European sustainable bond issuance is expected to regain momentum in 2026, supported by a renewed focus on energy security, infrastructure resilience, and large-scale public investment. According to SEB’s Sustainable Bond Market Snapshot, green bonds are set to reach record levels this year, even as transition finance initiatives struggle to gain traction in credit markets.

Green Bonds Set for a Record Year

Green bond issuance in Europe is projected to climb to approximately USD 370 billion in 2026. The rebound will be driven primarily by sovereigns, supranationals, and agencies, alongside renewed activity from corporate issuers. Issuance from SSAs is expected to rise by around 8 percent, while corporates are forecast to increase green bond volumes by about 7 percent. Financial institutions, by contrast, are expected to see broadly flat issuance compared with 2025.

This growth follows a stable 2025, when total European issuance of green, social, sustainability-linked, and transition bonds reached USD 464 billion, broadly unchanged from the previous year. The market has continued to normalise after the extraordinary volumes of social and sustainability bonds issued during the COVID-19 period, with green bonds experiencing a modest decline last year before the anticipated rebound.

Energy Infrastructure Emerges as the Core Catalyst

The renewed growth outlook is closely tied to Europe’s rising infrastructure needs. Persistent geopolitical tensions have underscored the bloc’s reliance on imported energy and reinforced the strategic importance of domestic power generation and transmission. At the same time, the rapid expansion of AI-driven data centres is beginning to place upward pressure on electricity prices, highlighting the need for greater generation capacity and grid efficiency.

Recent disruptions have also brought infrastructure resilience into sharper focus. A power line attack in Berlin that left tens of thousands without electricity and heating during a cold spell illustrated the vulnerabilities facing Europe’s energy systems. In response, the European Commission’s Grid Package estimates that investment in EU energy infrastructure will need to rise by more than 40 percent by 2029 to support renewable integration, efficiency gains, and resilience against physical and cyber risks.

These dynamics are expected to translate directly into higher green bond issuance, particularly from entities that own and operate energy infrastructure. Sovereigns, supranationals, agencies, and infrastructure-heavy corporates are likely to dominate supply, reinforcing green bonds as the preferred financing tool for Europe’s energy transition.

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Public Issuers Return to Growth

Public sector borrowers are once again emerging as a key source of momentum. Development banks and EU-level institutions face increasing pressure to fund energy reliability, affordability, and security, creating a strong pipeline for green bond issuance. Germany’s KfW has already announced plans to issue EUR 15 billion in green bonds in 2026, up from EUR 14 billion last year and well above its original target. Other major institutional issuers have signalled similar intentions, supporting expectations of a robust SSA issuance environment.

Refinancing Sets a Strong Issuance Floor

Refinancing activity will also play a significant role in sustaining issuance volumes. Around USD 200 billion in sustainable bonds are due to mature in Europe in 2026. More than 40 percent of these maturities originate from financial institutions, with the remainder split evenly between corporates and SSAs. Assuming refinancing rates of roughly 80 percent, this alone could generate around USD 160 billion in new sustainable bond issuance, providing a solid baseline for the year.

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Transition Finance Rules Unlikely to Shift the Market

Despite regulatory efforts to clarify transition finance, SEB expects only a limited near-term impact on sustainability-linked and transition bond issuance. New standards published in 2025 by ICMA and LMA, along with the European Commission’s proposal to introduce a dedicated “transition” category under the revised Sustainable Finance Disclosure Regulation, aim to address long-standing uncertainty around what qualifies as transition finance.

However, sustainability-linked bonds have been in decline for several years, weighed down by investor concerns over the materiality of key performance indicators, the ambition of targets, data transparency, and the effectiveness of financial penalties. While clearer guidance could help reduce greenwashing risk and provide heavy-emitting sectors with a more appropriate labelling option, experience from other markets suggests adoption may remain limited. The muted response to the UK’s Sustainability Improvers label has raised doubts about whether stricter classifications can drive meaningful growth without adding complexity or constraining innovation.

A Green-Led Recovery for Sustainable Bonds

Overall, SEB expects 2026 to mark a modest but meaningful recovery for Europe’s sustainable bond market, anchored firmly in green bonds rather than transition-labelled instruments. Infrastructure investment, energy security, and public sector financing are set to define issuance trends, reinforcing green bonds as the central pillar of Europe’s sustainable finance landscape in the year ahead.

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