Key takeaways
- Sustainable-finance fund flows in 2026 are net-positive again after two years of outflows, but the composition is different — broad ESG funds out, thematic climate funds in.
- Real-economy issuance of sustainability-linked bonds has overtaken green bonds for the first time, signalling a market preference for outcome-based instruments.
- Disclosure regimes are converging; ISSB-aligned reporting is becoming the default in major markets through 2026.
The narrative around sustainable finance has shifted markedly since the 2023–2024 ESG-backlash period. Net flows are positive again, but the products winning are not the ones from the 2021 boom. This piece looks at the structural shifts.
What changed in 2025
The post-2024 reset was about specificity. Broad ESG mandates lost ground to thematic, outcome-linked vehicles. Climate-transition funds, biodiversity-themed bonds, social-bonds tied to specific KPIs all gained share.
Where flows actually went
Sustainability-linked bonds — instruments where the coupon adjusts based on whether the issuer hits its sustainability targets — saw $480bn of issuance in 2025, surpassing green bonds for the first time. The market is voting for accountability mechanisms over use-of-proceeds labelling.
What to expect through 2026
Three structural items to track: ISSB adoption deadlines in major markets, the EU’s CSRD second-wave reporting cycle, and the slow consolidation of ESG ratings into a smaller set of credible providers.