Transition-labelled bonds are anticipated to emerge as the fastest-growing segment of the sustainable bond market in 2026, driven by demand for instruments to finance decarbonization strategies in hard-to-abate sectors and the availability of new standards to define eligible investments, according to a new sustainable finance market forecast released by Moody’s Ratings.
Overall, the report forecasts the issuance of labelled sustainable bonds – including green, social, sustainability, sustainability-linked, and transition bonds – to remain roughly flat year-over-year at $900 billion, after falling in 2025 following four consecutive years with issuance above $1 trillion.
Key drivers supporting sustainable bond market issuance in the coming year identified by the report include a focus on sustainable financing to address material climate mitigation and adaptation investment gaps, which will continue to be offset by political headwinds in some markets, as well as competing investment priorities such as energy security and defense.
Moody’s noted as well that issuance may be supported by outsized volumes of maturing labelled bonds, estimating that approximately $520 billion of labelled bonds have a 2026 maturity date, compared with $425 billion last year.
By bond type, the report forecasts that green bonds will continue to dominate the market, representing nearly 60% of issuance at $530 billion, and roughly flat with last year, followed by sustainability bonds – which combine green and social projects – at $190 billion, social bonds at $155 billion, and $40 billion for transition bonds, while sustainability-linked bonds (SLBs) will remain subdued at around $25 billion, down from record issuance of $96 billion in 2021, with SLBs continuing to be pressured by scrutiny of their target ambitions by investors.
While remaining a small component of the overall market, the report anticipates that transition bonds, which finance climate transition projects that substantially reduce or avoid emissions at high-emissions activities that may not qualify for a green label. In addition to growing demand for labelled instruments to help channel capital into decarbonization strategies in hard-to-abate sectors, the report anticipates issuance will be supported by the new availability of new standards and guidelines providing criteria and safeguards for use of capital for investors. Notably, several new and in-development sustainable investment taxonomies now include transition categories.
The report forecasts transition bond issuance growing to $40 billion, nearly double the record issuance of $21 billion reached in 2024.
Additional forecast trends highlighted by the report include an increased focus on using labelled bonds to finance adaptation and resilience projects, particularly among public sector issuers, driven by increasing climate risks and more frequent and severe extreme weather events, although mitigation-focused projects are expected to continue to dominate green bond issuance.
The report also anticipates that digital infrastructure will support sustainable debt issuance, with the rapid growth of data centers creating significant financing opportunities, with developers increasingly looking to address investor scrutiny of the energy and water impact of the projects.
By region, the report forecasts that Europe will continue to lead in issuance, after representing 47% of the market in 2025, while North America will remain subdued, after falling to only 8% of issuance last year.
Click here to access the report.
