Lost in translation? Just transition in the labelled bond market
Green, social, sustainability and sustainability-linked (GSS+) bonds are one of the great success stories of sustainable finance. However, as Arka Chanda argues, despite their potential, there is still some way to go before GSS+ bonds systematically finance a just transition.
GSS+ bonds, also known as labelled bonds, reached $6 trillion in cumulative issuance in 2025 – with most of this made up by green bonds that seek to ‘foster a net zero economy and protect the environment’. This is an important step in the right direction: evidence that climate action is gaining a foothold in the global financial system.
But simply financing the transition to a low-carbon economy is not all that matters. Equally important is ensuring that this transition happens in an inclusive, fair and just way. Minimising the social risks and amplifying the social opportunities that arise from efforts to decarbonise is essential for ensuring the transition’s credibility and for maintaining public support. In short, if we want the transition to succeed, we must ensure it is just.
So, are GSS+ bonds financing a just transition? Our analysis at the Just Transition Finance Lab suggests that they are starting to, but there is still some way to go.
Labelled bonds and just transition: the current picture
While GSS+ bonds are effective at financing social or green projects in isolation, they do not often explicitly consider the social impacts of green projects, or the climate implications of social projects. Where they do, this usually stops short of contributing to positive solutions and, instead, focuses on avoiding any negative impacts.
To date, the growing commitment to just transition by governments, businesses, development banks and others has not been linked structurally to how capital is allocated – including in bonds. Despite the just transition featuring in a growing number of bond frameworks, it is conspicuously missing from bond proceeds and impact metrics: the commitments to just transition seem to be ‘lost in translation’.
Nonetheless, it is promising that we can see examples of just transition-aligned expenditures, metrics and language emerging. While these are sparse, and far from systemic, they do provide practical, replicable examples of how to better align financial flows with the aims of the just transition.
With growing numbers of governments integrating just transition into their national climate plans (nationally determined contributions or NDCs), it is more important than ever to make sure that these objectives are properly incorporated into sovereign bond programmes, as well as bonds issued by multilateral development banks (MDBs) and leading businesses.
Harnessing the potential of labelled bonds to finance a just transition
GSS+ bonds are already financing important transition investments – from clean transport to renewable energy. But they also have significant potential to integrate just transition processes and finance just transition outcomes. For example, they can enable issuers to demonstrate their commitment to a just transition. Issuers can outline organisational policies and activities on just transition issues, including workers’ rights and community engagement, that exist outside of how and where the bond proceeds will be spent.
As part of this, bond issuers must integrate exclusion criteria and safeguards to reduce the risk of investments that could cause harm to local communities, Indigenous peoples or other vulnerable groups: investments that would otherwise conflict with the aims of a just transition.
Once just transition is signalled at the framework level, issuers can direct bond proceeds towards just transition-related projects, such as reskilling and employment for workers displaced by the phaseout of fossil fuels. They can also embed financial incentives within bonds to achieve just transition objectives, such as through sustainability-linked bonds, incorporating incentives to reduce emissions, progress gender equality or improve access to clean, affordable energy.
Finally, to be credible, bond issuers must explain how just transition is being delivered in their impact reports, particularly on how they are ensuring community voices are heard.
From potential to practice: two key findings
While there is considerable potential for labelled bonds to integrate just transition outcomes, it is far from a mainstream feature of the market today.
We observe two common characteristics for just transition activity in GSS+ bonds. First, just transition is usually referred to implicitly, using existing sustainability and risk management frameworks. Second, when it is mentioned explicitly, it usually appears as a commitment that, more often than not, does not translate to how bond proceeds are spent and what impacts are measured.
In practice, this means that just transition considerations do not generally drive how proceeds from bonds are allocated. This should not come as a surprise. Labelled bonds are designed to comply with market standards: green bonds fund green projects, social bonds fund social projects and sustainability bonds fund a mix of projects from green and social categories. The challenge is that just transition requires integrating environmental and social dimensions, making it difficult to capture just transition-related expenditures and outcomes systematically in the current bond ecosystem.
Signs of promise: three emerging areas of activity
This does not mean that just transition-aligned investments are not occurring through the labelled bond market. We find three emerging and promising areas of activity.
First, we found that alongside their environmental objectives, many green bonds incorporate comprehensive social safeguards addressing community impacts, labour rights and stakeholder engagement. These bonds either avoid a broad range of harmful investments, or integrate comprehensive social safeguards, demonstrating how social risk management can be deeply embedded within bond frameworks.
That said, this approach prioritises minimising social harm only. While clearly necessary, minimising harm remains insufficient for the level of transformation that the transition demands. In isolation, these types of measures fall short of delivering positive contributions for workers, communities and regions to thrive in a low-carbon economy.
The second, more promising, type of activity are green bonds with employment and training co-benefits, which direct expenditures towards worker upskilling, local employment and capacity building in green sectors. These bonds are a clear example of how just transition can be financed directly by bond proceeds.
The third type of activity represents perhaps the most integrated approach: social bonds enabling access to green infrastructure and low-carbon services. Rather than treating environmental and social objectives as separate priorities to be balanced, these bonds pursue synergies: for example, clean affordable energy for underserved communities; green public transport for people living in low-income areas; or sustainable water systems serving vulnerable populations. It is crucial that issuers of these bonds have a clear understanding of their target populations to finance a just transition.
Delivering on the just transition – towards systemic change
It is good news that we are starting to see these types of bonds in the GSS+ market. But do they deliver? Looking at the evidence, it is not immediately clear whether bond frameworks that outline clear just transition investment criteria translate to just transition outcomes in reality.
For example, Peru’s sovereign bond framework references the benefits of training workers as part of new green projects. But from bond impact reporting it is not clear whether any training has been delivered or how many workers benefited.
This does not necessarily mean that the bond no longer finances a just transition, but rather, that we cannot tell easily if that is the case. And if we cannot understand the impact of these investments, it is difficult to evaluate, track, monitor and improve current practice. This can also lead to a widening rhetoric–implementation gap between what bonds say they will do and what they actually do.
How do we move forward? Improving reporting on just transition outcomes, including through social impact metrics and secondary indicators, is an important step, alongside better understanding of how bond proceeds affect vulnerable communities. Building wider recognition of how green and social projects intersect is crucial – not just in reporting, but in how bonds are structured from the outset. Long term, just transition should be integrated into issuer transition plans, which should also complement regional and national transition plans.
It is encouraging that examples of intentional good practice exist, demonstrating that it is possible to build just transition considerations into bond structures. But these examples must represent the beginning of systematic change rather than isolated instances of alignment. The challenge will be ensuring that the growing national policy commitments to just transition and the finance we deploy to achieve these aims speak the same language.
The Just Transition Finance Lab and 103 Ventures’ Community of Practice on Just Transition and GSS+ Bonds are making the labelled bond market a major focus. Our work here aims to provide practical guidance for issuers and investors to ensure that just transition commitments are fully translated into bond realities.
The author would like to thank Simon Bond (Community of Practice co-chair), Nick Robins (Community of Practice co-chair) and the members of the Community of Practice for the dialogue and feedback that contributed to this commentary.
