While corporates pared down social bond issuance with the cooling of interest in such products following the arrival of the new US presidential administration, global financial institutions and supernational issuers picked up the slack in the first quarter of 2025 to narrow the decline, according to a recent report.

Global social bonds issuance recorded US$42.9 billion in the first quarter, down 19% from the same period last year, finds ESG research business Sustainable Fitch’s Social-Themed Debt More Resilient to Labelled-Bond Market Slowdown report. This market lost steam when key corporate issuers slashed issuance by a staggering 65%, followed by that of municipals 54% and agencies 36%.

The precipitous fall, the report notes, was triggered by the dimmed outlook on sustainable finance, alongside corporates’ decision to minimize borrowing because of economic uncertainties.

Before diverting attention away from sustainability, existing hurdles have made it difficult enough for corporates to take part in social bonds, including the lack of standardized indicators for all industries and unsolved complexities on social metrics. Consequently, social bonds are shunned as corporates pivot away from thematic funding.

While social-themed bonds lost a portion of regular issuers, the market noticed a surge from financial institutions and supranational issuers.

With the rise of financing demand from small and medium-sized enterprises and low-income households, financial institutions rode on the uptick to issue US$12.4 billion of social bonds during the first quarter, up 22% from a year ago. Proceeds were channelled primarily to financial inclusion-related activities – the focus for bank issuers.

The frenzied market has the backing of active European issuers thriving on a solid environmental, social and governance ( ESG ) foundation. For instance, the market saw Standard Chartered launch the first €1 billion ( US$1.13 billion ) social bond to invest in financial inclusion. The European Investment Bank’s decision to extend the Sustainability Awareness Bonds programme to cover gender equality and women’s economic empowerment set a positive tone, in contrast to the muted activity occurring among Asian financial institutions.

Supranational issuers also boosted their presence in the social bond market by doubling the issuance to US$6.7 billion during the first quarter. This record is largely attributable to the blockbuster social bond from the International Financial Centre ( IFC ), regarded as the largest US dollar social bond from a multilateral development bank to support low-income communities in emerging markets.

The outlook in the second quarter continues the upward trajectory with an increasing number of supranational social bond deals in the works. In addition to the first supranational-launched Hong Kong dollar-denominated social bond issued by the IFC in May, the Asian Development Bank has completed its first Mongolian tugrik-denominated education bond with a green education facility certification.

“The withdrawal of US federal government financing from international development projects is likely to create a financing gap that could be partially filled by sustainable debt,” the report says. “Supranationals, commercial banks and development banks would be best placed to support emerging market lending through thematic issuance.”