Today Climate Bonds announced the expansion of the Climate Bonds Standard into the basic chemicals industry, bringing clarity and credibility to transition investments to the hard-to-abate sector.
The launch of criteria for the basic chemicals sector marks a significant turning point in the global effort to transition high-emitting industries to net-zero and bring them in line with climate targets.
In addition, the basic chemicals criteria mark a major structural expansion of the Climate Bonds Standard beyond just Use-of-Proceeds bonds. It allows for potential certification of entire entities, Sustainability Linked Bonds (SLBs) and assets, aligned with climate goals.
The basic chemicals criteria are the second of a slate of new sector-specific criteria designed to facilitate industrial transition. Criteria for the cement industry were released earlier this month. Criteria for steel and hydrogen are currently in development and will be available for certification before the end of the year.
The basic chemicals criteria were formally approved by the Climate Bonds Standards Board in August of this year. Applicants can now seek certification in this high-emitting sector, demonstrating to the market that their bond meets industry best practice for climate change mitigation and resilience, as well as for management of proceeds and transparency.
More information about the certification process, as well as the specific criteria, can be found at the Climate Bonds website.
Transition Finance: The road to net-zero
Climate Bonds is working to facilitate the wide-scale transition of the economy in line with net-zero targets. To do this, all sectors of the economy will adjust to operate effectively in a low carbon economy. For many sectors – especially the high carbon emitting sectors like basic chemical production – they may need to fundamentally reshape and transform their strategy in light of the challenges of a changing climate.
These heavy industry sectors (sometimes referred to as ‘hard-to-abate’) need green definitions to facilitate financial flows as much as any other sector. Not only is there considerable industry movement to shift its emissions downwards, but there is far more understanding today on what a 1.5oC-aligned transition looks like for both cement and chemicals.
By establishing standards for high emitting industries like Basic Chemicals, Climate Bonds is providing clarity to investors looking to support credible transitions, as well as demonstrating best practices for producers aiming to decarbonise their industries.
Transition criteria are built on the Five Principles for a credible transition, established in Climate Bonds’ Financing Credible Transitions paper.
These Principles lay the groundwork for a Transition label that will move investment decisively and enable investors to easily find climate-proof investments (and avert potential criticism of greenwashing).
The chemical sector is the largest industrial energy user, accounting for 30% of energy consumption. It is one of the biggest emitters, with around 4- 5% of global GHG emissions. Basic chemicals are the building blocks of thousands of products and materials. These chemicals include olefins, aromatics, methanol, and ammonia, with the most significant volume and energy consumption representing around 60% of the chemical industry ́s energy consumption. Decarbonising basic chemicals will be essential to reduce emissions from this industrial sector.
Given the importance and expected growth in market volume and the contribution of direct emissions of chemical production, it is urgent to promote investments to decarbonise this sector that heavily relies on virgin fossil resources. Some of the technologies and measures to decarbonise this sector are CCS, CCU, electrification, fuel substitution and feedstock substitution. It is estimated that global decarbonisation of the chemical and petrochemical industry will require 63 billion euros from now up to 2050 (Split into 26 billion for new chemical plants and 37 billion for energy supply).
The criteria will assess investments in decarbonisation measures, retrofitting activities, low-carbon production facilities, and business segments of chemical companies dedicated to the production of basic chemicals in scope. Further, the criteria have two main components: First, mitigation criteria, which include carbon intensity benchmarks that reduce overtime following a decarbonisation trajectory aligned with the Paris agreement. Also, specific sustainability requirements for the different decarbonisation measures implemented within a production facility. Second, the adaptation and resilience criteria that cover the potential climate risks of chemicals assets, including those related to the storage and management of hazardous substances.
Entity-Level Certification: New Horizons for Climate Bonds
The Basic Chemicals Criteria are among the first Climate Bonds sector criteria to be able to certify more than just Use-of-Proceeds bonds.
Currently, public consultation is out on an update to the overarching Climate Bonds Standard. This would allow certification of Sustainability Linked Bonds (SLBs) and entire entities. The Basic Chemicals Criteria thus reflect that the Key Performance Indicators (KPIs) underpinning an SLB, or even a whole company’s transition strategy, could be certified.
See here for further details on what this means. We would love your feedback.
Why seek Certification for your transition bond?
Climate Bonds Certification allows issuers to demonstrate to the market that their bond meets industry best practice for climate change mitigation and resilience, as well as for management of proceeds and transparency.
Certification indicates to investors that proper climate due diligence has been carried out on the assets or company that they are investing in – a robust and credible way for that bond, be it a transition bond or a Sustainability Linked Bond (SLB), to enter the market.
Benefits of issuing a Certified Climate Bond include:
- investor diversification (waste management issuers should find they attract new investors by certifying)
- greater investor engagement
- investor stickiness (investors buying Certified Climate Bonds tend to buy and hold)
- strengthened reputation (certifying shows commitment to delivering low carbon infrastructure)
- freeing up of balance sheets.
A full list of Certifications against the Climate Bonds Standard can be found here. Also, check our new Fast-Track Certification service, an online step-by-step process available for potential issuers and Verifiers.
Applicants seeking certification must also meet the reporting and transparency requirements of the overarching Climate Bonds Standard V3.0 (note an update to V4 is ongoing).
Criteria development process
To develop the Criteria, the Climate Bonds assembled a Technical Working Group (TWG) that consisted of international experts from universities, multilateral-development banks and consultancies, led by a Lead Technical Consultant.
The output of the TWG was reviewed by an Industry Working Group with representation from industry stakeholders, investors and issuers.
A complete list of the TWG and IWG members for each sector can be found on the basic chemicals page on Climate Bonds’ website.
Thank you and acknowledgments
The basic chemicals criteria are among the first of a slate of new sector-specific criteria designed to facilitate industrial transition. Criteria for steel and hydrogen are currently in development and will be available for certification before the end of the year.
The Climate Bonds extends its sincere thanks to the dedicated TWG and IWG members for their instrumental role in developing the Cement and Basic Chemicals Criteria.
‘Till next time,