What $3.2 trillion in labeled bond allocations tell us about the future of sustainable finance

Authors
Matt MacFarland | Senior Editor, Thought Leadership, S&P Global Sustainable1 
Bernhard Schissl | Head of Segment Solutions, Non-financial Corporates, S&P Global Sustainable1 
Clement Nicholas | Associate Director, Corporate Analytics, S&P Global Sustainable1

Labeled bonds, a central pillar of the sustainable finance market, have grown from a niche to roughly $7 trillion in cumulative issuance to date. Labeled bond issuance has raised billions of dollars annually for sustainability objectives, from climate change mitigation projects like renewable energy installations to sustainable water use to improving access to healthcare and affordable housing. While they remain a small slice of the entire global debt market, labeled bonds are now widely used in many countries, and they have become a key component of how companies, investors and sovereigns finance projects with climate, sustainability or social benefit objectives.

This paper uses the Arctal Labeled Bonds dataset now offered by Sustainable1 from S&P Global Energy Horizons to explore how and where the proceeds raised by the labeled bond market are being used for different projects and capital expenditures across the world. While sustainable debt issuance data is widely available, use-of-proceeds data is less accessible. Tracking capital deployment in the sustainable debt market is only becoming more important: Issuance has plateaued in recent years at around $900 billion annually across the private sector and among sovereign, supranational and agency entities (SSAs). At the same time, limiting global warming to the Paris Agreement’s 1.5 degrees C threshold will require trillions of dollars of investment per year. To close this gap and help address the climate challenge, the sustainable finance market will need to scale further and effectively finance the transition ambitions of companies and countries. 

In this paper, we describe this dataset and our methodology for analyzing it; explore the climate finance gap and the role labeled bonds can play in closing it; and review how and where allocated capital is being spent. 

Together, these findings paint a picture of a market that has grown dramatically and allocated trillions of dollars toward addressing climate change, inequality and other sustainability challenges — but also a market with shortcomings in financing for climate adaptation and resilience and lacking meaningful cross-region flows.  

Finance and implementation have emerged as the key obstacles for keeping the world on a trajectory that limits the disruption and damage of human-caused climate change. The UN Environment Programme’s Emissions Gap Report 2026 has confirmed that the window for avoiding global warming of 1.5 C above preindustrial levels — the warming threshold set by the 2015 Paris Agreement — has closed. The UN’s best available scenario to limit overshoot of that threshold sees global warming peaking at 1.7-1.8 C by 2050, with immense investment in renewable energy and carbon removal and sequestration bending the curve back to 1.5 C by 2100. 

What will limiting the overshoot cost? While the UN has not estimated the level of investment needed to achieve its limited-overshoot scenario, accepted estimates of the costs and benefits of staying below 1.5 C provide a rough idea of the scale of needed finance. The Climate Policy Initiative (CPI) has estimated that remaining below 1.5 C requires annual finance of $5.4 trillion to $11.7 trillion until 2030, and as much as $12.2 trillion annually over the following two decades. Mobilizing that sum may sound daunting, but the upside is far larger: The CPI estimates $1,266 trillion in avoided economic and social losses by remaining below 1.5 C, based on modeling from the Network for Greening the Financial System. 

The financing challenge has led to major international agreements, such as the New Collective Quantified Goal (NCQG) set at the UN Climate Change Conference of the Parties, COP29, in 2024. The NCQG, agreed to by the signatories of the UN Framework Convention on Climate Change, calls for directing climate finance of at least $1.3 trillion annually to developing countries from all public and private sources by 2035. One of the major goals of COP31, taking place Nov. 9-20 in Türkiye, is to implement tracking and accountability for progress on the NCQG. 

The physical and technological interventions required to rapidly lower global emissions and blunt the severity of climate physical risk — renewable energy deployment, energy efficiency, industrial decarbonization, ecosystem restoration and adaptation and resilience infrastructure — all depend on the mobilization of capital at scale.  

Labeled bonds can sit at the center of this challenge. Since peaking at $1.2 trillion in 2021, issuance of these instruments has leveled off at around $900 billion annually. While green bonds have remained the largest category over the past decade, other labels have seen rapid market acceptance. Non-green bond labels grew to represent 39% of annual issuance in 2025. Sustainable bond issuance has showed particular momentum, setting an all-time high in 2025, while all other labels peaked in 2021.

SSAs are the highest-volume issuers in the market, driven by active international organizations like the European Investment Bank and multilateral development banks and individual countries that have made the energy transition a policy priority. Financial institutions are second, issuing labeled bonds primarily to fund eligible lending and assets across their portfolios rather than capital expenditures or projects at the bank or asset manager itself. Utilities are the most significant nonfinancial corporate issuers and have routinely accessed the green bond market to finance clean energy expansion. 

The geographic distribution of issuance largely tracks supportive policy environments, with Europe accounting for 46% of issuance in 2025. Similarly, Asia represented 20% of 2025 issuance. European companies and SSAs have continued to issue far more labeled bonds by volume and value than any other region, against a backdrop of EU climate targets and sustainable finance policies. Recently, the EU has pushed for greater standardization in the green bond market via the European Green Bond Standard, which the EU hopes will set a “gold standard for green bonds” by requiring greater transparency from issuers and supervision of the companies that conduct pre- and post-issuance reviews. Asia’s issuance trend is noteworthy in that it did not experience a sharp decline after 2021. Policy support in China, Japan and South Korea has made them the region’s major issuers, with examples including China updating its green taxonomy to cover both green bonds and green loans and Japan’s sovereign transition bond issuance.  

The defining feature of use of proceeds labeled bonds is their commitment to directing proceeds toward qualifying projects. Transparency into how this capital gets deployed depends on the issuer, whether it’s an electric utility financing wind turbine installation or a bank issuing bonds to fund a portfolio of green loans. The clarity and timeliness of allocation reporting is a key part of building investor confidence in labeled bonds as an asset class.  

The labeled bonds dataset offered by Arctal and Sustainable1 contains granular information for $3.2 trillion of labeled debt issued from 2015 to 2025 with use-of-proceeds records. That total is significantly lower than the total amount of issuance over that time ($6.4 trillion), signaling the existence of an allocation reporting gap across the market. The size of this reporting gap reflects the large scale of the Arctal labeled bonds dataset, which includes 31,738 issuers during this 10-year period. Publicly available allocation reporting exists for 12,454 of these issuers. 

• Before diving into the trends we see in the use-of-proceeds data, it’s worth discussing this reporting gap. Issuers are expected to disclose the status of a bond’s funds and how capital is being allocated, but the methodology, timing and scope of that disclosure can vary. Issuance frameworks may set out different expectations for issuer reporting. In some cases, periodic reporting is expected until 100% of the raised capital has been deployed; in others, reporting is not expected until the proceeds reach 100% allocation. 

• Some issuers may report on allocations privately or directly to investors, leaving a gap in publicly available information.  

• Labeled bond issuers typically expect to take some time to distribute 100% of the proceeds. At an aggregate level, reported allocation levels tend to lag issuance levels. For example, reporting exists for 64% of green bond issuance from 2022, but only 17% from 2025.  

As post-issuance recordkeeping practices become more standardized and the pace of decarbonization quickens, the allocation reporting gap can be expected to shrink over time.  

Turning to the use of proceeds data, we find that climate and environmental uses represent the largest capital deployments over the past decade. A few categories tied to social impact, such as access to essential services like healthcare and vocational training, have also received significant funding.  

Arctal categorizes use of proceeds independently of bond label. For example, if a portion of a social bond’s proceeds may go toward residential solar installation in a low-income neighborhood, that amount is categorized as renewable energy. 

Across all sectors, geographies and bond labels, proceeds going to renewable energy, green buildings and clean transportation are significantly larger than other uses. Investment in renewable energy and green buildings combined accounts for 39% of allocated funds from debt issued over the last 10 years.  

The use-of-proceeds mix has evolved over time in different ways for companies and SSAs. In the market’s early years, before social or sustainability bonds emerged, nearly all allocations went toward climate and environmental uses. Over time, more capital has gone toward social, community and healthcare-related uses, particularly for government agencies and supranationals. The category “access to essential services” — which includes healthcare, access to finance, and  education and vocational training — was the single largest use for labeled debt issued by SSAs in 2022. The private sector, by contrast, has continued to prioritize climate mitigation. 

In recent quarters — Q1’24 to Q3’26 — allocations have followed a similar pattern, with renewable energy and green buildings receiving the majority of funding. Sectoral trends may signal where more allocations could flow in the future. About $11 billion of labeled bonds from issuers in the industrials sector have gone toward clean transportation in recent quarters, which may reflect a greater push toward decarbonizing shipping and cargo transportation fleets. Over this same period, about $7.3 billion has gone toward energy efficiency from issuers in communication services. This sector includes hyperscalers and other digital economy firms driving the AI boom, which is facing growing scrutiny in part due to the high energy use of data centers. 

Two use-of-proceeds categories that remain particularly underutilized are climate change adaptation and sustainable water management. SSAs are the only issuers allocating labeled bond capital toward these categories in a meaningful way: $8.4 billion and $11 billion, respectively, since Q1’24. This may reflect corporate actors preferring to address their resilience to climate physical risk and water risk using regular cash flow or general-purpose bonds rather than issuing labeled debt. It could reflect the fact that large-scale adaptation measures like flood defenses are typically public infrastructure projects. It could also reflect the fact that both topics are slowly but surely gaining traction with companies and investors. For example, adaptation was a buzzword at Climate Week NYC in both 2025 and 2026, and water is a rising focus for investors and companies around the world. S&P Global research found that the number of companies disclosing broad climate adaptation plans nearly tripled from 2022 to 2025.

Following the money 

Arctal use-of-proceeds data also allows us to track how labeled bond capital is flowing across borders toward developing nations — a central pledge that the world’s wealthiest countries agreed to at COP29 in the form of the NCQG and its goal of $1.3 trillion in annual financial flows. The dataset contains traceable geographic reporting data for 10,490 issuances and 2,033 unique issuers, with allocations of $2.5 trillion in aggregate between 2015 and 2026 to date.

A review of the historical flow of labeled bond allocations shows a strong home-region bias. Over the 2015-2025 decade, labeled bond capital raised in one part of the world has tended to stay there, funding projects within the issuer’s country or region. This reflects the reality that decarbonization and climate adaptation are needed everywhere, and that companies and investors may prefer familiar markets. It also demonstrates how the market may need to pivot to achieve international finance goals that distribute capital from the developed countries most responsible for climate change to the nations that historically produced few emissions. 

To give one example of the allocation landscape, $1.3 trillion of European green, sustainability and transition-labeled bond issuance from 2015 to 2025 has allocation reporting data as of Sept. 30, 2026. About 71% of this total — $938 billion — has gone to European countries or the US. The top 10 locations outside Europe and the US total only $48 billion in allocations; the largest of these are China ($15.7 billion) and Brazil ($12 billion). The weight of European labeled debt in the market has resulted in Germany being the largest individual recipient of labeled bond capital over this 10-year period ($280 billion), with the US in second ($205 billion). 

The pattern of regions prioritizing local climate finance needs is fairly consistent globally. For allocations of Asian labeled bonds, nine of the top 10 destinations are in Asia (the US is 10th). For the Oceania region, Australia and New Zealand dominate both issuance and allocation totals. SSA debt is more distributed globally, reflecting the mandates of organizations like the International Bank for Reconstruction and Development. The top 10 allocation countries for SSA-labeled bonds include nations in Europe, Asia, South America and the Middle East.  

While the past decade has seen little cross-region sustainable finance, that may be beginning to change — possibly reflecting the momentum of major commitments like the NCQG and collective action led by the COP meetings. The allocations of debt issued in 2026, while still only a fraction of the total issuance this year to date, do show that the regional mix of recipients is changing. Europe received 58% of allocated debt issued in 2015, but that has fallen to 42% so far in 2026. Asia-Pacific has increased from a 12% share to 19%. And allocations categorized as international, or those going to multilateral development banks and similar organizations, have increased from 13% to 19%. 

The labeled bond market is large, growing, and increasingly well-governed, but it has further to go to help close the climate finance gap. Four areas of evolution are likely to define the market's trajectory over the coming decade:

Scaling cross-border flows: Reaching the $1.3 trillion external finance goal of the NCQG may require labeled bond capital to travel farther from home. Derisking emerging and developing market investment through blended finance structures, in which multilateral development banks or philanthropic stakeholders agree to take first-loss tranches, is one promising direction.  

Expanding adaptation and resilience: With the global response to climate change evolving to limiting the overshoot of 1.5 C of warming, physical risk adaptation and resilience at the company and municipal level will become more important. The recent release of the EU Framework for Climate Resilience may support additional SSA infrastructure spending on climate adaptation.  

Greater use of transition bonds: Currently, issuance of transition bonds is negligible relative to their addressable market and the positive impact of decarbonizing emissions-intensive activities. The evolution of carbon markets may provide clearer pricing signals for emissions reduction.  

Allocation reporting and transparency: Faster and more accurate post-issuance allocation disclosure and a growing pipeline of suitable projects should help lessen the allocation reporting gap over time. 

This content may be AI-assisted and is composed, reviewed, edited and approved by S&P Global. This piece was published by S&P Global Sustainable1 and not by S&P Global Ratings, which is a separately managed division of S&P Global.