Green Debt Surge Bucks Climate Policy Rollbacks

Investors have piled into climate-friendly assets this year despite policy and regulatory rollbacks in the US and Europe, as artificial intelligence drives a boom in energy infrastructure demand.

Global green bond and loan issuance has reached a record $947 billion so far this year, according to data compiled by Bloomberg Intelligence. That’s as stock market gauges for renewables are set for their first annual gains since 2020, outperforming the S&P 500 by a wide margin, while shares of power-grid technology companies remain in favor.

The flows are notable in a year when US President Donald Trump backed fossil fuels and dismantled clean-energy subsidies and legislation. Europe also has rolled back some of its toughest environmental rules amid concerns about growth and competitiveness.

Still, clearer policy signals and an almost 4 percent expected increase in global electricity demand, driven by AI, cooling and electrification needs, are lifting investor optimism.

“Green investments are increasingly becoming viewed as core infrastructure and industrial plays, not just niche ESG trades,” said Melissa Cheok, associate director for ESG investment research at Sustainable Fitch. “Capital is likely flowing toward areas with clear revenue visibility, policy backing and structural demand such as grid upgrades and renewables tied to electrification.” 

Asia-Pacific companies and government-linked issuers raised $261 billion from green debt, up about 20 percent from a year earlier, with China and India backing the rollout of renewables, according to Bloomberg Intelligence. China had a record $138 billion in green bond issuance, led by its biggest lenders. It also debuted a sovereign offering in London earlier this year.

The so-called greenium – the lower borrowing costs on green bonds – is most evident in Asia-Pacific, with some issuers getting more than a 14-basis-point discount for using a green label in November, according to BloombergNEF. Green bonds are often used by companies to raise money for switching to renewable energy or lower-carbon transportation.

BNP Paribas SA and Credit Agricole SA are this year’s leading underwriters of green bonds, according to data compiled by Bloomberg. The amount of outstanding green bonds has grown at a 30 percent compound annual rate over the past five years and issuance now accounts for about 4.3 percent of the global total, LSE Group researchers said last month.

Easing US interest rates and refinancing needs may boost global green bond sales to as much as $1.6 trillion next year, said Crystal Geng, environmental, social and governance research lead for Asia at BNP Paribas Asset Management.

Green stocks have been a market leader this year. Clean-energy indexes from S&P Dow Jones Indices and WilderShares have surged 45 percent and 60 percent, respectively, though both remain below their 2021 peaks.

US solar and battery storage stocks, including SolarEdge Technologies Inc., have been among the top performers, while wind turbine makers have led gains in China and Germany. India has emerged as a hotspot for renewable-energy initial public offerings, with 11 listings raising more than $1 billion and another six companies seeking more than $3 billion. Last year, 14 renewable energy companies raised $2.4 billion through IPOs.

Not all markets are benefiting. US green debt issuance fell 7 percent to $163 billion this year and supranational bond sales declined by a similar amount. Fundraising in Germany was steady at roughly $79 billion. 

While India saw record green loan volumes of $7 billion, strong interest from foreign banks has intensified competition, squeezing financing margins by 5 percent to 10 percent on renewable energy and other projects, said Jeanne Soh, head of structured finance for Asia at Sumitomo Mitsui Banking Corp. 

Sales of sustainability-linked debt slumped about 50 percent this year to $165 billion amid greenwashing concerns, Bloomberg Intelligence data show. Transition bond issuance more than halved to $10.9 billion for hard-to-abate sectors.

The trends are likely to reverse over the next two years, said Xuan Sheng Ou Yong, a client portfolio manager for sustainable investing at Robeco in Singapore. Changes to European fund rules will let asset managers define what qualifies as a sustainable investment, opening the door to emissions-cutting investments in higher-polluting sectors, he said.

Overall, global sustainable debt volumes stood at about $1.6 trillion this year, down more than 8 percent from 2024, the Bloomberg Intelligence data show. Separately, more than $500 billion of social bonds were sold in the US tied to the Government National Mortgage Association, known as Ginnie Mae, which guarantees principal and interest on mortgage-backed securities.