ICMA publishes a new paper on transition finance in the debt capital market


14 February 2024 The International Capital Market Association (ICMA) publishes a new paper on transition finance in the debt capital market.

ICMA has been at the forefront of transition finance since the release in 2020 of the Climate Transition Handbook (CTFH). Today we publish a new thought-leadership paper on transition finance in the Debt Capital Market.

The paper reviews the latest guidance and recommendations on transition finance from both the market and the official sector. It also underlines the progress of international taxonomies to integrate transition, as well as the latest developments on sectoral pathways and industry roadmaps.

It unpacks transition finance into three overlapping definitions relating to economy-wide transition, climate transition, and hard-to-abate transition. Analysing the data, we confirm that the green and sustainability bond market has been largely dedicated to climate finance but is not a major resource for the transition of companies from the fossil fuel sector and the hard-to-abate industries notably because of “greenwashing” fears.

We see new sustainability corporate reporting standards of the International Sustainability Standards Board (ISSB) and the European Sustainability Reporting Standards (ESRS) as an opportunity for the mainstreaming of transition plans which we argue have the potential to unlock transition finance in the sustainable bond market.

We conclude by proposing the voluntary adoption of transition plans by the market in anticipation of regulation and make available a model structure for integrated transition plans aligning with the CTFH, IFRS S2, ESRS E1, and the UK Transition Plan Taskforce recommendations.

“Climate transition finance is at the top of the agenda among both policy makers and market participants. With this paper we define transition finance with greater clarity while acknowledging the progress of both official and market guidance. We also propose a model structure for integrated transition plans to help unlock further the potential of the sustainable bond market to finance transition especially in the fossil fuel and hard-to-abate sectors.” said Nicholas Pfaff, Deputy CEO and Head of Sustainable Finance at ICMA.   

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