ESG Bond Issuance Set to Rise Amid Growing Data Center Energy Demand
Issuance of bonds tied to environmental, social, and governance (ESG) objectives declined in the first half of 2025 after a robust second half in 2024. However, we anticipate that ESG-labeled bond issuance will accelerate for several reasons.
A number of new issuers are still entering the market (Display, left). Borrowers from Austria, Sweden, and Spain have notably expanded their ESG-labeled bond activity, contributing over 5% of global issuance year to date. Their participation highlights the resilience and flexibility of the ESG-labeled bond market, as many issuers continue to emphasize responsible investment strategies.
By sector, utilities account for a significant share of new ESG-labeled issuance, averaging about 9% of annual issuance between 2018 and 2024. We expect that rising energy demand from data centers (Display, right) will drive higher capital expenditures by utilities, supporting further growth in ESG-labeled bond issuance. Several factors explain this trend:
A number of new issuers are still entering the market (Display, left). Borrowers from Austria, Sweden, and Spain have notably expanded their ESG-labeled bond activity, contributing over 5% of global issuance year to date. Their participation highlights the resilience and flexibility of the ESG-labeled bond market, as many issuers continue to emphasize responsible investment strategies.
By sector, utilities account for a significant share of new ESG-labeled issuance, averaging about 9% of annual issuance between 2018 and 2024. We expect that rising energy demand from data centers (Display, right) will drive higher capital expenditures by utilities, supporting further growth in ESG-labeled bond issuance. Several factors explain this trend:
- The expansion of data centers is likely to extend beyond the tech sector to other industries.
- Financing options are expected to broaden, with public-market debt increasingly complementing private-market funding.
- Data centers require reliable energy, prompting utilities to invest in both power generation and upgrades to aging electricity infrastructure.
- To limit environmental impact, utilities will need to diversify energy sources, incorporating more renewable energy alongside natural gas, a shift that is likely to support additional ESG-labeled issuance.
The opinions expressed here are not intended as research, investment advice, or trade recommendations, do not necessarily reflect the views of all AB portfolio-management teams, and may change over time.
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