On April 9th, RBC Capital Markets hosted its 12th annual Sustainable Debt Conference amidst market volatility, political uncertainty, heightened legal and regulatory scrutiny, and increased polarization of ESG. The event aimed to assess the impact of these dynamics on the sustainable debt market, explore emerging themes, and highlight opportunities for growth and innovation. Key highlights include:
1. Sustainable bond issuance holds steady in 2025
- Global trends: Global sustainable bond issuance is projected to total $1 trillion in 2025, in line with 2024.1 Social bonds will face challenges due to a lack of benchmark-sized projects, while transition-labeled bonds and sustainability-linked bonds (SLBs) will remain niche segments amid evolving market sentiment.
- Regional divergence: Europe will continue to lead in sustainable bond issuance, while the US is expected to decline further. Canada will be a market to watch, given stable volumes in 2024, driven primarily by green bonds.
- Use of proceeds: Climate mitigation remains the primary focus for sustainable bond proceeds, but adaptation and nature-related projects are steadily scaling.
2. Sustainable investing under Trump 2.0
- Resilient fixed income: Sustainable fixed income funds have seen persistent inflows, and their share of total fixed income fund assets under management (AUM) remains near all-time highs. This resilience is partly due to more patient capital and reduced greenwashing risks in sustainable use of proceeds bonds.
- High-performing investment themes: Investment themes such as sustainable forestry, water, agriculture, food, and green buildings have outperformed amid market volatility.
- Focus areas: Finally, investors are closely monitoring developments related to Diversity, Equity, and Inclusion (DEI) in the US, and sustainable fund exclusions related to defense, given heightened geopolitical risks.
3. Indigenous Finance and Sustainable Bond Principles
- Funding gap: Indigenous communities in Canada face a C$300-500bn funding gap in housing, infrastructure, and economic development, with unaffordable and uneven access to capital.2
- Challenges: While Canadian investors, corporates, and governments are eager to advance economic reconciliation, the lack of standards for Indigenous-focused investments can pose a risk of “redwashing”.
- Opportunities: The Green and Social Bond Principles offer a framework to mobilize capital, promote transparency and disclosure, systematically embed Indigenous-related considerations into bond programs, and measure impact from the allocation of proceeds.
4. Greenhushing is not the answer
- Increased scrutiny: External scrutiny of corporate climate initiatives has increased significantly in recent months, with a proliferation of greenwashing enforcement and new laws, including the amendments to Canada’s Competition Act through Bill C-59.
- Risks: Companies risk being accused of greenhushing by saying too little or greenwashing by saying too much.
- Solutions: Practical measures to avoid these risks while advancing sustainability efforts include updating environmental marketing materials, substantiating environmental claims, training employees, and conducting compliance audits.
5. Sustainable bond labels: nice to have, not essential
- Beyond labels: Investors are increasingly prioritizing issuers’ sustainability strategies and performance over bond labels. In addition, Second Party Opinion providers are increasingly integrating issuer-level analysis into their assessments.
- Transition finance: Investors are eager to fund decarbonization projects for issuers with credible transition plans, regardless of the bond label. In the absence of a Canadian transition finance taxonomy, investors are relying on internal methodologies and third-party data to assess opportunities.
- Innovative structures: Investors are also open to innovative structures, including outcome-based bonds such as the World Bank Wildlife Conservation Bond, which finances conservation efforts.
Despite market headwinds, it was clear from the discussions at RBC Capital Markets’ Sustainable Debt Conference that fixed income investors remain committed to sustainable investing, while existing issuers remain committed to their sustainable bond programs. The challenge lies in growing issuance volumes, incentivizing new issuers, and fostering innovation amid volatility and polarization. Ongoing dialogue among investors, issuers, intermediaries, and service providers will be critical to advancing the transition to a sustainable and resilient economy.
