Green bonds are a growth market, with good performance over the last decade. According to investors, there are many reasons for optimism. The energy transition will require large investments, which green bonds will help finance.

“There is nothing to suggest that market dynamics in green bonds are waning. They are becoming more standardized, transparent and credible, so demand continues to grow,” says Johann Plé, portfolio manager at AXA Investment Managers. He is convinced: “Ten years of the Paris climate agreement – and green bonds are better off than ever.”

The Paris climate agreement, signed by 196 countries in 2015, aims to limit global warming to well below 2°C above pre-industrial levels – and, if possible, even more. It has certainly benefited green bonds.

Bonds to finance environmental projects posted higher returns in 2024

In April 2025, China, the world’s second-largest economy, issued its first green bond to raise global capital for its environmental goals. The renminbi-denominated bond, listed on the London Stock Exchange, raised a whopping RMB6 billion ($833 million). This is the latest major development in a sector that has grown strongly in recent years. In 2024, green bonds were issued for a record $447 billion. At around €3 trillion, green, social, and sustainable bonds now have a market size similar to euro-denominated investment-grade corporate bonds, AXA Investment Managers summarize. And that’s not all, they say: bonds to finance environmental projects posted higher returns than traditional fixed-income securities in 2024, they say, for the sixth time in eight years.

Growth not only in Europe

When it comes to emissions, Europe still dominates, partly because sustainability is taken very seriously. The European Commission finances up to 30% of the NextGenerationEU corona reconstruction program through green bonds, making it the world’s largest issuer. Germany’s more expansive fiscal policy could also help. The world’s third-largest economy has just launched a €500 billion infrastructure fund and decided on additional military spending. €100 billion is earmarked for climate protection and the energy transition. They are intended to help limit CO2 emissions and make infrastructure more sustainable. The German special asset should help the European green bond market.

But green bonds are not unique to Europe. Asia and emerging markets are increasingly in the spotlight. “China’s first issue is an additional opportunity for investors in a market that has hitherto been dominated by euro- and dollar-denominated securities,” says Johann Plé.

As interest in ESG is waning in the US and the new administration is openly criticizing ESG initiatives, AXA investment managers expect fewer issuances in 2025. “It’s no surprise that according to Bloomberg, the US issued less green bonds in the first few months of this year than it has been in a decade. However, many green municipalities are still coming to the market,” says Plé.   

More transparency reinforces credibility

As the market grows, so does regulation. The new European Green Bond Standard, in force since December 2024, sets out rules and recommendations for issuers. They must invest at least 85% of the net proceeds of a green bond in activities that are considered “green” according to the EU taxonomy. Certification is voluntary. “But it gives investors more transparency and certainty, which makes the market even more credible,” Plé continues.

Issuers issuing green bonds tend to reduce their CO2 emissions

According to a recent study by the Bank for International Settlements, issuers of green bonds tend to reduce their carbon emissions. We also find that the market has grown the most in countries with stricter carbon regulations. This shows, according to AXA IM, that companies around the world want to improve their environmental performance. Green bonds are becoming a more reliable tool on the road to net zero. “For structural reasons, as well as the growth, liquidity, and diversity of the asset class, we see green bonds as an attractive fixed-rate instrument. They enable diversified investments with the prospect of higher returns and flexibility – and the opportunity to make a measurable difference to the world.”