Sustainable Debt in Focus: 2024 Summary and 2025 Outlook
As the global financial landscape continues to prioritize sustainability, sustainable debt has become a critical area of focus for investors, lenders, borrowers, and policymakers.
This market outlook provides a summary of key trends and developments in sustainable debt throughout 2024, while offering a glimpse into the possibilities and promise of 2025.
Global Issuance of Sustainable Debt
Total Sustainable Debt Issuance reached $1,740b in 2024 representing a 12% increase compared to volumes of $1,547b seen in 2023. This level also exceeded 2022’s total volumes of $1,665m but was short of 2021’s high water mark of $1,883b.
Source: Dealogic, Bloomberg
These results, which reflect continued buoyancy in sustainable debt markets, include Green and Sustainability-linked syndicated loan issuance as well as debt capital markets (‘DCM’ - GSSS bond market volumes excluding securitization).
On the DCM side, Green Bond issuance remained the market mainstay progressing to $656b (+8%) while Sustainability and Social Bond issuance grew to $251b (+27%) and $169b (+8%) respectively (source: Bloomberg). Fixed income investor appetite continues to favor use-of-proceeds sustainable instruments over funding for general corporate purposes.
Global Issuance of Sustainable Loans
In the GSS syndicated loan market, issuance of Sustainability-Linked Loans (SLLs), Social Loans and Green Loans reached $638b in aggregate (+21%), of which $463b (+18%) for SLLs, $162b (+31%) for Green Loans and $13b (+45%) for Social Loans (source: Dealogic), a record level for both Green Loans and Social Loans. SLL volumes are traditionally supported by a significantly larger supply base, encompassing jumbo (>$1b) revolving credit facilities (RCFs) required by blue-chip borrowers for general corporate purposes. In terms of sector, as in previous years, Utility & Energy borrowers led the way with around $120b in issuance, followed by Real Estate, Financials and Technology.
Source: Dealogic
While sustainable lending increased by 21% in 2024 compared to 2023, the overall global syndicated loan market grew by a higher rate of 37%, resulting in a lower aggregate penetration rate of 10% (proportion of SLLs and Green Loans in total syndicated loan issuance) down from 12% in 2023. Regionally, the progression was mixed, with penetration rates declining respectively from 21% to 19% in the EMEA and from 7% to 5% in North America. However, in the APAC region, total loan volumes declined while SLL and Green Loan issuance increased, boosting the penetration rate from 14% to 19%.
Source: Dealogic
In the EMEA, the decline in the SLL penetration rate since 2022 can be primarily explained by the erosion of the share of SLLs in the Investment grade RCF segment, which has steadily decreased from a level of 47% in 2021 to 29% in 2024. Several factors explain this trend including:
- greater borrower caution due to heightened concerns over greenwashing risks
- more stringent requirements from lenders in terms of the scope and ambition level of targets
- concern over potential negative publicity from missing targets
- a process considered by some issuers to be burdensome relative to the benefits, especially for companies with sustainability policies and trajectories that are communicated separately.
However, investment grade RCFs still represent over 50% of SLLs and many issuers remain committed to the use of this instrument which has become more robust. Also, use of SLLs by other categories including mid-cap companies has been expanding, with increased efforts being made to accommodate the specific needs of SME borrowers as well.
Separately, building on the record level of Green Loan and Social Loan issuance reached in 2024, the use-of-proceeds segment is set to continue to grow in 2025, particularly as the transition label becomes formalized, unlocking financing for hard to abate sectors key to achieving decarbonization trajectories. Social Loans currently represent a fraction of sustainable use of proceeds volumes, however current momentum and continued expansion of Social and Sustainability bond volumes suggest that this category could continue to grow.
Key Performance Indicator (KPI) Trends in SLLs
Based on Dealogic data, KPI categories were publicly disclosed in around 36% of SLLs in 2023 and 38% in 2024. Four broad themes can be distinguished:
- Carbon emissions / Energy has been the most frequently used, seen in 85% of SLLs disclosing KPIs in 2024, however this level was down slightly compared to 2023 when it stood at 91%.
- Social indicators, including gender diversity / equality, health & safety, employee training and other indicators, are the next most frequently used, and were relatively stable appearing in 42% of SLLs disclosing KPIs in 2024 compared to 43% in 2023.
- Conversely, use of Biodiversity and Governance KPIs both increased in 2024 compared to 2023, to 32% and 10% of 2024’s SLLs disclosing KPIs respectively.
Source: Dealogic
Sustainability-linked Term Loan B (Leveraged Loans)
Total European leveraged loan volumes grew to around €200b in 2024 (source: LCD), increasing by c. 180% compared to 2023. Opportunistic repricing activity, refinancings and dividend recaps comprised the bulk of volumes with new money transactions representing a relatively small share of the increase. In this context, outside of changes to pricing and the deal amount, the characteristics of the original transactions tended to remain in place, including ESG-linked ratchets that were not necessarily revised or even publicized during repricing / refinancing process. This explains the relatively modest increase in recorded SL TLB issuance (or re-issuance) to $19b in 2024 from $8b in 2023; with a relatively stable penetration rate at 9% compared to 11% in 2023.
Source: LCD
Notwithstanding, institutional TLB investors have increased their attention to sustainability considerations via the systematic use of ESG questionnaires submitted to borrowers during the distribution process. The standard questionnaire templates recommended by the European Leveraged Finance Association were expanded in 2024, adding questions relating to European Taxonomy alignment, decarbonization strategy and targets, biodiversity and deforestation, while querying borrowers as to their adherence to CSRD and ESRS regulations. While not directly embedding these factors into TLB pricing, these actions show a redoubled focus on extra financial transparency and risk analysis covering all European leveraged loan transactions.
Private Debt
Sustainable private debt funds (i.e. private debt funds classifying themselves as Article 8, Article 9 or Impact) continued to grow in 2024.
The volume of sustainable private debt funds that closed during 2024 increased to $39b from $15b, a share of 15% in all private debt funds closed compared to 6% in 2023. Total volumes of all private debt funds closed($262b) were in line with 2023’s levels.
Source: PEI Group
It should be noted that a single fund, West Street Loan Partners V run by GSAM, accounted for $13b or one-third of the $39b total, without which the volume of sustainable private debt funds closed during the year still would have progressed. Corporate and direct lending funds including West Street represented around 70% of the $39b total, with the balance comprised of infrastructure funds and real estate funds. Across these categories, Article 8 funds represented around 85% of the total.
Source: PEI Group
With respect to private debt funds currently in the market actively raising capital, sustainable fund penetration rates vary considerably depending on asset class and the geography of the fund manager:
Infrastructure debt funds
37% of closed ended funds in the market worldwide are classified as sustainable, a share which stands at 76% in the EMEA. In both cases, penetration rates for funds in the market significantly exceed the historical levels for funds closed since 2020 (23% and 35% respectively) suggesting the supply of sustainable infra funds has been expanding rapidly. Moreover, the 76% penetration rate for EMEA sustainable infra debt funds in the market exceeds the 58% penetration rate for all EMEA infra funds (debt & equity), unlike the corporate & direct lending and real estate categories presented below where the penetration rates are relatively lower for debt funds compared to all funds (debt & equity).
Corporate and direct lending funds
10% of closed ended debt funds in the market worldwide are classified as sustainable, compared to 22% in the EMEA market (which represents 28% of the global market). These levels are higher than the historical aggregate penetration rates for funds closed since 2020 (respectively 5% and 14%) although the levels are more in line than for infrastructure funds. The overall penetration rate for private equity funds (including corporate and direct lending in addition to equity-only funds) stands at 11% worldwide and 24% in the EMEA, at levels slightly higher than for debt funds.
Real estate debt funds
7% of closed ended debt funds in the market worldwide are classified as sustainable, a level which stands at 19% in the EMEA. Worldwide, the 7% penetration rate is in line with both the historical level for funds closed since 2020 (6%) as well as the wider penetration rate for all funds (debt & equity, 9%) indicating relative stability. In the EMEA, the 19% penetration rate for funds in the market slightly exceeds the historical level of 17% while remaining lower than the wider penetration rate for all funds (debt & equity) of 30%, suggesting there is appetite for further growth in the region for sustainable debt funds.
The Possibilities and Promise of 2025
Sustainable lending in 2025 is poised to benefit from an increased focus on sectors in transition as well as social lending. However, it will also face headwinds stemming from shifts in U.S. policy that could have global implications. On a positive note, enhanced extra-financial reporting and transparency in EMEA, driven by regulation, has been increasing. However, uncertainty has been created by the European Commission’s Omnibus simplification agenda, which is challenging important provisions of CSRD and CS3D. Notwithstanding, EMEA investors should continue to seek assets aligned with the European Taxonomy further supporting the issuance of Green Loans. In terms of private credit, while the penetration rates of sustainable funds in certain asset classes such as infrastructure may stabilize at existing levels, others such as corporate & direct lending (including transition) as well as in the EMEA Real Estate sector show potential for further expansion.
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