European banks are failing to capitalise on the full potential of green bonds to fund infrastructure required for the energy transition, according to new research published by the Institute for Energy Economics and Financial Analysis (IEEFA).
The study, which examined the 47 largest banks across Europe, revealed that outstanding green bonds account for less than 1 per cent of total assets on average. The findings indicate that despite the widespread establishment of corporate green bond frameworks, program scale remains constrained by continued conventional lending to high-emitting sectors and a limited pool of originated green projects.
The report highlights a imbalance in how raised capital is allocated across sectors:
- Renewable energy: Represents approximately 20 per cent of green bond proceed allocations, yet accounts for 90 per cent of the reported avoided carbon emissions delivered by the bonds.
- Green buildings: Receives roughly 70 per cent of allocated proceeds, but contributes just 3 per cent of total reported avoided emissions.
Kevin Leung, sustainable finance analyst at IEEFA and author of the report, commented: “Green bond issuance remains too small to materially shift European banks’ asset allocation. Green bond programmes are held back by banks’ business-as-usual lending to high-emitting assets and a limited pipeline of green projects. This composition of allocations does not squarely address Europe’s clean transition and resilience needs. More credible green bond programmes should therefore actively align funding with a well-represented set of transition-critical assets, which have low climate risk exposure.”
IEEFA noted that significant capacity for expansion exists, as many European institutions hold unallocated pools of eligible green assets while green debt continues to represent a minor share of total bank wholesale funding.
The report recommends that lenders explicitly embed green bond frameworks into broader sustainable finance targets, formal transition plans, and risk management operations to direct capital toward industrial decarbonisation and energy security priorities.
Leung added: “Unlocking the full value of bank green bonds is particularly important given banks’ role in financing the real economy. European banks have the opportunity to move from issuing green bonds as a mature market practice to using them as a strategic instrument for financing the assets Europe needs for its climate and energy security agenda.”
