A complex picture on corporate sustainability
The sustainable finance market continued to grow in 2024, with sustainable assets under management touching $2.5 trillion USD, and sustainable bond issuance exceeding $9.2 trillion USD.
However, the policy upheavals of the new U.S. administration – including withdrawal from the Paris climate agreement, a pause on Inflation Reduction Act disbursements, and steps by the Securities and Exchange Commission (SEC) to roll back climate disclosure rules – are disruptive.
“While the political pendulum swings, the fundamental case for sustainability remains resilient, though an increasingly complex endeavor.”
Moses Choi, U.S. Head of Sustainable Finance
In this environment, it is no surprise that some companies are re-examining targets, says Moses Choi, U.S. Head of Sustainable Finance. “The velocity of change and the uncertainty it creates make managing and advancing corporate climate commitments quite challenging,” he says.
In Canada, an anti-greenwashing law, Bill C-59, adds further complexity. By requiring companies to substantiate any environmental claims using internationally recognized methodologies, it raises legal risks when disclosing sustainability performance.
Meanwhile, the rising incidence of devastating natural disasters underpins growing awareness and support for climate efforts. “While the political pendulum swings, the fundamental case for sustainability remains resilient, though an increasingly complex endeavor” Choi says.
Sarah Thompson, Global Head of Sustainable Finance, agrees: “Our institutional and corporate clients tell us they remain committed and continue to advance their sustainability strategies – even if they aren’t publicizing them or using the term ESG.”
Supply chain risk remains in focus
Meanwhile, European regulators have moved to stay competitive. A new ‘omnibus’ package from the European Commission simplifies sustainability reporting rules. One effect is to remove around 80% of companies from the scope of the regulations.
“Supply chain risk will continue to be top of mind throughout 2025… more companies will start using technology solutions to help them keep track.”
Stefano Vitali, European Head of Sustainable Finance
In an open letter, major companies including Nestlé, Unilever and Mars have challenged this move. Big corporates, which have led the way on climate disclosures, are concerned about the ability to track the carbon footprints of smaller suppliers.
Stefano Vitali, European Head of Sustainable Finance, notes that in most sectors, over 80% of corporates’ emissions come from their supply chains.
“Supply chain risk will continue to be top of mind throughout 2025,” he says. “We anticipate that more companies will start using technology solutions to help them keep track.”
AI is a force for decarbonization
AI is playing a key role in the energy transition – by significantly increasing energy demand, while at the same time driving resource efficiency and decarbonization efforts.
The AI tech giants have some of the most ambitious sustainability commitments and addressing data center emissions will be essential to achieving those commitments. In order to do so we see these companies pulling on two key levers. One lever is scaling alternative low carbon sources of energy to meet that rising energy demand from data centers, and the other is investing in carbon removal solutions to help decarbonize total energy consumption.
“One lever is scaling alternative low carbon sources of energy to meet that rising energy demand from data centers, and the other is investing in carbon removal solutions to help decarbonize total energy consumption.”
Sarah Thompson, Global Head of Sustainable Finance
This is helping to fuel a nuclear renaissance, with several U.S. and Canadian issuers raising proceeds through green bonds to fund nuclear energy projects, says Sarah Thompson. “There’s an opportunity for small modular reactors to meet some of that additional demand from data centers and AI – even if we don’t expect those solutions to be fully commercial until the 2030s,” she says.
But AI will require other forms of energy, including hydrocarbons. That means the tech players are also focused on investment in carbon dioxide removal technologies. “The significant investments these companies are making in these technologies will help them to commercialize, allowing the rest of the economy to benefit,” Thompson adds.
Innovative finance drives solutions
2024 was a record year for green bond issuance globally. This trend seems likely to continue, according to RBC Capital Markets recent global ESG fixed income survey, which found resilient demand for labeled sustainable debt and a particular interest in green bonds.
Industry guidance has widened the opportunity for issuers to come to market from hard-to-abate sectors. Private markets and innovative financing mechanisms will play a key role too, says Choi.
“We’re going to see increased collaboration, with blended finance structures using catalytic capital from public or philanthropic sources,” he says.
Adapting to climate risk now
Vitali notes that European utilities are leading the way in investment to add resilience to the grid. The real estate sector is also focusing on its exposure to climate risk: 53% of green bonds now relate to sustainable buildings.
Insurance companies are increasingly integrating climate models in their risk assessment processes. They are also launching innovations such as catastrophe bonds, marketed to investors with specific appetite for that level of risk, says Vitali. “These type of market efficiencies can ultimately help curb the impact of climate change outside the scope of more traditional sustainable finance,” he concludes.
