Sustainable finance industry faces growth challenges amid rising risk concerns

The energy sector dominates sustainable loan issuance by borrower sector, with renewable energy companies and non-renewable energy firms together accounting for the largest concentration of activity

- BY ABDULAZIZ KHATTAK

THE global sustainable finance industry achieved record volumes in 2024, yet faces an increasingly complex risk landscape as renewable energy infrastructure confronts mounting technological and environmental challenges.

With $960 billion worth of public sustainable loan deals signed during 2024, the market has reached unprecedented scale, though growth momentum slowed significantly in early 2025 as borrowers navigate heightened scrutiny around credibility, insurance costs, and climate resilience.

According to data from Environmental Finance, the first six months of 2025 saw more than $390 billion raised through sustainable loans, down approximately 18 per cent on amounts raised during both halves of 2024.

However, the second quarter of 2025 was just 3 per cent lower than the same period in 2024, suggesting sustainable loan activity is stabilising after initial setbacks.

Environmental Finance's Sustainable Loans Insight 2025 report emphasises that sustainability-linked loans (SLLs) have received increased attention as market participants look to close the “credibility gap” for the performance-based instrument, with more than $6 in every $10 of sustainable loans signed during 2025 being through sustainability-linked structures.

ENERGY TRANSITION ACCELERATES DESPITE HEADWINDS

Sustainability-linked loans dominated quarterly issuance throughout the period from H2 2024 to H1 2025, consistently representing the largest share of sustainable loan volumes.

Q4 2024 saw overall loan volumes peak at over $253 billion, with SLLs making up $158 billion of that total.

Regional patterns reveal significant concentration in established markets. Europe remained the largest region for sustainable loans both in terms of number and value, with over $384 billion raised from 598 loans during H2 2024 to Hl 2025, representing 44.5 per cent of global sustainable loan issuance.