Without a unifying definition of ‘transition’ in the market and with investor concerns around greenwashing, this transition framework has been established to assist in the mobilization of global capital flows towards activities which enable the transition to a Paris Agreement-aligned economy. The aim is to support the rapid growth of a transition bond market as part of larger and liquid climate-related market and deliver confidence for investors, clarity for bankers and credibility for issuers.
To date, green finance frameworks and capital flows have been principally directed at activities which can be considered ‘already green’. There has been significantly less investment into transitioning activities and assets that are associated with the highest carbon-emitting industries and businesses.
The paper promotes an economy-wide transition in which companies should transition away from existing activities towards better alternatives. For some, low or zero-emission solutions are possible. For others, there are no such solutions so substitute low-emission activities are in development.
The framework, which is applicable for both whole entities as well as their activities, goes beyond the use of proceeds model common in the green bond market and is applicable to a broad range of financial products including use of proceeds and sustainability-linked debt.