Can Green Bonds Fund the Hard Stuff? A Look at Hard-to-Abate Sectors

Green bonds have done a remarkable job funding what’s been relatively easy to define, such as renewable energy, green buildings, clean transport. But the climate challenge isn’t just about solar panels and trains. It's also about steel, cement, shipping, aviation, and chemicals – hard to abate sectors, that sit at the heart of the real economy and account for a disproportionate share of global emissions.

The question is: can green bonds help fund these transitions too?

The Sectors That Matter Most and Get Funded Least

At SFI Data, we’ve reviewed hundreds of green and sustainability bond frameworks, and as we discussed in our earlier articles, Green Bonds in Practice - a consistent pattern emerges: allocation overwhelmingly flows to sectors that are mature, standardized, and easily mapped to existing Use of Proceeds categories.

But when it comes to hard-to-abate sectors, the data thins out. Cement decarbonization projects? Electrification of chemical production? Retrofitting steel furnaces? These are rarely funded via green bonds, not necessarily because they aren’t eligible, but because they don’t fit neatly into legacy frameworks.

Why These Transitions Are Tough But Necessary

There are a few reasons why these sectors are harder to include:

• Technology uncertainty: Many of the decarbonization pathways are still emerging (hydrogen, CCS, industrial heat electrification).

• Capex intensity: Projects are expensive, complex, and long-cycle, not ideal for short-term instruments.

• Category ambiguity: ICMA UoP categories like 'Energy Efficiency' or 'Pollution Prevention' are too broad to capture industrial transition narratives with clarity.

• Reputational risk: Issuers in high-emitting sectors fear greenwashing accusations, even when the projects are credible.

And yet, if these sectors don’t transition, an already ambitious net-zero goal becomes increasingly out of reach. So the opportunity for green bond innovation is both urgent and important.

The Good News: Signals of Change

The shift is starting.

• Cemex, a major cement producer, issued a sustainability-linked bond tied to reducing scope 1 and 2 emissions.

• Enel has explored combining transition-focused investments with performance-based KPIs in their bond frameworks.

• The EU Taxonomy includes technical screening criteria for manufacturing and heavy industry - a signal to green bond issuers that these sectors can (and should) be included.

• Sovereign and DFI frameworks in emerging markets (e.g., Indonesia, Egypt) have started referencing industrial modernization and energy-intensive sectors.

But these examples are still the exception. For green bonds to scale into transition finance, the market needs better data, clearer language, and more comfort with complexity.

How SFI Data Helps Illuminate the Grey Zones

At SFI Data, we’ve begun to map where hard-to-abate projects are quietly hiding inside broad categories. We are able to track:

• Actual project types funded under catch-all tags like 'Energy Efficiency' or 'Pollution Prevention'.

• Post-issuance allocation reports that quietly mention industrial applications even when the frameworks don’t.

• Instances where issuers in transition-heavy sectors issue bonds but under-report the technical details.

The aim is to help investors, DFIs, and regulators distinguish between surface-level greening and real transition finance.

The Path Forward

To drive systemic change, Green Bonds need to engage with the more complex and capital-intensive sectors. What this means in this article's context is that we need frameworks that:

• Encourage inclusion of industrial transitions without fear of backlash.

• Link Use of Proceeds to measurable decarbonization outcomes, not just project tags.

• Recognize the value of intermediate steps like fuel-switching or efficiency gains in hard-to-abate sectors.

With the right structure and tools, green bonds can support credible, measurable progress in sectors that have the most to contribute to climate goals.

As the green bond market matures, expanding into hard-to-abate sectors is a technical challenge and a strategic necessity. Industrial transitions take time, scale, and precision - all of which green capital can support, if structured right. But with shifting trade dynamics, rising tariffs on clean technologies, and geopolitical volatility shaping supply chains, investors will need to weigh not just project quality but also resilience and alignment with long-term decarbonization pathways. That’s where frameworks and data can to rise to meet the moment.