Bank for International Settlements research finds stricter climate policies coincide with faster green bond growth and subsequent emissions cuts by issuers

The Bank for International Settlements published a BIS Quarterly Review article assessing whether tougher public policies to curb greenhouse gas emissions have spurred green bond market development and whether green bond issuance is associated with subsequent emissions reductions. The study finds green bond markets have expanded most in countries with stricter emissions targets, particularly where sector-specific mitigation policies apply, and that green bond issuance in high-emitting sectors has been followed by significant falls in emissions even though green bonds typically lack binding emissions constraints. Market capitalisation in green bonds has reached USD 2.9 trillion, nearly sixfold higher than in 2018, with annual issuance hitting USD 700 billion in 2024. In cross-country regressions covering 39 countries from 2011 to 2022, a one standard deviation increase in aggregate policy stringency is associated with about 2.4% higher annual green bond issuance, rising to nearly 3% for greater stringency in sectoral policies. Firm-level analysis linking issuance data to S&P Trucost emissions data finds emissions intensity fell by around 21% on average one year after a firm’s first green bond issuance (scope 1, with similar results using broader scope 1–3 upstream measures), with the effect concentrated among carbon-intensive firms and heavy emitters. The authors conclude that green bond issuance has become a meaningful signal of improved corporate environmental performance in the segments most relevant for aggregate emissions, and suggest considering whether issuer-level binding emissions constraints could strengthen demand for green bonds and lower funding costs for sustainable investment.