Green versus conventional corporate debt: Financing choices and climate outcomes

Green debt has become a defining feature of sustainable finance, as firms and investors seek to align capital with climate goals. This column documents the rapid expansion of green bonds and loans, led by large corporations and particularly by European firms, while those in the US remain dominant in conventional borrowing. Green issuers tend to be major carbon emitters, and their use of green debt is associated with marked reductions in emissions intensity compared with conventional borrowing. Because these firms account for a large share of global financing and carbon emissions, the growing scale of green debt markets can have important implications for corporate emissions worldwide.

Finance is moving to the front lines of the climate transition (IPCC 2018, IEA 2021, Draghi 2024). Banks, institutional investors, and regulators are increasingly steering capital towards environmental goals, giving rise to a fast-growing market for green debt. These are bonds and loans designed to support climate-friendly activities – such as renewable energy, energy efficiency, or clean transport – or whose interest rates depend on firms meeting sustainability targets. In short, they aim to turn finance into a driver of decarbonisation rather than a bystander.

Our recent research (Cortina et al. 2025) shows that green debt markets have expanded rapidly over the past decade and now account for a meaningful share of corporate finance worldwide. Between 2017–2018 and 2022–2023, annual corporate green debt issuance jumped nearly ninefold, even as conventional borrowing slowed. By 2023, green instruments accounted for about 12% of all corporate debt (Figure 1). Europe has led the surge, supported by frameworks such as the EU Green Taxonomy and the Sustainable Finance Disclosure Regulation (Merler 2025, European Commission 2024). The US and China remain leaders in conventional corporate borrowing but have lagged in the adoption of green instruments.

This global shift raises new questions about how green debt markets are taking shape. Who is issuing green debt? How do green bonds and loans relate to firms’ environmental performance? What are their implications for aggregate carbon emissions?

Figure 1 Trends in global corporate debt issuance

a) Green and conventional debt issuance over time  

b) Green and conventional debt across regions

Note: The left panel shows trends in global green and conventional corporate debt issuances from 2012 to 2023, reporting total issuance volumes in billions of 2011 US dollars (USD). The right panel shows the regional distribution of green and conventional debt issuances over the same period, reporting each region’s share in global issuance volumes.
Source: Cortina et al. (2025).

Who issues green debt?

Despite its label, green debt is far from niche. It is dominated by large, established firms – often among the biggest carbon emitters. Hybrid issuers – firms that tap both green and conventional markets – account for about two-thirds of all green borrowers and nearly 85% of total issuance (Figure 2). By 2022–23, green instruments made up roughly one-third of their overall borrowing. These firms tend to be much larger and more carbon-intensive than those that rely solely on conventional debt: the median hybrid issuer has around five times the assets and emissions of a conventional-only borrower.

Green bonds are mainly issued by very large corporations with substantial carbon footprints, while green loans reach a broader and more diverse group of borrowers, including smaller firms and first-time issuers. Bonds provide scale, while loans expand reach – together shaping how green finance spreads across firms and countries.

Figure 2 Green and conventional debt issuance across firm size quartiles, 2012–2023

Note: The figure shows the distribution of green and conventional corporate debt issuances across quartiles of firm size, based on average total assets over 2012–2023. It reports the total debt volume raised by firms in each quartile, along with the corresponding median carbon emissions (in millions of metric tonnes) displayed on the right-hand side axis.
Source: Cortina et al. (2025).

Do emissions fall?

A central question is whether green debt seems to make a measurable difference to firms’ environmental performance. Early research found positive effects on firms’ environmental performance (Flammer 2021), though other studies pointed to more limited effects (Ehlers et al. 2020). This column revisits this issue using broader data across years, countries, and instruments. We track how companies evolve before and after issuing green or conventional debt, comparing changes in financing, activity, and emissions over time (following the Dube et al. 2025 methodology).

Two clear patterns emerge. First, both types of borrowing are followed by firm growth. Second, only green debt is followed by a sustained decline in carbon intensity. Within four years of issuance, emissions per unit of income fall by about half among green borrowers, while they remain flat around conventional borrowing (Figure 3).

These patterns hold across bonds and loans, among hybrid issuers, and even when comparing matched groups of similar firms. The reductions are mainly driven by declines in direct (Scope 1) emissions, suggesting that firms are changing how they produce rather than simply adjusting their energy purchases.

Figure 3 Carbon intensity around debt issuance

a) Green debt

b) Conventional debt

Note: The figure shows estimated beta coefficients and 90% confidence intervals from local projections difference-in-differences (LP-DiD) estimations. The left panel reports results around green debt issuances, and the right panel reports results around conventional debt issuances, both compared to periods without any debt issuance. The dependent variable is the log of firms’ carbon intensity, measured as changes relative to the year before issuance (t = –1).
Source: Cortina et al. (2025).

Aggregate implications

At the global level, the scale of these patterns is substantial. Green debt issued between 2018 and 2023 could be associated with 4.5–5.7 billion tones of carbon reductions by 2025 – equivalent to about 12–15% of one year’s global energy-related emissions (IEA 2024).

These reductions are highly concentrated. Large corporations dominate both issuance and carbon output, and the top quartile of green borrowers account for roughly 85% of the total estimated abatement. Much of the overall improvement, therefore, reflects changes among a relatively small group of major emitters with the capacity to influence global outcomes.

Green bonds account for most of these reductions, as they are primarily used by large, high-emitting firms. Green loans, in turn, extend participation across a wider set of firms, sectors, and countries with less developed capital markets. Together, they illustrate how green finance operates at different scales – mobilising large volumes where emissions are highest, while broadening access across the global corporate landscape.

Conclusions

The rise of green corporate debt marks one of the most significant shifts in modern finance. The evidence suggests that this transformation is not merely symbolic: unlike conventional borrowing, green bonds and loans are systematically followed by reductions in firms’ carbon intensity, with potentially meaningful implications at the aggregate level.

The results highlight the central role of the largest corporations in climate transition. A small number of firms dominate both global debt issuance and carbon emissions, making them systemic actors whose financing choices carry far-reaching implications (CDP 2023, Acharya et al. 2025). For these firms, the structure of green debt appears to matter: by linking financing more closely to environmental objectives, it helps align corporate behaviour with climate goals. Conventional debt, by contrast, offers broad flexibility in the use of proceeds and remains largely detached from such commitments.

Green bonds and loans also appear to serve distinct but complementary purposes. Bonds channel large-scale investment among major emitters, while loans broaden access across firms and markets. Recognising these differences helps to understand how green finance interacts with corporate structure and market reach in shaping the path toward lower emissions.

Source : VOXeu