Trend watch: Green bonds & blended finance in 2026 — signals, winners, and red flags

Green bond issuance hit a record $447 billion in 2024, representing 57% of all labeled sustainable bond issuance—yet the market's share of global fixed income declined from 13% to 11% as conventional bond issuance outpaced sustainable growth by a factor of four (World Bank, February 2025).

The green bond and blended finance markets stand at an inflection point in 2026. After a decade of exponential growth, the market faces headwinds from U.S. political uncertainty, tightening standards, and persistent greenwashing concerns. Yet fundamental drivers—Paris Agreement implementation, corporate net-zero commitments, and emerging market decarbonization needs—continue to create demand for climate-aligned capital. For procurement professionals, understanding this landscape is essential for evaluating supplier financing structures, corporate bond offerings, and project finance for sustainable infrastructure.

Why It Matters

The cumulative global sustainable bond market reached $6.2 trillion by December 2024 (World Bank Sustainable Bonds Quarterly). This capital directly finances renewable energy installations, low-carbon buildings, clean transportation, and climate adaptation infrastructure. For organizations with Scope 3 emissions reduction targets, the availability and cost of green financing across supply chains directly impacts decarbonization feasibility.

Green bonds have consistently outperformed conventional bonds by approximately 2% annually in 2023-2024 (Bloomberg, 2024), suggesting that sustainability alignment correlates with credit quality rather than creating a return penalty. This performance premium, combined with the "greenium"—the pricing advantage green bonds command—creates tangible incentive for issuers to adopt sustainable frameworks.

The emerging market dimension is particularly significant: cumulative EM sustainable bond issuance reached $850 billion by 2024, with Chile ($49.7 billion), Mexico ($16.7 billion), and Thailand ($14.7 billion) leading the category. EM penetration exceeded 5% of total fixed income for the first time in 2024—a record that signals mainstream adoption beyond developed markets (IFC-Amundi Joint Report, June 2025).

For procurement and supply chain professionals, green bond availability affects supplier financing costs. A supplier with access to green bond financing at 50-100 basis points below conventional rates can offer more competitive pricing while investing in decarbonization—creating alignment between commercial and sustainability objectives.

Key Concepts

Green Bonds are fixed-income instruments where proceeds are exclusively allocated to environmentally beneficial projects. The ICMA Green Bond Principles (updated 2024) establish voluntary guidelines covering use of proceeds, project evaluation, proceeds management, and reporting. The EU Green Bond Regulation, effective December 21, 2024, creates the first mandatory standard—the European Green Bond (EuGB)—requiring alignment with EU Taxonomy criteria.

Blended Finance combines concessional capital (typically from development finance institutions or governments) with commercial capital to achieve risk-return profiles acceptable to private investors while directing capital toward projects that would otherwise be unbankable. The structure typically involves credit enhancement, first-loss tranches, or interest rate subsidies that reduce private investor risk.

Sustainability-Linked Bonds (SLBs) differ from green bonds in that proceeds are general-purpose but coupon rates adjust based on achievement of predefined sustainability performance targets (SPTs). SLB issuance reached approximately $35 billion in 2024, facing increased scrutiny over target ambition and verification rigor (OECD Sustainable Bond Report, 2024).

Transition Bonds finance decarbonization in carbon-intensive sectors where green bond criteria cannot be met. Japan dominates this market with approximately $12 billion in 2024 issuance as part of its ¥20 trillion transition finance target, though definitional ambiguity creates greenwashing risks.

KPI	2024 Actual	2025 Forecast	Benchmark
Global Green Bond Issuance	$447B	$600-620B	38% YoY growth target
Total GSSS Issuance	$1.0-1.1T	$1.0T	Flat to slight growth
Green Bond Market Share (of global bonds)	11%	11-12%	Maintaining share amid rate environment
Sovereign Green Bond Issuance	$210B	$250B+	New issuers: Qatar, Australia, Romania
EM Green Bond Penetration	5.0%	5.5%+	Record high in 2024
Greenium (basis points)	5-15 bps	3-10 bps	Compression due to supply increase

What's Working

European Market Leadership

Europe maintained 51-55% of global sustainable bond issuance in 2024, with Germany ($63 billion) and France ($41 billion) leading. The euro represented 60% of green bond issuance globally, reflecting deep capital markets, strong regulatory frameworks, and aligned policy incentives. The EU's NextGenEU program is on track to issue $250 billion in green bonds by 2026—the single largest green bond program globally.

The EU Green Bond Standard, effective December 2024, creates a voluntary "gold standard" requiring at least 85% alignment with EU Taxonomy, external review, and standardized allocation and impact reporting. While voluntary, this standard is expected to become the de facto benchmark for credibility, pushing the market toward higher integrity.

Sovereign Issuance Expansion

Sovereign green bonds reached $210 billion in 2024 with notable debuts from Australia, Romania, and Qatar. These sovereign issuances provide benchmark pricing for corporate issuers in their jurisdictions while signaling government commitment to climate action. The pipeline for 2025 includes potential first-time issuers in Southeast Asia and Africa, supported by World Bank and regional development bank technical assistance.

Maturity Wall Refinancing

The "maturity wall" effect—bonds issued after the Paris Agreement reaching maturity—is driving substantial refinancing activity. Approximately $200 billion in green bonds mature between 2025-2027, creating natural issuance volume and demonstrating market depth through multiple issuance cycles. Issuers who established green bond frameworks in 2015-2017 are returning to market with enhanced standards and demonstrated track records.

What Isn't Working

U.S. Market Contraction

U.S. dollar-denominated green bond issuance collapsed from 20% of global issuance in 2023 to just 8.5% in 2024—a halving driven by political ESG backlash, state-level anti-ESG legislation, and investor uncertainty about regulatory stability (AXA IM, 2025). North American issuance grew 60% year-over-year but from a depressed base, and the USD's declining share represents a structural divergence from global trends.

State-level fragmentation compounds the challenge: while California and New York advance climate disclosure requirements, Texas and Florida have enacted restrictions on ESG-based investment decisions by state pension funds. This creates compliance complexity that increases transaction costs and reduces issuance appetite.

Sustainability-Linked Bond Credibility Crisis

SLB market growth stalled at approximately $35 billion in 2024, reflecting investor skepticism about target ambition. High-profile cases of targets being met without meaningful emissions reductions, combined with coupon step-ups too small to create genuine incentive, have damaged market credibility. The lack of standardized target-setting methodologies creates opportunities for "greenwashing-linked" bonds that technically meet SLB criteria while failing to drive actual impact.

Emerging Market Access Barriers

While EM green bond issuance reached record levels, access remains concentrated in investment-grade sovereigns and blue-chip corporates. The climate finance gap—estimated at $2-4 trillion annually by 2030—persists in low-income countries where blended finance structures are essential but execution complexity, currency risk, and transaction costs limit deal flow. EM's share of sustainable bond issuance actually declined from 10.4% in 2023 to 6.5% in 2024, suggesting the market is not adequately serving the regions with greatest decarbonization needs.

Key Players

Established Leaders

World Bank Group (IBRD, IFC) pioneered the green bond market with the first issuance in 2008 and continues to anchor the market through sovereign and project-level financing. IFC's emerging market green bond program has supported $85 billion in climate investments across developing economies.

European Investment Bank (EIB) invented the Climate Awareness Bond structure and remains the largest supranational green bond issuer. EIB's Climate Bank Roadmap commits 50% of financing to climate action by 2025, creating substantial ongoing issuance volume.

BNP Paribas leads green bond underwriting globally, having structured over $300 billion in sustainable bond transactions. The bank's sustainable finance capabilities span structuring, distribution, and second-party opinion coordination.

Citi and JPMorgan compete for U.S. leadership despite market headwinds, offering integrated sustainable finance platforms covering bonds, loans, and advisory services for corporate issuers navigating disclosure requirements.

Emerging Startups

Clarity AI provides AI-powered sustainability analytics for green bond verification, enabling automated alignment assessment against EU Taxonomy and ICMA principles. The platform processes thousands of data points to validate use-of-proceeds compliance.

Persefoni offers carbon accounting software that generates MRV data required for green bond impact reporting, addressing the operational challenge of tracking proceeds allocation and environmental outcomes.

Sylvera provides carbon credit ratings that inform transition bond and blended finance structures, bridging carbon markets and bond markets through credible offset verification.

Key Investors & Funders

BlackRock manages over $500 billion in sustainable strategies, with green bond allocations across institutional mandates. The firm's iShares Green Bond ETF provides retail access to the asset class.

Amundi partners with IFC on the largest emerging market green bond fund ($2 billion target size), demonstrating blended finance at scale with IFC providing first-loss capital to attract institutional investors to EM exposure.

Convergence operates the largest global blended finance database and provides design support for blended structures, having tracked over 1,000 blended finance transactions totaling $175 billion.

Green Climate Fund deploys $11 billion in committed capital as anchor investor in blended finance structures, with particular focus on adaptation finance where commercial returns are limited.

Examples

1. Chile's Sovereign Green Bond Program: Chile has issued $49.7 billion in sustainable bonds—the largest EM sovereign program—financing renewable energy, sustainable transport, and water infrastructure. The program includes innovative features such as linkage to Chile's nationally determined contribution (NDC) under the Paris Agreement and regular third-party verification. Chile achieved pricing 15-20 basis points inside conventional curves, demonstrating that credible programs access greenium despite EM risk premiums.

2. EU NextGenEU Green Bond Framework: The European Commission's pandemic recovery program includes the largest green bond issuance in history—targeting $250 billion by 2026 for climate investments across member states. The framework requires 37% of national recovery plans to address climate objectives, creating traceable linkage between bond proceeds and project-level impact. Third-party verification and standardized reporting establish benchmarks for sovereign credibility.

3. Amundi-IFC Emerging Green One Fund: This $2 billion blended finance vehicle combines IFC first-loss capital with institutional investor participation to deploy capital in EM green bonds that would otherwise exceed investor risk tolerance. The structure demonstrates scalable blended finance—moving beyond bespoke project-level arrangements toward programmatic capital mobilization. By 2024, the fund has deployed across 20+ emerging markets with default rates below conventional EM corporate debt.

Action Checklist

• Evaluate supplier green bond access and financing costs as component of sustainable procurement criteria
• Assess corporate bond issuance opportunities under EU Green Bond Standard if operating in European markets
• Review existing sustainability-linked instruments for target credibility—tighten SPTs if current targets lack ambition
• Explore blended finance structures for high-impact projects that cannot achieve commercial returns without credit enhancement
• Monitor regulatory developments: SEC climate disclosure rules, EU Taxonomy Delegated Acts, and ISSB Standards adoption
• Build internal capacity for green bond impact reporting—allocate resources for MRV systems that track proceeds deployment

FAQ

Q: What is the difference between green bonds and sustainability-linked bonds? A: Green bonds restrict proceeds to environmentally beneficial projects with reporting on fund allocation and impact. SLBs allow general-purpose use of proceeds but adjust coupon rates based on sustainability performance target achievement. Green bonds offer greater transparency on environmental impact but require project pipeline; SLBs provide flexibility but face credibility challenges around target ambition.

Q: How does the EU Green Bond Standard affect North American issuers? A: North American issuers selling to European investors will face pressure to align with EU GBS criteria, even though the standard is voluntary. Institutional investors with EU Taxonomy alignment mandates will increasingly require EuGB-compliant issuances, creating practical necessity despite jurisdictional differences. This may accelerate fragmentation between U.S. and European sustainable finance markets.

Q: What is greenium and is it reliable? A: Greenium refers to the pricing advantage green bonds command versus comparable conventional bonds—typically 5-15 basis points in 2024. However, greenium is compressing as supply increases relative to dedicated demand. Issuers should not rely on greenium as primary motivation for green bond programs; rather, benefits include investor diversification, enhanced reputation, and alignment with disclosure requirements.

Q: How can procurement professionals use green bond data in supplier assessment? A: Supplier access to green bond financing signals sustainability maturity—issuers must establish frameworks, implement tracking systems, and submit to external review. Procurement teams can request green bond framework documentation as part of due diligence, assess allocation reports for evidence of capital deployment, and benchmark supplier financing costs against green bond-funded peers.

Q: What are the red flags indicating greenwashing in sustainable bonds? A: Key red flags include: proceeds allocation to projects that would have occurred anyway ("business as usual"); vague use-of-proceeds categories without specific criteria; absence of third-party verification; SLB targets already likely to be achieved; lack of impact reporting or reports limited to allocation without outcomes; and sustainability frameworks that reference generic principles without demonstrating taxonomy alignment.

Sources

• World Bank Sustainable Bonds Quarterly Newsletter Issue No. 10 (February 2025)
• IFC-Amundi Joint Report: "Emerging Market Green Bonds 2024" (June 2025)
• S&P Global Ratings: "Global Sustainable Bond Issuance To Hold Steady At $1 Trillion In 2025" (February 2025)
• AXA IM: "The good, the bad, the opportunities: Green bonds in 2025" (January 2025)
• OECD: "Trends in the Sustainable Bond Markets: Sustainable Bonds" (2024)
• Moody's Ratings: "2025 Sustainable Bond Market Outlook" (January 2025)
• Climate Bonds Initiative: Annual State of the Market Report 2024