Tracking Sustainability: The Rise of Green Bond Indexes

How Do Green Bond Indexes Actually Work?

One of the most closely watched tools by investors, regulators, and analysts is the green bond index—a key metric for tracking the progress of the green economy.

In this article, we explore the growth of these indexes, the role they play in sustainable finance, and what investors should consider when monitoring their performance.

What Are Green Bonds?

Green bonds are debt instruments issued with the specific purpose of financing projects that have measurable environmental benefits. These include:

• Renewable energy (solar and wind)
• Clean transportation
• Energy efficiency in buildings
• Sustainable water and waste management
• Biodiversity preservation
• Climate change adaptation

Since the World Bank issued the first green bond in 2008, the global market has grown exponentially—surpassing $2 trillion in cumulative issuances by 2025, according to the Climate Bonds Initiative.

In the United States, states, municipalities, universities, and corporations have become frequent issuers.

New York City, for instance, has issued green bonds to modernize its water infrastructure, while companies like Apple and Google have financed clean energy projects through this instrument.

Why Did Green Bond Indexes Emerge?

Green bond indexes emerged from the need to organize, standardize, and track the performance of green bonds.

Just like traditional indexes (such as the S&P 500 or Nasdaq) serve as benchmarks for specific segments of the economy, green bond indexes track the performance of a basket of bonds classified as green.

This allows investors to:

• Compare financial returns.
• Measure aggregate risk
• Assess exposure to sustainable sectors.
• Make more informed and comprehensive decisions.

Additionally, indexes help bring transparency and credibility to the market—especially amid growing concerns about greenwashing, when assets are labeled as sustainable without truly meeting the criteria.

Key Green Bond Indexes in the U.S.

Here are the main green bond indexes tracked by investors in the U.S.:

Bloomberg MSCI Green Bond Index

One of the most widely used indexes in the market. It includes only bonds that meet MSCI’s strict eligibility criteria, based on the Climate Bonds Initiative taxonomy.

S&P Green Bond U.S. Dollar Select Index

Focused on U.S. dollar-denominated issuances, this index tracks high-liquidity green bonds with strong credit ratings, covering both public and private sector issuers in the U.S.

ICE BofA Green Bond Index

ICE (Intercontinental Exchange) offers a range of thematic fixed-income indexes, including the ICE BofA Green Bond Index, which aggregates global issuances with increasing focus on U.S. and European markets.

FTSE Green Revenues Select Index

Unlike the others, this index also includes companies generating significant revenues from sustainable activities, offering a broader view of exposure to the green economy.

Why Track These Indexes?

For Individual Investors:

• A way to align investments with personal values (sustainability, social responsibility)
• Offers diversification with assets less correlated to polluting sectors
• Ideal for long-term ESG-focused portfolios

For Institutional Managers:

• Used as benchmarks for green or ESG funds
• Helps meet impact targets or regulatory requirements
• Facilitates sustainability reporting to stakeholders

For Governments and Policymakers:

• Identifies sustainable finance trends
• Provides empirical support for incentives and regulations
• Bridges climate policy with financial markets

Challenges in Building Green Bond Indexes

Despite their growing importance, green bond indexes still face key challenges:

• Lack of standardization: Not all issuers follow the same eligibility criteria, causing inconsistency.
• External verification: Not every green bond is independently certified, raising concerns about authenticity.
• Data availability: Transparent and up-to-date information on the environmental impact of each bond is still limited.
• Performance vs. impact: Some investors question whether green bonds offer sufficient returns given the risks and lower liquidity.

However, as technology, regulation, and investor demands evolve, these challenges are expected to diminish in the coming years.

Trends for the Second Half of 2025

• Increased ESG regulation in the U.S., especially by the Securities and Exchange Commission (SEC)
• New sustainability-related initiatives from the Federal Reserve
• Growing demand from pension funds and insurance companies
• Innovation in indexes, especially hybrid models combining green bonds and social bonds

Written by

Gabriel Gonçalves