Green Bond Market Faces Challenges Amid Rate Volatility and Climate Issues

The green bond market is navigating a complex landscape in 2025, marked by interest rate volatility and ideological resistance. VanEck reports that fluctuating global economic conditions are creating headwinds for investors, while climate-related setbacks further complicate issuance dynamics.

Despite rising global temperatures and urgent calls for sustainable finance, green bond issuance has declined by nearly 30% according to Climate Bonds Initiative data. This contraction reflects both macroeconomic pressures and growing pushback against environmental mandates in some jurisdictions.

The market's USD-denominated instruments continue demonstrating resilience, though current conditions suggest a period of consolidation rather than expansion. Institutional participants are recalibrating strategies to account for both financial and political risk factors influencing sustainable debt instruments.