 0.6% in 2015 to 7% in 2024. By 2024, this share had risen to 11% (in Asia 10%). Compared to the previous year, the corporate issuance of social and sustainability bonds saw a significant increase in 2024 (30% and 28%, respectively). In contrast, SLBs declined, particularly in the non-financial sector, where the issuances decreased by one-third. Lastly, while green bond issuance by non-financial companies increased by 20%, it declined among financial issuers, falling 12% below the 2023 level (Figure 4.7).
In Asia, 2024 saw a sharp decline in green bond issuance in the official sector (-43%) compared to the previous year, however it showed a 16% increase in the issuance by the corporate sector. The use of other types of sustainable bonds in Asia has increased in both the corporate and official sectors over the past year, particularly sustainability bonds, following a peak in 2021.
Sustainable corporate bond issuances increased from less than 1% in 2015 to 7% in 2024
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Globally, sustainable non‑financial corporate bonds accounted for 11% of all corporate bond issuance over the 2020‑24 period, and financial corporate bonds for 7%. The share of corporate bonds that are classified as sustainable bonds is larger in some regions, including Japan, Latin America and Europe (Figure 4.8).
Corporate sustainable bond shares in Asia aligns closely with global averages
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Financial companies represent nearly half of global corporate sustainable bond issuance over 2020‑24. However, there is substantial variation across regions (Figure 4.9, Panel A). Financial companies were more active issuers in Asia (excl. CN & JP) (58%) and Europe (53%), whereas in other regions, different industries play a more prominent role. Notably, industrials represent 53% and 40% of the issuers in Japan and China, respectively. Utilities play a prominent role in Latin America (47%), the United States (37%) and Others (31%) (Panel B).
Financial and industrial sectors dominate the sustainable bond market both in Asia and globally
Note: Panel B shows the industry distribution of the issuers of sustainable bonds, whose shares are allocated by excluding financial companies. “Others” category includes consumer cyclicals, technology, healthcare, energy, basic materials, consumer non-cyclicals, utilities, real estate.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
When broken down by industry, sustainable bonds represented 31% and 28% of total corporate bond issuances by companies from the financial and utilities industries, respectively. These ratios are five times larger than the average share (6%) of all other non-financial issuances in the same year (Table 4.1). The prominence of the utilities sector in the sustainable bond market can be attributed, partly, to issuances by renewable energy companies.
Note: “Real estate” industry has been included under “Financials” for all years.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
4.1.2. Official sector
Agencies and local governments, central governments and multilateral institutions have increasingly made use of sustainable bonds, particularly since 2020. Nevertheless, while such issuances became significant for multilateral institutions, they remain relatively limited for central governments (Figure 4.10, Panel A and B). Central governments have been the least frequent issuers of sustainable bonds, reaching only 0.4% of the total amount issued in 2024. Agencies and local governments have been more regular users of sustainable bonds, averaging 9% of all issued bonds since 2020. In Asia, green bonds represent the biggest share of sustainable issuances for multilateral institutions and central governments (USD 2 billion and USD 27 billion in 2024, respectively), while for agencies and local governments the biggest share is social bonds (USD 32 billion). Sustainable bonds account for 1% (multilateral institutions), 2% (central governments) and 3% (agencies and local governments) of all bonds issued in 2024 in the region.
Globally, multilateral institutions stand out as the issuer group that relies most heavily on sustainable bonds to raise capital from the market. While up to 2017 sustainable bonds accounted for a maximum of 8% of the total amount issued through bonds by multilateral institutions, in 2020 they represented 55%. Since 2020, at least 35% of the bond issuance has corresponded to sustainable bonds (Figure 4.10, Panel C). Among all multilateral institutions, the International Bank for Reconstruction and Development is the biggest issuer, with 37% of the sustainable bonds, followed by the European Union (21%) and the European Investment Bank (12%). The International Development Association, the Inter‑American Development Bank and the Asian Development Bank accounted each for around 4% of the amount issued by multilateral institutions.
Compared to other issuer types, central governments have relied primarily on green bonds to raise capital
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for more details.
Sustainable bonds are recent instruments in debt markets. It is natural, therefore, that few jurisdictions have a regulatory or self-regulatory framework for sustainable bonds. Nevertheless, some standards and taxonomies have been developed. While standards are a set of rules or guidelines that ensure uniformity with a benchmark, taxonomies are a classification system that categorises sustainable activities. Both are commonly used by issuers to classify their bond as sustainable.
Alongside the two widely used international standards developed by private sector-led institutions, the International Capital Market Association (ICMA) and the Climate Bonds Initiative (CBI), other standards have been adopted by the market.
Notably, the ICMA published the first edition of its “Green Bond Principles” in 2014, and, in more recent years, its “Social Bond Principles”, “Sustainability Bond Guidelines” (hereinafter, “ICMA Use of Proceeds Principles” referring to the three of them) and “Sustainability-Linked Bond Principles” (all together, “ICMA Principles”) (ICMA, 2025[1]).
The ICMA Use of Proceeds Principles have four core components, recommending transparency and disclosure on (i) the use of proceeds, to be described in the bond legal documentation, (ii) the process for evaluation and selection of the eligible projects, (iii) the management and tracking of the net proceeds, and (iv) the annual reporting of the proceeds’ allocation. Moreover, the Principles allow issuers to use proceeds for refinancing eligible projects but, if this is the case, it is recommended that issuers provide an estimate of the share of financing versus re‑financing. Regarding the verification, the ICMA Principles recommend issuers to appoint an external review provider to assess whether the sustainable bond aligns with the relevant core components before issuance (known as a “second-party opinion”). Additionally, they recommend verifying the allocation of the funds after the issuance. However, issuers may still claim compliance with the ICMA Principles even without undergoing these assessments.
The five core components of the ICMA Sustainability Linked‑Bond Principles cover (i) the selection of the Key Performance Indicators (KPIs) which should be relevant, measurable and material to the issuer’s sustainability strategy, (ii) the calibration of Sustainability Performance Targets (SPTs) to be ambitious and realistic, (iii) the bond’s characteristics that will vary based of the KPIs’ performance, (iv) the annual reporting, and (v) the annual verification of the KPIs.
The CBI published the first edition of its Climate Bonds Standard (CBS) in 2012, which now covers both green and sustainability-linked bonds with climate-related KPIs (CBI, 2024[2]). The CBS provides a framework for certifying bonds that fund climate-related projects, establishing eligibility requirements for different sectors. It builds upon the ICMA Principles and notably recommends how pre- and post-issuance assurance of the sustainable bond can take place. The CBI envisages using an external assurance service provider to verify compliance with the CBS, but then certifies itself the bond as compliant after receiving such an assurance statement.
While the ICMA’s Executive Committee is composed of 24 organisations, with equal representation of investors, issuers and underwriters (ICMA, 2024[3]), the CBI’s Board comprises associations representing institutional investors and environmental non-government organisations (CBI, 2025[4]).
The ICMA Principles are the most used standard, but local standards have emerged recently
Note: The values displayed correspond to the total amount issued following different standards and taxonomies. The values indicate the standards or taxonomies a sustainable bond conforms to or is aligned with (as reported by the issuers). A single sustainable bond can exhibit compliance/alignment with one or more standards or taxonomies. Only sustainable bonds for which the issuer discloses the use of a standard and/or a taxonomy is included in the figure.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
In Asia, starting from 2021, several local principles have been used. The ASEAN Green, Social and Sustainability Standards (ASEAN Standards), the Japan Green Bond Guidelines and the China Green Bond Principle align with the ICMA Principles and emphasise transparency, proper allocation of proceeds and timely reporting.
The ASEAN Standards, while based on the ICMA Principles, introduce more prescriptive requirements in several areas. For instance, the use of proceeds must be fully allocated to eligible green projects, with some activities, such as those related to fossil fuels, explicitly excluded. The ASEAN Standards also require issuers to clearly define and disclose their project evaluation and selection criteria, as well as to establish robust internal processes for tracking the management of proceeds. The ASEAN Standards mandate annual reporting on allocation and environmental impact, whereas the ICMA Principles only recommend such disclosures. External review is strongly encouraged but not mandatory, as per the ICMA Principles, though detailed guidance on reviewer qualifications and disclosure is provided (ACMF, 2025[5]).
The Japan Green Bond Guidelines, developed by the Ministry of the Environment, also align closely with the ICMA Principles and adopt their four core components. Japan Green Bond Guidelines require issuers to allocate proceeds exclusively to eligible green projects, clearly define and disclose the process for project evaluation and selection and establish robust internal tracking for the management of proceeds. Furthermore, issuers should provide annual allocation and impact reporting. Like the ICMA Principles, external reviews are recommended rather than mandated (Ministry of the Environment, Japan, 2020[6]).
Lastly, China’s Green Bond Principles (China GBP), launched in 2022, stipulate the four core components of the ICMA Principles and, most significantly, articulate the 100% use of proceeds approach, requiring all green bond proceeds to be used for green projects. In this regard, China GBP require alignment with the Green Bond Endorsed Project Catalogue, though foreign issuers may use international taxonomies like the EU or Common Ground Taxonomy. The China GBP recommends that temporarily unallocated proceeds, which the ICMA recommends redirecting to liquid temporary investments, are placed in Chinese government bonds, policy bank bonds and local government bonds (ICMA, 2022[7]) (China Green Bond Standard Committee, 2022[8]).
Importantly, the ICMA Principles – and other standards that closely follow their framework – provide only a suggested and non-exhaustive list of broadly defined eligible green and social project categories. Issuers may typically refer to third-party taxonomies for sustainable activities or to their own classification of which projects would be eligible.
The taxonomies classify economic activities in a similar way that nomenclatures for national economic statistics and international trade do (e.g. the International Standard Industrial Classification), but taxonomies also aim at defining whether these activities are sustainable (and, in some cases, setting different levels of sustainability). For activities that may not be considered inherently sustainable, the taxonomy would normally set a level of environmental or social performance above which the activity would be reckoned as sustainable (e.g. the construction of a building certified as green according to a specific benchmark).
There are many national and international taxonomies for sustainable activities as a result of both government and market-led initiatives, including, for instance, the “Green Bond Endorsed Project Catalogue – 2021” (“China Green Taxonomy”) set by China’s central bank and the securities regulator (The People's Bank of China, 2021[9]) and the “Climate Bonds Taxonomy” developed by the CBI (CBI, 2021[10]). The taxonomies typically apply to both the corporate and official sectors, regardless of the differences in their activities.
As mentioned, the China Green Taxonomy is mandatory for all domestic green bond issuances in China and is tailored to the country’s industrial and economic priorities. While there is significant thematic overlap between the China Green Taxonomy and the EU Taxonomy, the EU sets six environmental objectives and defines social safeguards to be respected. In contrast, the China Green Taxonomy follows a sector-based and functional classification, without formally defining environmental objectives and without including criteria related to social or governance factors. Since 2021, coal-related activities have been excluded from the China Green Taxonomy, which however includes certain transition activities relevant to the national context.
In December 2023, the European Union enacted the EU Green Bond Standard (EU GBS) regulation. The EU GBS is a voluntary framework setting out criteria for the use of proceeds, which must be allocated to projects aligned with the EU Taxonomy for sustainable activities. The standard requires issuers to disclose the relevant information in the legal documentation and undergo external verification to ensure compliance. The regulation entered into force in December 2024 and allows issuers to officially label their bonds as “EU green bonds”. This explains why, at the end of 2024, no bond used the EU GBS. Interestingly, no GSS bond self-reported alignment with the EU Taxonomy. Several SLBs claim alignment with the EU Taxonomy but this is questionable as there is no commitment to use the proceeds in eligible projects.
This section explores why investors may allocate capital to sustainable bonds and key elements of the market that may affect the protection of sustainable bond investors. It also discusses the influence of sustainability-conscious investors and stakeholders, the issue of long-term financial return in a well-diversified portfolio and the role of public policies that encourage investments in sustainable bonds. Furthermore, it analyses the presence of a second-party opinion provider on global issuances, the possibility of refinancing in sustainable bond contracts, the existence of contractual penalties, and the commitment to provide annual assurance and impact reporting.
4.3.1. Incentives for investors
There are three main reasons why investors may acquire a sustainable bond rather than a conventional bond with similar characteristics. First, individual investors and clients of institutional investors may be concerned about the social and environmental impact of their investments, or face pressure from other relevant stakeholders to demonstrate such concern. Second, investors with well-diversified portfolios may consider how the externalities of the companies they invest in might affect their long-term financial return. Third, there may be a public policy that incentivises investments in sustainable bonds.
Sustainability-conscious investors and stakeholders
Individual investors can buy a bond through a brokerage firm. Arguably, in most cases, they will have neither the sophistication nor the time to assess the bond’s legal documentation and the issuer’s business in detail. In the same way that one of these investors may consult the credit rating of the issuance to assess the credit risk profile of the bond, a sustainability-conscious investor might prefer to invest in a bond labelled as “sustainable”, trusting that it will have a better social and environmental impact than a conventional bond.
Individual investors may often prefer to invest in capital markets through a professional investor, such as an asset manager or a pension fund. In this case, the individual investor will ordinarily choose among several investment vehicles that allow managers different levels of discretion on how to select assets to invest in. The mandates in these vehicles can restrict, for instance, the asset classes managers can acquire. More recently, some commit to consider environmental and social matters in the investment‑making process. In January 2024, investment funds self-labelled as “sustainable” accounted for USD 1.3 trillion, or 2.8% of the total assets under management of investment funds globally (OECD, 2024[11]).
The precise obligations of asset managers and other professional investors when selecting bonds to invest in will largely depend on their contracts with their investors. In some cases, managers may need to simply follow an index composed of sustainable bonds and, therefore, would not be able to buy conventional bonds. In most other cases, however, a mandate to consider both financial returns and the sustainability‑related impact of investments may not mean that asset managers can only acquire sustainable bonds for their fixed-income portfolio. For instance, investing in the conventional bonds issued by a company with a positive social and environmental impact may be well-aligned with the sustainability‑related goals of the asset managers. Nevertheless, it is clear that the “sustainable” label may be attractive for some asset managers with sustainability-related goals merely from a compliance perspective.
In a less direct way, insurance companies, banks and central governments may decide to invest in sustainable bonds to improve their reputation as “sustainable” or as a response to external pressure. For instance, insurance companies may invest part of their reserves in sustainable bonds in order to be able to claim that they are “sustainability‑conscious” institutions and, therefore, possibly attract more clients, even if they do not offer any product labelled as “sustainable”. As another example, banks may face pressure from civil society organisations if their credit portfolio is concentrated in high-polluting companies, which can arguably harm their reputation with environment-conscious clients and employees.
Governments and central banks may also face pressure from civil society organisations to consider sustainability‑related matters in their asset allocation decisions because citizens are de facto the final beneficiaries of government’s holdings. Central banks, which are typically the main holders of securities in the official sector, acquire (especially sovereign) bonds for two main reasons: (i) due to central banks’ asset purchase programmes (i.e. quantitative easing), and (ii) to establish foreign-currency reserves. In that regard, there is evidence that governments’ holdings of conventional and sustainable bonds differ in a relevant way (in January 2024, the official sector bonds’ share held by governments was roughly 49 percentage points smaller for sustainable bonds (OECD, 2024[11]). Additionally, some central banks have sustainability objectives in their mandates (Dikau and Ulrich, 2021[12]), including the European Central Bank (ECB, 2022[13]). A central bank’s decision to establish a sustainability objective may not only include the environmental and social impact of its portfolio, but also its desire to set an example for institutional investors in terms of sustainability-related policies and practices.
Considering the publicly available information, most central banks in G7 countries have not bought sustainable bonds as part of their asset purchase programmes (OECD, 2024[11]). As central banks’ asset holdings are substantial (USD 23 trillion in G7 countries only), the absence of some major central banks from the sustainable bond market greatly affects its investor base compared to conventional bonds. Among G7 members, the only central bank that holds a substantial amount of sustainable bonds in its portfolio is the European Central Bank (ECB), which between 2018 and 2022 purchased an increasing amount of corporate and government sustainable bonds (Elderson and Schnabel, 2023[14]).
Concerning foreign reserve holdings, central banks held roughly USD 12 trillion in different asset types as of September 2023 (IMF, 2023[15]), which would represent approximately 20% of the global market of sovereign bonds. The main objectives of keeping reserves is to use them as a buffer to finance required imports, provide assurances to the market that the government can honour its foreign exchange debt obligations, intervene in the foreign exchange markets, and provide some space to maintain price and financial stability in the face of large exchange rate swings (Schanz, 2019[16]). To meet these goals, central banks often choose liquid and safe securities that still provide some return, which can include conventional and sustainable bonds.
Sustainable bonds present the same rights and risks to their holders as any other conventional bond. For instance, a sustainable bond and a conventional bond issued by the same entity with similar characteristics can have the same credit risk. Sustainable bonds do not offer a premium compared to conventional bonds due to their sustainability‑related commitments and only have slightly lower liquidity (Figure 4.14). The more limited liquidity of sustainable bonds may explain why central banks do not purchase them often, as being able to sell an asset quickly is essential for their activities. The small share of sovereign sustainable bonds in all sovereign bonds (Figure 4.10) might be another important factor.
Portfolio management
Even for investors that are not concerned with the social and environmental impact of their investee companies, a decision to invest in sustainable bonds may still maximise their financial return for a given level of risk. This would be true in two circumstances. First, when the investor wants the company to adopt a new business strategy that better takes into account long-term environmental and social trends, and, therefore, a strategy they believe would maximise the company’s value. Second, when the investor wishes the company to reduce its negative externalities (or increase its positive ones) despite a possible reduction in the company’s value, but with the view that the benefit for the investor’s other investee companies would more than compensate the loss in value for the first company. An example of the second circumstance would be the reduction in GHG emissions by an investee major energy company that would facilitate the transition to a low carbon economy, which would be financially positive for investee companies in the tourism sector with assets in tropical regions.
In either of the abovementioned circumstances, it is important to highlight that the commitments in a sustainable bond contract can, at least potentially, alter the decision-making process of a company more efficiently than, for instance, buying equity shares in the same company. For example, an SLB with ambitious targets for a company to reduce GHG emissions and a meaningful potential coupon increase in case the target is not met could be more effective in changing corporate behaviour than a minority equity stake, where the investor would not be in a position to alter the company’s strategy.
Public policies
Some jurisdictions offer favourable regulation and financial incentives to encourage investments in sustainable bonds, including tax credit bonds, direct subsidy bonds and tax-exempt bonds (CBI, 2022[17]). Tax credit bonds offer investors the opportunity to receive tax credits in lieu of traditional interest payments. Direct subsidy bonds are another option that provides government cash rebates to offset net interest payments. Tax-exempt bonds, for instance in the US municipal bonds and Brazilian wind projects, allow investors to avoid income tax on interest.
Some central banks are also supporting sustainable investments to meet climate targets, often through favourable policies for sustainable bonds (ECB, 2022[13]). These measures may include lower capital requirements or preferential treatment in risk-weighting assessments, making such bonds potentially more attractive to financial institutions.
Banks hold bonds, among other reasons, to meet liquid asset requirements and manage their short‑term liquidity. For these two objectives, banks use bonds as collateral for repurchase agreements (repo) transactions with other private institutions, namely the central bank or the country’s debt management office (DMO). Therefore, the eligibility of an asset for meeting liquid asset requirements and to be used for repo transactions is a major incentive for banks to hold a security. An analysis of the repo eligibility of sustainable bonds issued by both governments and corporates reveals that sustainable bonds are mostly eligible in Europe, which helps explain why European banks held 84% of all the banks’ holdings in sustainable bonds, based on publicly available information as of July 2023. More specifically, of the 41 sovereign sustainable bonds that are repo eligible with central banks, 38 are eligible in European countries (32 eligible with the ECB, 4 in the United Kingdom and 2 in Hungary); of the 823 corporate sustainable bonds that are repo eligible with central banks, 750 are eligible with the ECB; and of the 501 agency and supranational sustainable bonds that are repo eligible with central banks, 463 are eligible in European countries (457 with the ECB, 4 in Sweden and 2 in Switzerland) (OECD, 2024[11]).
Stewardship codes
The G20/OECD Principles of Corporate Governance recognise stewardship codes as a mechanism that may complement regulatory requirements to encourage institutional investors’ engagement with their investee companies (Principle III.A). These stewardship codes are increasingly recommending the integration of sustainability considerations into the engagement and voting policies of institutional investors.
Japan’s Stewardship Code provides that institutional investors are responsible for enhancing their investee companies’ corporate value and sustainable growth, taking into consideration ESG factors (Financial Services Agency, 2020[18]). Similarly, the Brazilian Stewardship Code states in its third principle that institutional investors should integrate ESG factors in their investment processes and scrutinise their impact on the sustainable development of the securities’ issuers (Associação de Investidores no Mercado de Capitais, 2016[19]).
According to the UK Stewardship Code, Stewardship allows the creation of a long-term value for clients and beneficiaries. In addition, the UK code also recognises the significant increase in investments other than listed equity. In this respect, the Code includes reporting expectations for fixed income investments such as the review of the prospectus and transaction documents (Financial Reporting Council, 2025[20]).
The ‘greenium’ in the bond markets
The growth of the sustainable bond market might reflect investors’ increasing focus on sustainable and responsible business issues, as an incentive to invest in these assets. However, it is not clear whether these assets provide economic incentives to issuers by trading at a premium, defined, for sustainable bonds, as a ‘greenium’. Essentially, a greenium infers that the yield an investor accepts to invest in a green asset is less than the yield the same investor would be willing to accept to invest in an equivalent conventional asset. This means that the issuer of the bond can obtain financing at a lower cost when issuing a green security. This differentiation manifests itself in the primary market as a higher price for the green bond compared to a conventional bond at issuance. The existence of a greenium in secondary markets would imply that a green bond is being traded at a superior price, or a lower yield, compared to a conventional bond with similar traits. This indicates that an environmentally conscious investor is willing to receive a reduced yield in return for the chance to contribute to a greener alternative.
Several methodologies and key variables have been used to identify a potential greenium, with different, and not always consistent, results. The literature indicates varied outcomes concerning the presence of a green premium in the primary market, while showing a more consistent outcome on the secondary market (MacAskill et al., 2021[21]). The mixed findings suggest that if the greenium does exist as an incentive for issuers of sustainable bonds, it is generally minimal – with possible exceptions for some countries that are greatly vulnerable to transition and physical climate risks (Bolton et al., 2022[22]).
The results from an empirical OECD analysis are consistent with the studies on this topic. The premium for a bond being labelled as sustainable is not statistically significant and may depend on several variables that are not entirely related to the nature of sustainable or conventional bonds per se. Using a data sample consisting of 234 820 corporate bonds and 274 269 official sector bonds, and following the methodology in Bolton et al. (2022[22]), it is possible to obtain two sets of quasi‑exact matched bonds for both categories: 7 556 matched bonds for corporate bonds and 1 686 matched bonds for official sector bonds. Further restrictions were then applied to combine bonds with the shortest distance in terms of maturity and issue date, reaching a final sample of 2 954 matched corporate bonds and 384 matched official sector bonds.
In these two sets, each sustainable bond perfectly matches one conventional bond by issuer, domicile, currency, coupon type (fixed vs. floating coupon) and seniority. Constraints of similar issue date, maturity date and amount issued were also applied. Matching sustainable and conventional bonds issued by the same entity is essential because differences between issuers can affect the characteristics of sustainable bonds in ways that are not immediately observable.
The empirical work’s main result, consisting of applying a t‑test and a basic linear regression model, found no statistically significant evidence of a premium, here expressed as the impact of being labelled as sustainable on the yield to maturity.
When looking at the difference in the yield to maturity between sustainable bonds and their matched conventional bonds, the trends do not show any particular and constant differences (Figure 4.12). Furthermore, when looking at the average premium calculated by currency and issuer’s domicile, not only is the consistent absence of a premium for “sustainability” confirmed, but a potential common trend is also missing (Figure 4.13).
Looking at the averages for the official sector in 2016‑24, the sustainable premium of 17 basis points suggests that sustainable bonds had a somewhat lower yield than conventional bonds. Conversely, in the corporate sector, the yield spread had the opposite side, with a difference of +63 basis points between the yield of sustainable and conventional bonds. However, in both cases, the model shows no evidence of a systematic difference in the yields (Figure 4.13).
Empirical analysis finds no statistically significant yield premium for sustainable bonds
Note: Only pairs of matched bonds are considered. Matching procedures are based on an exact matching methodology based on issuer, domicile, currency, coupon type, and seniority, and the nearest matching for issue date, maturity year, and amount issued.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for more details.
Neither currency nor domicile seem to affect the yield spread between green and conventional bonds
Note: Only pairs of matched bonds are considered. Matching procedures are based on an exact matching methodology based on issuer, domicile, currency, coupon type, and seniority, and the nearest matching for issue date, maturity year, and amount issued. The average yield difference by currency and country (domicile) is calculated on the entire dataset of sustainable bonds, from both the corporate and official sectors.
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
Liquidity
Although the sustainable bond market can benefit from the legal and regulatory environment for conventional bonds and from the expertise of issuers and intermediaries, these can improve the development of the sustainable bond market only up to a certain point. Ultimately, a market is only functional to the extent that issuers and investors can find a counterpart to trade their security – that is if markets are liquid. Market liquidity refers to the degree to which trading an asset impacts its value. The wider and deeper the issuer and investor base for an asset, the more likely it is for investors to buy and sell assets without meaningfully affecting the current price, which reduces the costs associated with entering or exiting from a position in the market. All else being equal, there is a reinforcing loop in which the more issuers and investors are active in the market of an asset, the more attractive this market becomes for other investors and issuers due to the benefits of a liquid market. This is why a diversified investor and issuer base is crucial for the development of markets.
This section assesses the liquidity of sustainable bond markets by comparing the bid-ask spread between a set of matched sustainable and conventional bonds for the corporate sector. The set of bonds is the same as in the analysis of the greenium, and the matching controls for, among other variables, the issuer, currency, issue date and maturity year. The bid-ask spread refers to the difference between the price at which participants offer to buy and sell a security. It is the most used proxy for market liquidity and the one that conveys the most information in bond markets (Fleming, 2002[23]).
For corporate bonds, Figure 4.14 shows the distribution of the average differences in the bid‑ask spread between 9 320 pairs of sustainable and conventional corporate bonds. This set of pairs covers companies from various continents and sectors, and securities with varying maturities. Although the distribution of these differences is centred around zero, meaning that it is more likely to find negligible difference in the bid-ask spread between the two types of instruments, a larger size of the distribution is on the right, which represents the cases in which the bid-ask spread is larger for sustainable bonds. A difference greater than 0.10 in the bid-ask spread occurs more frequently for sustainable bonds (25.2%) than for conventional ones (14.4%). On average, the bid-ask spread is approximately 10.6% wider for sustainable bonds than conventional ones. Additionally, the volatility of the spread confirms no consistent dominance in relative dispersion across bond types.
Liquidity tends to be slightly higher for corporate conventional bonds than for sustainable ones
Source: LSEG; OECD calculations.
4.3.2. Investor protection
The market practice of providing a second-party opinion on whether the bond contract is aligned with a specific sustainable bond standard and/or a taxonomy for sustainable activities imposes an extra cost for the issuance of sustainable bonds compared to conventional bonds. Nevertheless, second-party opinions can enhance investor protection. An independent assessment can improve investors’ ability to compare the bonds’ sustainability-related information and assess their investments’ potential sustainable impact. This can bring further transparency and credibility to the market. The ICMA Principles recommend but do not require a second-party opinion for issuers to claim alignment with the standard.
Service providers have increasingly assured sustainable corporate bonds globally, reaching 81% of corporate bonds and 69% of official sector bonds in 2024 (Figure 4.15). In Asia, three-quarters of corporate bonds’ issuers and almost all issuers from the official sector provided a second-party opinion in 2024.
Second-party opinions are playing a growing role in assuring sustainable bonds
Source: OECD Corporate Sustainability dataset; LSEG; see Annex for details.
An analysis of a sample of 145 sustainable bonds issued between 2017 and 2024 provides insights on the market practices for designing contracts. The sample is composed of the 72 largest issuances and 73 randomly selected issuances that have their prospectuses and legal documentation easily accessible in LSEG, Bloomberg or FactSet in English. These issuances belong to the following categories: GSS bonds issued by financial corporations (30); GSS bonds issued by non‑financial corporations (28); SLBs issued by financial corporations (20); SLBs issued by non‑financial corporations (31); GSS bonds issued by official sector entities (30); and SLBs issued by official sector entities (6). The sample includes issuers from Australia, Bermuda, Brazil, Canada, Chile, China, Croatia, Estonia, France, Germany, Hong Kong (China), Israel, Italy, Japan, Jersey, Luxembourg, Mexico, New Zealand, Philippines, South Africa, Sweden, Thailand, Türkiye, the United Arab Emirates, the United States and Uruguay. The sample also includes multilateral institutions such as the African Development Bank and the European Union.
With respect to the “use of proceeds” of GSS bonds in the sample, three issues are worth noting: the possibility of refinancing; the existence of contractual penalties; and the commitment to provide annual assurance.
As allowed by the ICMA Use of Proceeds Principles, three-fourths of the GSS bonds’ legal documentation mention that the refinancing of existing eligible projects with the proceeds is allowed. Nevertheless, the documentation does not estimate the share of financing versus re‑financing, differently from what the recommended in the ICMA Use of Proceeds Principles. Notably, no prospectus in the sample specifically mentions that the proceeds would not be used for refinancing. The possibility of refinancing an eligible asset may incentivise the issuer not to sell it, but no new investment will be made because the asset already exists. In some circumstances, it may even be detrimental to society to incentivise a company with access to the sustainable bond market to keep an asset instead of selling it to another company that may be able to operate the asset more efficiently but which does not have easy access to public capital markets (for instance, if the former is a listed company and the latter is not).
No GSS bond prospectus in the sample refers to a contractual penalty if the issuer does not use all proceeds to finance or refinance eligible projects. As a matter of fact, the prospectus of an issuance of a major non-financial corporate defines that 70% of the proceeds would be invested in eligible green projects but the remaining would be used as working capital. More than half of the legal documentation notes that the non-compliance with the commitment to use proceeds for eligible projects would not be considered an event for the default of the GSS bond. Of course, this does not mean that issuers can simply disregard their obligation to use the proceeds according to what is defined in the bond contract. Moreover, while their lack of importance for market participants, some prospectuses may not have included penalties that are established in the bond contract. However, leaving lawsuit as the only recourse available to investors may not offer enough safety in some jurisdictions, especially because the effective damage may be difficult to assess.
Still in relation to the GSS bonds in the sample, two-thirds of the bonds’ documentation (64%) establishes that the issuer will provide an annual assurance of the use of proceeds (“allocation report”). In two cases, the assurance of the allocation reports will be published quarterly. This is a good practice and, if the chosen assurance provider is highly qualified and effectively independent from the issuer, the information will be valuable for investors. One-third of the prospectuses establish that the issuer will provide an annual assurance – and, in two cases, a quarterly assurance – of the impact of the projects financed by the bond’s proceeds.
With regards to the sustainability-linked bonds in the sample, two issues are worth noting: the consequence of not reaching their sustainability performance targets; and the commitment to provide a report on the performance against the KPIs relevant to the targets.
All but three issuers in the sample face the same consequence if they do not meet the sustainability performance target(s) set in their SLB contract: an increase in the annual coupon rate after the predetermined date to reach the target (Figure 4.16). Increases range from 5 basis points (i.e. 0.05% per annum) to 85 basis points (i.e. 0.85% per annum). In 54% of the cases, the increase amounts to 25 basis points. For only three non‑financial corporate issuances, the “penalty” for not reaching the target was a one-off payment of 10, 20 or 25 basis points. The money was to be donated either to eligible environmental organisations or local governments, or be used to buy carbon credits and to fund green projects (and not paid to the bondholders as in all the other SLBs).
Interestingly, 39% of SLBs in the sample have only one Sustainability Performance Target (SPT), one-third have two SPTs, and the remaining bonds have three SPTs.
Half of the SLBs foresee a 25-basis point coupon increase if the sustainability performance targets are not met
Source: Bond legal documentation; OECD calculations.
Two-thirds (68%) of the SLBs’ prospectuses in the sample, including four SLBs from the official sector, commit to provide an annual report on the performance against the SPTs and relevant KPIs. For the other SLBs in the sample, such a report would be provided only after the targets were supposed to be met, or the prospectus did not mention a commitment to issue a performance report. For two sovereign SLBs in the sample, the reporting frequency is not annual for all KPIs because, as explained in the prospectuses, the assessments depend on costly data collection (e.g. satellite images).
The annual disclosure of the performance is a requirement by the ICMA Sustainability-Linked Bond Principles. In some cases, issuers promised to hire an assurance provider to ensure the quality of the reports. While accounting and reporting on the issuer’s performance against relevant KPIs may be costly, in some cases the annual disclosure of this information – and not only when the target is supposed to be reached – may be material for investors. This will especially be the case if targets are ambitious and the established penalties are relevant in relation to the yield of the issuance, because investors may incorporate the possibility of receiving a higher coupon in the future when pricing the SLB.
The use of sustainable bonds has increased over the past five years, emerging as an important source of market-based financing for corporations and the official sector in Asia and globally. However, to fully unlock the potential of sustainable bonds, policy makers should continue improving the functioning of this market.
Increasing the quality of sustainability-related disclosure. Issuers of sustainable bonds need to disclose consistent, comparable and reliable metrics. This will ensure that bondholders can assess whether proceeds have been used according to the bond contract in the case of use of proceeds bonds, and how issuers are performing against the sustainability-related targets in the case of sustainability-linked bonds.
The ICMA Use of Proceeds Principles explicitly allow the use of proceeds to re-finance existing or completed projects, and most Green, Social and Sustainability (GSS) bonds permit such a practice. This creates a difference between the capital raised through GSS bond issuances and the amount the issuer invests in new eligible projects. This may not be evident to many investors, which reduces the potential of the sustainable bond market to improve the environmental and social impact of companies and official sector entities. A possible way to mitigate this issue could be to mandate that the issuers disclose the planned allocation of proceeds between financing and re-financing eligible projects in the offering documents.
In addition, whenever possible, the best practice may be to disclose the information in accordance with internationally recognised accounting and disclosure standards. Ideally, the disclosure would be assured by an independent, competent and qualified attestation service provider. Information may need to be disclosed annually, but less frequent disclosure may be allowed whenever the cost of collecting and disclosing the information is excessively high. Consideration should also be given to the specific circumstances of SMEs, as several sustainability reporting requirements ultimately cascade to them through participation in supply chains.
Enhancing investor protection. Contractual penalties for bond issuers failing to use all proceeds in financing or refinancing eligible projects have been rare. The lack of contractual penalties together with the explicit recognition in some prospectuses that non-compliance with the use of proceeds’ obligation does not constitute defaulting may give rise to moral hazard that might not be sufficiently addressed by the threat of a lawsuit for damages. Explicit contractual penalties may provide a stronger incentive for issuers not to deviate from their stated intent to invest in sustainable projects and reduce the risk of greenwashing.
Strengthening the ambition of sustainability-related targets. Stewardship codes are increasingly encouraging institutional investors to consider sustainability in their engagement and voting policies. However, stewardship codes do not typically have specific recommendations related to investments in sustainable bonds. For instance, most of existing stewardship codes do not highlight the importance of investors’ analysis of whether SLBs’ performance targets are ambitious. SLBs are a promising tool to align investors’ sustainability-related preferences with the issuer’s impact on the environment and society. However, SLBs with an unambitious target or an inconsequential step-up penalty function de facto as a conventional bond because they do not change the decision-making process of the issuer. A second-party opinion provider may not be able to assess whether a sustainability performance target is ambitious. The decision is not only technically challenging but also material for the issuance, and, therefore, institutional investors may need to have their own assessment. Furthermore, in order to enhance the level of ambition of sustainability-related targets, setters of stewardship codes may consider including specific recommendations related to investments in sustainable bonds.
Regulating the assurance services on sustainable bond. Second-party opinion providers play a similar role to external auditors and credit rating agencies. They provide services relevant to the public interest but are hired by the issuers they are meant to provide assurance to, potentially creating a conflict of interest. Providers of second-party opinions and other forms of assurance of sustainable bonds therefore face the same conflicts of interest that external auditors and credit rating agencies face. While most external auditors and some credit rating agencies are regulated and supervised in many jurisdictions, providers of second-party opinions and other forms of assurance for sustainable bonds do not typically face the same scrutiny. Securities regulators may consider whether assurance providers should be regulated.
Improving the interoperability and comparability of regional and national taxonomies. In addition, the widely used CBI Climate Bonds Taxonomy, some regional and national institutions have created new taxonomies for sustainable activities, which issuers may use in both the corporate and official sectors. This raises three concerns. First, comparability between sustainable bonds may be reduced if they follow meaningfully different taxonomies. Second, taxonomies focused on the activities of the corporate sector may not be easily used by official sector entities. Third, organised industry interests may be successful in securing the inclusion of their business activities in a national or regional taxonomy in a way that may not fully take account of scientific evidence and broader policy objectives. Initiatives to improve the interoperability and comparability of regional or national taxonomies, such as the one led by the International Platform on Sustainable Finance, should therefore be supported.
Increasing liquidity in the sustainable bond market. The sustainable bond market can benefit from the legal and regulatory environment for conventional bonds and from the expertise of issuers and intermediaries. However, these can only improve the development of the sustainable bond market up to a certain point. The liquidity of sustainable bonds tends to be slightly lower than of conventional bonds, which may hinder further market development. Allowing banks to hold high-quality sustainable bonds to meet liquidity requirements and making them repo-eligible in central banks’ and debt management offices’ lending facilities (given that banks are active players in the repo market) could help increase the liquidity of sustainable bonds and, thus, accelerate market development.
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