Sustainable Climate Bonds: Outlook 2026
December 2025 | Romain Miginiac
Clients and investors may well be asking whether we are seeing a U-turn in terms of sustainability.
The political landscape, especially in the US, has been less supportive for the global transition. Political backlash around sustainability in the US has led to the shutdown of the Net Zero Banking Alliance (NZBA), following an exodus from major US banks and certain European banks. Moreover, Wells Fargo dropped its net zero financed emissions targets – the first major US bank to do so.
Despite headwinds in the US, European banks remain firmly committed to their sustainability strategies and have maintained net zero and sustainable financing targets. Regulation remains highly supportive, as both EU and UK banks face heightened scrutiny around climate risk management – where failure to meet supervisory expectations may lead to fines and/or higher capital requirements.
Green does not have to equal lower return.
Green bond issuance has remained buoyant; around USD 43 billion issued by the sector year-to-date to Q3 2025, +30% year-on-year and the second highest over the past five years for the same period. This showcases EU financials’ commitment to the transition as well as strong appetite from investors for green products.
Green does not have to equal lower return; impact and performance can go hand in hand. The strategy’s performance is underpinned by the attractive yields on senior and subordinated green bonds from European financials, that offer a pick-up in yield compared to non-financials. As in previous years, in 2025 we continued to see strong performance from investment grade (IG)-rated financial bonds compared to non-financials, which we expect to continue given the strong fundamentals of the sector and attractive valuations.
The ‘greenium’ (yield give-up on green versus non-green bonds) is very limited – a few basis points. Moreover, the greenium varies widely depending on the issuer, capital structure, currency, tenor, etc; and can even be negative. Therefore, we see the greenium as an extra factor in our bond selection process. The impact on long-term performance is expected to be immaterial.
For investors looking for tangible impact, green bonds from the European financial sector are an attractive proposition. Despite headwinds in the US around climate change, the EU remains fully committed to its decarbonisation strategy, while climate change remains a key focus for the European Central Bank (ECB) as a banking supervisor. Moreover, the financial sector typically finances the broadest set of projects within the green bond markets across three dimensions: geography, sector and stakeholders (customer types). This provides private markets-like impact (financing SMEs, individuals, etc) in liquid bonds from high quality issuers.
We see the European financial sector as one of the best opportunities within credit markets in 2026. The fundamentals of the sector are rock solid, with record high capital metrics and strong earnings tailwinds from higher rates. In the context of macro and geopolitical uncertainty, the sector offers a good hiding place, for example with no direct impact from tariffs. In our view, the sector could absorb any potential scenario just through earnings, without impairing excess capital.
Romain Miginiac is a Portfolio Manager at Atlanticomnium, who co-manages Credit Opportunities and Sustainable Climate Bond strategies for GAM Investments.