IOSCO Releases Sustainable Bonds Report

On 21 May 2025, the International Organisation of Securities Commissions (“IOSCO”) published its Sustainable Bonds Report[1] which identifies the key characteristics and trends tied to the sustainable bond market. 

To inform the report, IOSCO conducted research, surveyed its members and engaged with its Affiliate Members Consultative Committee to gain insight from market participants. It also organised a roundtable with the OECD on sustainable bonds during the 2024 Annual Meeting.

Overview of sustainable bonds 

The sustainable bond market has emerged as an important mechanism for achieving global environmental and social objectives and is a well-established market spanning over 20 years. The report provides a comprehensive overview of the market, identifying historical developments as well as outlining the characteristics of different types/labels of sustainable bonds. 

In broad terms, sustainable bonds fall into two categories: “use of proceeds” (“UoP”) bonds and sustainability-linked bonds (“SLBs”). UoP bonds are where the proceeds are applied to finance or re-finance eligible green projects (green bonds), social projects (social bonds) or a combination of both (sustainability bonds). SLBs are forward-looking performance-based bonds. Unlike UoP bonds, SLBs are not tied to specific projects but rather to the issuer’s ability to meet predefined sustainability targets. SLBs use varying mechanisms to address non-compliance with targets, with most featuring a coupon step up when targets are not met. Beyond these well-known categories, the report identifies various other more specialised labels that have emerged in the sustainable finance market, tailored to address specific environmental and sectoral goals and challenges. 

The report charts the growth of the sustainable bond market over the years and provides an overview of current market data and trends. September 2020 saw the cumulative issuance of sustainable bonds cross the USD 1 trillion threshold, with the growth of the market being supported by frameworks and principles that have brought certainty and transparency. Overall sustainable bond issuance now accounts for approximately 14 per cent. of all bond issuance, excluding government securities.  

Market environment and associated risks 

The report sets out that both issuers and investors should be aware of various risks associated with the issuance of sustainable bonds compared to traditional bonds. These include (i) greenwashing risks (the risk of misleading investors about the criteria used to designate or label a product as supporting sustainability objectives), (ii) lack of common terminology or metrics (varying regulatory and industry approaches can cause differences in the issuances of these products, both within jurisdictions and between jurisdictions), (iii) varied ongoing reporting practices can lead to investor and industry confusion as to, for example, whether an issuer’s stated goals have been met, (iv) the potential for conflicts of interest in external reviewers which may impact the effectiveness of their assessments, and (v) lack of accountability (where risks related to non-adherence of sustainability goals are amplified when the implications of non-adherence are unclear). The report also notes that issuers of sustainable bonds may face higher regulatory costs and scrutiny when compared to traditional bonds. Excessive regulation may therefore run the risk of stifling growth in this space and could lead to “greenhushing,” where issuers avoid issuing sustainable bonds to avoid the added regulatory cost and scrutiny.

Jurisdictional practices 

The report also identifies that jurisdictions have taken various differing approaches to regulate and develop their sustainable bond markets. At a global level, issuances typically align with internationally recognised frameworks, such as ICMA Green Bond Principles. At a regional level, in the EU, the EU Green Bond Standard Regulation provides a voluntary ‘gold standard’ for green bonds aligned with the EU taxonomy. Similarly, ASEAN has introduced their Green, Social, Sustainability and SLBs Standards, which are based on ICMA’s principles and utilised across ASEAN jurisdictions.

The report notes that whilst progress has been made towards standardising and harmonising sustainable bond markets, some challenges remain – the absence of a universal taxonomy and differing levels of alignment with international frameworks causes inconsistencies across jurisdictions, particularly for emerging categories of sustainable bonds.

Key considerations: how to overcome market challenges

The report includes five key considerations, designed to address market challenges, including enhancing investor protection, ensuring sustainable bond markets are operating in a fair and efficient way, and improving accessibility. 

• Greater clarity in regulatory frameworks. More clarity would be beneficial to demonstrate alignment with internationally accepted principles and standards, support consistency and interoperability, build investor confidence and support market participation. 
• Sustainable bonds classification. Establishing guiding principles or mapping systems aligned with industry standards and other regulatory frameworks would support clarity and consistency across jurisdictions in categorising bond types. 
• Enhancing transparency and ongoing disclosure requirements to promote public accountability. Introducing clear, consistent and comprehensive ongoing reporting on the progress of issuers towards sustainability-related goals would support market discipline where issuers fail to meet their stated sustainability commitments. 
• Promote the use of independent and credible external reviewers. Robust assessment and disclosure by external reviewers, including second-party opinion providers, with policies and procedures which would ensure their independence and mitigate conflicts of interest. 
• Capacity building, collaboration and knowledge sharing. To bridge knowledge gaps within the market, capacity building and educational programmes can increase awareness and understanding of sustainable bonds among issuers, investors, intermediaries and regulators, developing the sustainable bond market and ensuring that market participants have the skills and knowledge to transact effectively in the market. 

Conclusion

Over the past decade, the market has demonstrated significant growth and diversification, reflecting its increasing role in mobilising capital to address climate change, social inequality and other critical challenges. IOSCO’s guidance will assist regulators and other market participants to consider and address the unique challenges tied to sustainable bonds to foster a well-functioning market. 

[1]FR/09/2025 IOSCO Sustainable Bonds Report