Green bonds (8th EAP)

Bonds used to finance activities that address climate change and environmental issues — known as green bonds — provide a means to increase green investment. Green bonds accounted for only 0.6% of all bonds issued in the EU in 2014, rising to 8.9% in 2022. This increase reflects the financial sector’s growing interest in offering products that support sustainability and the increasing demand among investors to finance environmentally sustainable projects. Various types of entities — government, corporate, supranational, and subnational entities — can issue green bonds, and issuance by all types has increased since 2014, although at different rates. Green bond issuance is likely to increase further in the coming years, partly because of the ambitious environmental and climate goals of the European Green Deal.

Published: ‒ 25min read

The European Green Deal underlines the need to redirect capital flows to green investments. One way to do this is by issuing green bonds, which finance projects, assets or specific business activities that address environmental and climate change issues.

Green bond issuance increased significantly in the EU between 2014 and 2022, from 0.6% to 8.9% of total bonds issued. This indicates an increasing demand to finance sustainable investments, driven in part by the European Green Deal and the need to fund the transition to a low-carbon, green economy.

Green bonds can be issued by various types of entities, and the rates at which these entities have increased green bond issuance vary. In recent years, green bond issuance by corporate entities has increased rapidly, from 4.7% of total corporate bonds issued in 2020 to 8.3% in 2021 and 11.0% in 2022. Green bond issuance by supranational bodies (e.g. European Commission, European Investment Bank) has also increased substantially, reaching 9.2% in 2021, before declining slightly to 8.6% in 2022. Green bond issuance by municipalities and agencies, such as government-sponsored enterprises, increased particularly rapidly between 2018 and 2019 and has remained at a relatively high level since then. The issuance of green bonds by sovereign governments has increased less than issuance by other entities, to 5.3% in 2021 and falling to 4.4 % in 2022.

In the coming years, green bonds are likely to account for an increasing percentage of total bonds issued, for several reasons. First, demand for green bonds will remain high, not least because of the ambitious environmental and climate objectives of the European Green Deal. Second, the European Commission intends to issue more green bonds to fund up to EUR 250 billion (or 30%) of its NextGenerationEU recovery plan . The framework conditions for sustainable finance are also changing. For example, the EU action plan for financing sustainable growth , which includes the European green bond standard (EUGBS) and the EU taxonomy for sustainable activities, aims to boost sustainable investment and thereby the issuance of green bonds.

Green bond issuance as a share of total bond issuance varies across the EU Member States. In 2022, green bond shares were highest in Slovakia, Sweden, and Hungary, while seven Member States did not issue green bonds.

The speed at which national green bond markets develop and mature depends on many variables, including policy and regulatory factors, market conditions and financing trends. Further growth in green bond issuance across the EU faces a range of challenges, including underdeveloped national bond markets, insufficient pipelines of standardised green projects ready for green bond funding, a lack of commonly accepted green bond standards and definitions, and a general mismatch between small-scale projects and large-scale institutional investors . Differences in financing norms and investment needs add to those challenges and lead to green bond markets of different seizes across the EU. The recently adopted uniform EUGBS can help overcome some of these barriers and boost the share of green bonds in domestic (i.e. national) markets.

Supporting information


References and footnotes