Corporate Sustainability Reporting in 2025:
Navigating a Shifting Landscape

In terms of currency, green bonds are predominantly issued in euros and U.S. dollars, though renminbi-denominated bonds are gaining market share.

Non-financial corporations, including those in carbon-intensive sectors, dominate the green bond market, accounting for an impressive 43% of the total outstanding as of 2024. Financial institutions come next, holding 38%, while the official sector accounts for 19%.
 

The Green Bond Premium ("Greenium")
 

The BIS report clearly shows that there is a trading premium on green bonds compared to traditional bonds that share otherwise identical characteristics. This provides a cost benefit to issuers. This premium is most pronounced for bonds issued by investment-grade companies. The premium varies depending on the term structure of the bonds. Two main factors drive this premium: preference channels, where investors favor environmentally responsible firms, and risk channels, where carbon-intensive companies are seen as default risks.

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Policy Correlation and Emissions Impact

The BIS research establishes two critical relationships through regression analysis:

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• Policy-Issuance Correlation: A one standard deviation increase in aggregate climate policy stringency is associated with approximately 2.4% higher annual issuance of green bonds. Sectoral policies have the strongest correlation, with a one standard deviation increase in stringency linked to nearly 3% more green bond issuance.

• Emissions Reduction Effect: Using a panel data set of 736 green bond issuers (991 green bond issues) during 2011-2022, the research shows:

  • Scope 1 emissions intensity decreased by approximately 21% on average one year after a firm's first green bond issuance.

  • Reductions were statistically significant up to three or more years after issuance.

  • Heavy emitters showed the most pronounced improvements, with firms in carbon-intensive sectors achieving significantly lower emissions intensity while firms in other sectors showed smaller reductions.

  • Firms in the highest emissions intensity quintile before issuance reduced their emissions significantly, while those in the lowest intensity quintile did not.

 

It is clear that green bonds act as a credible indicator of broader corporate commitments to emissions reduction, particularly among the highest-impact emitters. By issuing green bonds, companies make it known to investors, regulators and the public that they are not only committed to sustainable practices, but are also actively working to reduce their carbon footprint. This is especially evident in sectors with the highest emissions intensity, where the issuance of green bonds is clearly driving significant improvements in emissions management. Green bonds are a tool for aligning financial incentives with environmental goals. It is hoped that a signaling effect will influence other companies in carbon-intensive industries to adopt similar practices, creating a ripple effect throughout the economy that will drive further reductions in global emissions.

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Key Trends Shaping Corporate Sustainability in 2025

1. Regionalization of Standards and Regulatory Divergence

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One of the most notable trends is the growing divergence in regulatory approaches across regions. As Deutsche Bank Research noted in their 20 March 2025 report, there has been an escalating politicization of the energy transition, with regulatory stringency showing significant variation across different jurisdictions. This creates a complex landscape for multinational corporations to navigate.

The JPMorgan ESG Wire highlights a notable example of regulatory divergence in digital assets, noting a contrast between the US, which is leading the way in innovation, and the UK, which is lagging behind, while the EU is making progress. This pattern is evident across multiple sustainability domains.

2. Evolution of Emissions Reporting Requirements

The Science Based Targets initiative (SBTi) is undergoing a substantial revision process that will significantly influence how companies approach emissions targets. According to a Kepler Cheuvreux analysis dated 18 March 2025, the SBTi's proposal includes the following elements:

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• Alignment: Alignment with maintaining a 1.5-degree temperature increase across all scopes.

• Requirements: Different requirements for "Category A" firms (large companies in all countries and medium companies in high and upper-middle income countries) versus "Category B" firms (medium-sized companies in lower-middle and low-income countries and small companies in all countries).

• Timeframes: Tightened timeframes for near-term targets from 5-10 years to up to five years.

• Flexibility: Greater flexibility in scope 3 emissions reporting.

 

Particularly noteworthy is the proposed shift from reduction requirements to "alignment" of scope 3 emissions-causing activities with net-zero trajectories, This could potentially allow companies to set targets on the share of low-carbon products rather than absolute emissions reductions.

3. Increased Scrutiny of Green Claims

As scrutiny of greenwashing intensifies, companies are under increasing pressure to substantiate their environmental claims, particularly in relation to their sustainability practices. The Science Based Targets Initiative (SBTi) has proposed changes to strengthen the credibility of zero-carbon electricity claims, particularly in the context of Scope 2 emissions. These proposed changes require that:

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• Claims: Zero or lower carbon energy claims must be substantiated by physical traceability of the energy source.

• Contracts: Companies will be expected to use contractual instruments that ensure geographic and temporal matching "to the extent practicable" to ensure that the energy sourced is consistent with the claimed carbon reduction efforts.

• Reporting: Companies will be required to report annually on the contractual instruments they use to procure energy, providing further transparency in their sustainability reporting.

 

In the context of green bonds, the BIS report raises concerns about the potential for "greenwashing" in the "use of proceeds" type of green bond. While this structure allows funds to be allocated to specific environmental projects, it risks undermining the authenticity of the green bond's impact if not carefully tracked. The report highlights that when proceeds are not specifically tied to a defined green project, it becomes difficult to determine whether the funds are truly supporting environmentally beneficial activities or simply being used for general corporate purposes. A loophole may open that could lead to misleading claims about a company's environmental efforts.

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Given these concerns, there is a growing call for more rigorous verification processes and transparent impact reporting for both corporate claims and green bond issuance. Effective monitoring and clear, accurate reporting will be essential to restore confidence in corporate sustainability claims and ensure that green investments deliver the environmental benefits they promise

4. Integration of Carbon Dioxide Removal (CDR)

 

For the first time, the SBTi proposal introduces a role for carbon removal in addressing residual emissions between the target base year and the net zero target year. The proposal:

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• Limits the use of CDR in the short term to Scope 1 emissions (which are a small minority for most companies outside of utilities, heavy industry and transport services)

• Proposes two potential approaches: either requiring companies to set specific short term carbon removal targets with increasing percentages each year, or allowing flexibility to address residual emissions through either abatement or removal without specific targets.

5. Focus on Physical Climate Risk

Insurance and risk modelling are increasingly incorporating climate-related impacts. According to the findings of Deutsche Bank's Climate, Security and Technology Day, climate change is "having a significant impact on risk modelling in the insurance industry", with specific impacts including

 

• Risk Reassessment: Reassessment of risk profiles (extended tails or shifts in overall distributions)

• Secondary Perils: Increased prominence of secondary perils such as wildfires and floods - Insurance coverage gaps, with only about "20-40% of losses insured" in some recent catastrophes

• Pricing Challenges: Challenges in pricing risk appropriately due to regulatory constraints (e.g. price caps).

 

Impact on Corporations and Investors

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The evolving trends create both challenges and opportunities for businesses and investors.

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Challenges

 

A key challenge is the complexity of compliance. Companies have to comply with different regulatory requirements depending on their size, location and sector. This creates a highly complex compliance landscape and requires the development of sustainability strategies and reporting mechanisms to meet regulatory requirements.

 

Another challenge is the increasing demand for more granular data, particularly on Scope 3 emissions and supply chain impacts. Companies need to improve their data collection and management systems to meet these demands. As outlined in the SBTi proposal, companies will be required to assess and improve the traceability of their emissions-intensive activities over time. To meet this requirement significant investment in a robust data infrastructure is needed to ensure accurate and transparent emissions reporting.

 

Uncertainty in long-term planning is also a significant challenge. Regulatory instability, such as the varying approaches to the Inflation Reduction Act (IRA) under the Trump administration, complicates long-term sustainability planning. The Deutsche Bank report highlights that concerns about potential cuts to IRA subsidies have slowed new investment, although existing projects continue to move forward.

Finally, the need for third-party verification and assurance of sustainability claims has increased, adding both financial and operational complexity. The SBTi's proposal to require Category A companies to obtain (limited) third-party assurance on their base-year GHG emissions inventory adds another layer of cost. As more companies face similar scrutiny, the cost and complexity of these verification processes is expected to increase, further straining resources.​