Charting a Course: The Evolution and Future of Sustainable Fixed Income Markets


The sustainable fixed income market is undergoing a fundamental transformation, driven by a growing recognition of the importance of environmental, social, and governance (ESG) factors in investment decisions and an evolving regulatory landscape. As the world grapples with pressing sustainability challenges, the financial sector is evolving to align capital flows with sustainable development goals.

Natixis CIB’s 2025 ESG Fixed Income Virtual Forum brought together sustainable debt issuers and investors from around the world over 3 days, to discuss key themes shaping today’s market. As part of the forum, a live panel discussion took place with Xuan Sheng Ou Yong, Green Bonds & ESG Analyst for BNP Paribas Asset Management, Frederica Calvetti, ESG Coordinator at Eurizon Asset Management, Joseba Mota Gago, Head of Fixed Income, Sustainability and Rating Agencies at Iberdrola, Samuel Mary, ESG Research Analyst and Lead of Climate Risk & Investment for PIMCO, Marina Petroleka, Global Head of Research for Sustainable Fitch, and Kerstin Ahlqvist, Head of Long Term Funding & Sustinability for Swedbank.

Laurie Chesné, Natixis CIB’s Head of Green & Sustainable Financing & Advisory for EMEA, and moderator of the panel discussion, provides an overview of the key topics discussed.

State of Play

The sustainable bond market is currently navigating a complex environment. Recent data from Sustainable Fitch indicates a cautious start to the year, with a notable decline in labeled bond issuance in certain regions. Year-on-year comparisons reveal a 30% drop in issuance in USD for the first two months of 2025, reflecting broader uncertainty in capital expenditure (CAPEX) allocations. However, in Europe we have seen resilience in the face of this downturn, particularly amongst supranational, sovereign, and agency (SSA) issuers.

Looking at innovation broadly – there is more diversification in the labelled bond market. New sovereign issuers, often from historically under-represented regions, are embracing labelled or sustainability linked bond formats. Our speakers mentioned various initiatives and guidance that have been launched to further support the sustainable bond market’s development, such as the publication of the Green Enabling Projects Guidance [1] by ICMA in 2024, the Methane Finance Working Group initiative aiming to release a Guidance for Including Methane Abatement in Oil & Gas Debt Structuring, as well as recommendations linked to carbon accounting for green bonds from the Partnership for Carbon Accounting Financials (PCAF).

Whilst overall activity within the Sustainability Linked Bond (SLB) market has been slowing, there have been some encouraging signs of progress: today, we see more issuers from higher emitting industries, scope 3 reduction targets have now been included, and there are new issuers - particularly sovereigns - coming to market.

The EU Green Bond Standard

The EU Green Bond Standard (EU GBS) aims to provide a clear and consistent framework for issuing green bonds that align with the EU Taxonomy, ensuring that the proceeds are directed towards environmentally sustainable projects. By enhancing transparency and accountability in the green bond market, the EU GBS is designed to promote investor confidence and support the transition to a low-carbon economy. All our panelists welcomed this format and called for issuers to use it, in addition to the usual ICMA green bonds, while noting the challenges for some issuers may limit full adoption initially.

Many issuers are already aligning their financing frameworks with these standards or at least the EU Taxonomy substantial contribution criteria. However for some, the EU GBS doesn’t quite measure up due to the requirement for harmonization of frameworks (such as for energy classes) across all EU jurisdictions and the lack of availability of reliable data to meet the stringent requirements for full EU Taxonomy alignment.

A Diversification in the Market

One clear observation in the current financial landscape is the growing momentum behind sustainability bonds. This trend indicates a burgeoning appetite for blending climate and social objectives and/or for covering sustainability objectives beyond climate change mitigation. In particular, investors are looking for solutions that address both environmental and social concerns to broaden the current sustainable bond market.

On one side, some issuers are shifting towards more integrated approaches with impact metrics reported by various sustainability-focused projects, nourishing a promising shift towards holistic investment strategies.

On the other side, investors are calling for further diversification to scale up the ‘thematic’ sustainable debt capital market space and broaden the scope to include instruments such as social, sustainable blue/ocean economy, and nature bonds, etc.

ESG “Backlash”?

Despite positive momentum, there is a divergence emerging between European and US asset managers – notably since the appointment of President Trump. This trend could prove an excellent opportunity for European asset managers to reinforce / recommit to their sustainability approaches, potentially attracting greater interest from asset owners disillusioned by changes in U.S. strategies.

Some market observers have noticed outflows of capital from U.S. managers (that have had to adjust their approaches) directed towards their European counterparts, which are perceived as having more robust sustainability frameworks. All our investors and issuers confirmed their commitments and ambitions towards sustainable finance and their sustainability journey.

Particularly in Europe, in the context of the proposed “omnibus amendment” to sustainability regulation, investors are expecting clarifications and guidance on fund names and EU Taxonomy alignment. Our panelist acknowledged the complexity of naming and categorizing investments strictly as aligned or not aligned with EU taxonomy.

A recent study by Sustainable Fitch revealed that approximately 35% of green bonds had proceeds that were partially aligned with EU taxonomy, highlighting the potential for a broader range of issuers—beyond just European ones—to engage in the sustainable finance landscape.

Today at a pivotal juncture, one thing is clear, sustainable finance must adapt to the pressing demands of a changing world.  While the journey ahead may not always be clear, the commitment to sustainability remains a guiding principle that can steer the financial sector towards a more resilient and responsible future.

[1] https://www.icmagroup.org/sustainable-finance/the-principles-guidelines-and-handbooks/green-enabling-projects-guidance