The sustainable bond market saw another strong year in 2025. According to BNP Paribas analysis, cumulative global issuance of green, social, sustainability and sustainability-linked bonds has now surpassed USD5 trillion. Annual issuance has remained resilient, despite some uncertainty at the start of the year, with USD909 billion issued in 2025 coming in slightly below 2024’s record year of USD965 billion. Against this backdrop attention is also turning to how sustainable finance can more effectively support the decarbonisation of hard-to-abate sectors – particularly where traditional green label use has been limited.
Despite growing recognition of the need for transition finance, transition-labelled bonds have not yet achieved global scale primarily due to framework fragmentation, credibility concerns and lack of exhaustive taxonomies. Leading taxonomies, such as the EU Taxonomy, have few allowances for capital being applied to interim decarbonisation pathways for high-emitting sectors. The result has been a market with strong demand for transition capital but insufficient standardisation to support adoption.
One jurisdiction that has taken early leadership in the adoption of transition labelled bonds is Japan. The Japanese government is issuing sovereign transition bonds under its Green Transformation (GX) strategy, as part of a programme targeting JPY20 trillion of labelled transition bonds over the next decade to finance decarbonisation.
New transition bond guidelines
Despite this, transition bonds and loans have remained a small part of the broader sustainable debt market up to now. This is a gap the new ICMA Climate Transition Bond Guidelines, and LMA Transition Loan Guidelines, have been explicitly designed to address.
In November last year, ICMA introduced the Climate Transition Bond Guidelines (CTBG), which add a Climate Transition Bond (CTB) label to the ICMA principles. Similarly, the LMA added a Transition Loan label. These guidelines seek to close the financing gap facing high‑emitting industries while providing a clear, globally consistent framework for issuers and investors.
With global sustainable bond markets showing robust demand, the establishment of a credible CTB standard could eventually unlock significant new capital flows toward transition focused investments. By mandating that proceeds be tracked, reported and audited, the framework reinforces the credibility of transition finance as a tool for achieving hard to abate decarbonisation, such as in steel, cement, or the chemicals sector.
❝ With new sustainable finance instruments bringing further sophistication to the market, we’re seeing growing ambition—on targets, on timelines, and on transparency. Issuers with complex transition pathways, which nevertheless have a concrete strategy can expect greater access to capital, as the clarity and transparency demanded by sophisticated investors translate into broader participation from institutional funds, pension schemes and sovereign wealth funds. ❞
What is the investor appetite for transition labelled transactions?
At a recent investor webinar on transition finance, BNP Paribas heard strong support for the release of ICMA’s Climate Transition Bond (CTB) Guidelines. Investors view the framework as a meaningful step towards mobilising capital into sectors that have historically sat outside core sustainable finance markets, and as a practical tool for addressing the persistent “transition gap”. The guidelines are seen as helping to broaden the investable universe while maintaining credibility, particularly for hard-to-abate sectors seeking to finance credible decarbonisation pathways.
Investors also emphasised the importance of high levels of transparency and rigour in the assessment of transition projects. In this context, they welcomed key safeguards embedded in the CTB Guidelines, including alignment with science-based decarbonisation pathways, sector-specific transition roadmaps, and reference to official, market-based taxonomies where available. The inclusion of requirements to identify and mitigate potential adverse social and environmental impacts, alongside explicit consideration of nature and biodiversity, was highlighted as an important enhancement to the integrity of the transition bond market.
From a regulatory and portfolio-construction perspective, investors noted that the CTB Guidelines could help issuers structure use-of-proceeds bonds with the level of disclosure needed to support compliance with ESMA’s fund-naming “look-through” rule. For ESG-labelled portfolios, this increased transparency can provide greater nuance and granularity, reducing the risk of binary exclusions where transition plans are credible. For non-ESG portfolios, transition bonds were seen as a valuable tool for improving the accuracy of climate-risk assessments, supporting more informed capital allocation decisions across the broader market.
Key takeaways on transition finance
Overall, the transition label is moving beyond its early, nascent phase. Investor demand is strengthening, and the development of more robust guidelines will help to bring greater stability, transparency and confidence to the market. For issuers, this creates a clearer pathway to access capital for credible transition strategies, enabling engagement with a broader investment base while demonstrating alignment with science-based decarbonisation and regulatory expectations. Together, these dynamics should result in further acceleration of transition labelled financing.