Imagine a world where tackling climate change isn't just an ethical imperative but a smart financial strategy that's already bridging massive funding gaps in developing regions. That's the exciting potential of sustainable debt, and it's central to scaling up climate finance in emerging markets. But here's where it gets controversial – not everyone agrees that labeling debt as 'green' truly delivers on its promises. Dive in as we explore a groundbreaking report that reveals how issuer creativity and regulatory backing could supercharge this vital tool for the planet.
Dated November 18, 2025, the BloombergNEF (BNEF) report titled 'Scaling Sustainable Debt in Emerging Markets' sheds light on how these innovative financial instruments are poised to address the enormous, multi-trillion-dollar shortfall in climate funding. Commissioned by the Dubai Financial Services Authority (DFSA) and the Hong Kong Monetary Authority (HKMA), the study highlights that nearly half of all funding for low-carbon energy projects in the Middle East and North Africa (MENA) and emerging Asia Pacific (APAC) regions flows through labeled sustainable debt. These tools serve as essential conduits for capital into the energy transition, with a solid groundwork for expansion that could inspire even more investment.
Yet, progress isn't without its hurdles. The issuance of labeled sustainable debt in these key emerging markets slowed down in 2025, following a peak year in 2024. Globally, issuance has dipped due to evolving views on the advantages of labeling debt, including concerns about pricing and the expenses tied to reporting. For beginners, think of sustainable debt as bonds or loans earmarked for eco-friendly projects – but labeling them 'green' or 'sustainable' is meant to attract investors who prioritize planet-positive outcomes. The challenge? Issuers used to get discounts for such labels back in 2020, but those perks have largely vanished, and some now even pay extra for green issuances.
And this is the part most people miss – even amid these global challenges, the sustainable finance space remains vibrant. Issuers are testing fresh formats, and regulators are probing ways to bolster policy. Currently, labeled debt makes up just 2.6% of the debt market in emerging economies, signaling immense room for growth. To clarify for newcomers, this means there's a huge untapped opportunity to make sustainability a bigger slice of the financial pie, potentially lowering costs for everyone through economies of scale.
Regulators and governments hold the key to removing obstacles for issuers, positioning sustainable debt as a powerhouse for tackling climate and sustainability issues in emerging markets. They have an array of strategies at their disposal to nurture the labeled sustainable debt sector. For instance, providing government backing to cover labeling expenses and establishing a straightforward regulatory framework can simplify the process for issuers entering the market. Hong Kong offers a stellar example with its subsidy program for green and social issuers; by mid-October 2025, it had supported over 620 sustainable debt instruments totaling more than $170 billion. Imagine that – taxpayers indirectly funding eco-innovations, sparking debate on whether such subsidies distort free markets or are a necessary catalyst for change.
Regulators can also propel the market forward by offering clear guidelines for issuing labeled debt, perhaps nudging issuers to adopt labels more readily. Frameworks like the Association of Southeast Asian Nations’ (ASEAN) sustainable finance taxonomy help issuers pinpoint genuinely green or transitional activities, which could ramp up issuance by making it easier to identify qualifying projects. This standardization is like having a universal map for sustainability – but some critics argue it might stifle innovation by enforcing rigid categories.
Beyond traditional approaches, issuers themselves are pioneering new frontiers to fuel growth. Why stop at just 'green' labels and standard structures? Social debt, for example, emerges as a category ripe for expansion, currently representing only 8% of total issuance in these markets since 2020. Nearby regions like South Korea and Japan boast some of the world's largest social bond markets, offering valuable lessons for broader APAC success. Think of social bonds as funding for initiatives that benefit communities, like improving healthcare or education – a natural extension that could broaden appeal.
Specificity pays off too, as seen in DP World's blue bond, issued by the UAE-based logistics and marine port operator. This targeted instrument draws capital to overlooked sustainability niches, such as preserving and restoring marine ecosystems and promoting eco-friendly shipping. It's a reminder that niche labels can tap into investor passions for specific causes, potentially outperforming generic ones.
Innovation in structure also shines through Emirates NBD Bank's sustainability-linked loan bond (SLLB). By using stringent selection standards, it enhances trust by transparently linking funding to high-impact sustainability loans. For clarity, it's like a bond backed by loans that improve based on the borrower's sustainability targets – adding layers of accountability that could reassure skeptics about whether these instruments truly drive change.
Meanwhile, Hong Kong’s MTR Corporation, a major public transport provider, showcased strong investor appetite for extended timelines with its green bond and green loan featuring a groundbreaking 30-year tenor. As their inaugural ultra-long green issuance, it was oversubscribed by 5.8 times, proving that longer commitments can align with the enduring nature of climate projects – though this raises questions about whether such long terms favor big players over smaller issuers who can't commit as far ahead.
This report stems from the strategic collaboration between the Dubai Financial Services Authority (DFSA) and the Hong Kong Monetary Authority (HKMA) on sustainable finance.
Mark Steward, Chief Executive of the DFSA, remarked: “This research provides valuable insight into how sustainable debt is evolving across the MENA and emerging APAC regions. The US$94 billion issuance record in 2024 reflects growing investor confidence and the resilience of our markets. Our focus remains on supporting all forms of sustainable and transition finance to ensure that the market within the DIFC, United Arab Emirates, and across the region remains robust and credible for the long term.”
Eddie Yue, Chief Executive of the HKMA, stated: “Sustainable debt is a promising tool for bridging the multi-trillion-dollar climate financing gap in emerging markets. Through this joint research, we aim to explore solutions to remove the barriers faced by issuers and identify opportunities for growth. As Asia’s leading sustainable finance hub that arranged 45% of the region’s international green bond issuances in 2024, Hong Kong is committed to leveraging our infrastructure and know-how to support emerging markets in reaching their sustainable development goals.”
Jon Moore, Chief Executive of BloombergNEF, added: “Sustainable debt helps build trust and transparency in the financial market. The effort by HKMA and DFSA to drive the development of sustainable debt markets provides valuable support to scale up finance and investment for the energy transition. We hope this report and our industry-leading insights can help regulators and market participants navigate this transition and capture opportunities that advance global sustainability objectives.”
The full report can be accessed via this link: https://assets.bbhub.io/professional/sites/44/ScalingSustainableFinance.pdf.
Related Content
Stay ahead with the latest insights from BloombergNEF, delivered straight to your inbox.
Sign up for BNEF’s free newsletter.
What do you think? Should governments subsidize sustainable debt to accelerate climate action, or does that unfairly tilt the playing field? Is labeling debt enough, or should we prioritize measurable environmental impact over catchy names? And could these innovations in emerging markets set a global standard, or are they just temporary trends? We'd love to hear your take – agree, disagree, or add a fresh perspective in the comments below!
