Sustainable Lending Weathers Market Slowdown
Brian Byrne Research Analyst, Environmental Finance
Sustainable loans weathered challenging market conditions in 2025 to post an annual total of $749 billion, a year-on-year contraction of 22%.
Source: Environmental Finance Data
Total sustainable loan issuance was US$749 billion in 2025, down by US$209 billion from the all-time high in 2024.
Sustainability-Linked Loans (SLLs) are the dominant label in the sustainable loan market once again (52% by value) but faced challenging market conditions in 2025 and saw a year-on-year decrease of US$279 billion in value with the deal count plummeting to 486, a 42% decrease from 2024. Interestingly, the average volume (US$) remained very consistent.
There are several factors behind the decreased SLL issuance in 2025. Increased greenwashing concerns with the label, and possible reputational risks associated with missing an SPT/KPI may have deterred some borrowers. The marginal cost benefits of achieving an SPT are often outweighed by the compliance costs associated with SLLs, while higher interest rates and economic uncertainty slowed the corporate loans market.
Green loans, the second largest loan label, saw US$63.4 billion more borrowed in 2025 than 2024. Similarly, US$20 billion worth of sustainability loans were borrowed in 2025, a US$9.6 billion increase from 2024.
The robust issuance of use of proceeds structured sustainable loans highlights the market demand and preference for the clarity, credibility and transparency of project specific debt. This project-based financing also lends itself to the boom in data centre construction in response to the growing demands of the AI Industry, which requires vast amounts of sustainable energy and water.
Source: Environmental Finance Data
Source: Environmental Finance Data
Regionally, Europe remains the largest market for sustainable loans in terms of the number and value of loans borrowed. Huge investor demand and strong regulatory support, such as with the SFDR and EU Taxonomy, proves clarity and a supportive policy environment for sustainable financing in the region.
Despite continued anti-ESG sentiment in the USA, North America remains the second largest region in terms of value, making up ~30% of the value of global deals. However, there was a proportional decrease in year-on-year market share, with a ~6% drop from 2024.
Asia issued 130 more loans than in North America in 2025, but with a far smaller average loan amount (US$). In Asia, government policies to incentivise sustainable loan issuance, may have helped boost green lending. For example, the People’s Bank of China has provided low-cost loans to support companies’ carbon-reduction projects since 2021.1 This scheme has been extended until 2027.2
KPI Details
Due to the private nature of the loan market, KPIs are often not publicly disclosed. KPI coverage is around ~46% for all time SLLs. For simplicity in the graph below, in the case where there are multiple KPIs, the loan amount is prorated equally between the amount of KPIs.
Source: Environmental Finance Data
The KPI with most US$ issuance is Absolute Carbon/GHG Emissions reduction, with US$399 million allocated.
The prevalence of absolute carbon/GHG emission reduction KPIs continues due to the appeal of well established, quantifiable measurements and investors have familiarity, and more pertinently, mandates to fund carbon emission abatement. Additionally, the Greenhouse Gas Protocol provides a standardised methodology (Scope 1, 2 & 3) for carbon emissions, giving a clear scientific basis for direct environmental improvement.
The most used social leaning KPI is gender equality. This is primarily used in the EMEA region, which accounts for 69% of funding for the KPI globally. Gender equality KPIs (e.g. percentage of women in management positions) are often more quantifiable and trackable than other social KPIs with additional borrower benefits in financial performance and corporate image.
Sustainable loan outlook 2026
The outlook for sustainable loans in 2026 is mixed. Growth is expected for use-of-proceed loan labels, supported by investor demand for transparency and strong regulatory frameworks.
Transition loans could see an uptick in issuance with the Transition Loans Guide published late last year by the LMA, LSTA and APLMA. While growth will likely be limited, the clarity provided by the new guidelines could lead to an increase mirroring the transition bond market in Japan which benefited from Japan’s Guidelines on Climate Transition Finance.
Sustainability-linked loans are likely to continue to experience headwinds, as borrowers and investors alike increasingly question the SLL’s green credentials.
Increased regulatory attention to SLLs could improve its green credibility and there are signs of positive progress on that front. An August 2025 report from the FCA3 outlined the significant improvements made by SLLs since the LMA published the Sustainability-Linked Loan Principles (SLLP), following earlier concerns, and stated they were now a more “robust” label.
Regionally, Europe is set to continue to dominate the market. Comprehensive frameworks, regulatory support and a strong investor base all enable loan issuance in Europe. The US will likely continue to face a challenging environment as the current administration is unlikely to reverse its ESG policy decisions. Asia has the highest growth ceiling with positive regulatory signals and governmental support for renewable energy and green building projects. The Middle East is also likely to see continued growth with banks in the region increasingly issuing Sustainability-Linked Loan bonds to finance their sustainability-linked loan-book.
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