Euro-denominated ESG bond issuance is expected to decline significantly in 2025, as political headwinds and market volatility are likely to weigh on investor sentiment, according to ABN Amro analysts.

In a research note released Friday (July 18), analysts Marta Ferro Teixeira and Filipa de Carvalho Tomas projected issuance of €247 billion ($369 billion) for 2025, down from their previous forecast of €266 billion and below the €272 billion issued in 2024.

The analysts cited a “noticeable surge in negative news related to ESG” in the first half of 2025 as a key reason behind the downgrade. Rising political opposition, particularly in the United States, and concerns over greenwashing have eroded confidence in ESG-labelled financial products, they said.

“Interest in financial instruments targeting ESG goals is waning amid politically motivated attacks on so-called ‘woke’ capitalism,” the analysts noted. The global ESG fund market endured its worst quarter on record in the first three months of 2025, reflecting the broader backlash.

Read More: IOSCO Releases Five-Point Plan to Support Sustainable Bond Market Growth

One major factor, they added, is former U.S. President Donald Trump’s declaration of a national energy emergency, a policy pivot that prioritizes fossil fuels over clean energy initiatives. This move, they said, has had a chilling effect on climate-focused investments worldwide.

The shift has also prompted oil majors like BP to scale back renewable energy plans and triggered an exodus of major banks from the world’s largest climate-finance alliance. These developments signal “waning climate commitments” among key industry players, the ABN Amro analysts warned.

In Europe, regulators are exploring ways to simplify ESG reporting rules. While this could ease compliance burdens, it also suggests that “both regulators and companies worldwide might be scaling back their climate ambitions,” they wrote.

Also Read: Investors Turn to ESG Bonds as Trump Steps Back from Green

The analysts observed that ESG issuance from utilities has already fallen short of expectations, while sovereign issuance has slipped slightly. Slower bond sales under the European Union’s NextGenerationEU recovery programme also contributed to the subdued outlook.

Despite the bearish tone, Teixeira and Tomas said the situation isn’t entirely negative, noting that “significant policy shifts in some other Western countries” have softened the impact.

They also highlighted logistical challenges in ESG bond issuance, such as lengthy processes and market timing difficulties in volatile conditions. These factors have led some issuers to favour conventional, non-ESG-labelled debt.

As global markets navigate these shifts, the outlook for ESG bonds in 2025 remains uncertain. Analysts and investors alike will be watching closely to see whether the sector can regain momentum or faces a more prolonged slowdown.

Follow more news and views via our Sustainable Finance and Featured Articles sections, and stay updated on top ESG events to attend in 2025 for industry insights and networking.

Source: Businesstimes.com