Today Climate Bonds announced the expansion of the Climate Bonds Standard into heavy industrial transition, bringing clarity and credibility to transition investments for the cement sector.
The launch of criteria for the cement a 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 cement 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 cement criteria are the first of a slate of new sector-specific criteria designed to facilitate industrial transition. Criteria for basic chemicals, steel and hydrogen are currently in development and will be available for certification before the end of the year.
The criteria were formally approved by the Climate Bonds Standards Board in August of this year. Applicants can now seek certification in the high-emitting cement 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 – 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 cement.
By establishing standards for high emitting industries like Cement, 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).
Cement Criteria
Cement is one of the largest contributors to global carbon emissions, responsible for up to 7-8% of emissions. This is due to the sheer scale of cement production. It is the most consumed material on the planet after water, and global production shows no signs of slowing down.
The Cement Criteria aim to illustrate that the cement sector can contribute to the net zero transition, and much of that can come from existing technology and practices. However, to achieve this, every decarbonisation lever will need pulling by the industry.
Today, that means maximising efficiency, substituting clinker with low carbon alternatives (Supplementary Cementitious Materials, or SCMs), or replacing fossil fuels with lower carbon alternatives such as waste-derived fuels. Further down the line, technologies such as Carbon Capture and Storage may need to bridge the remaining gap. Alternative cement chemistries need further advocacy to replace what is widespread in the market.
The criteria aim to address the emissions from producing cement – the powder mixed with water and gravel to make concrete, the most intensely used building material bar none. This ultimately means tackling clinker production (this is the ingredient where most of the cement emissions come from).
Concrete production and mixing is out of scope. This is not due to lack of mitigation potential in this sector. On the contrary, improving the use of concrete and green standards have huge potential to further decrease sector emissions. However, technical expertise is needed not only from cement experts but also from buildings experts, which Climate Bonds hope to bring together in the future.
Entity-Level Certification: New Horizons for Climate Bonds
The Cement 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 Cement Criteria thus reflect that the Key Performance Indicators (KPIs) underpinning an SLB, or even a whole cement 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 cement page on Climate Bonds’ website.
A dynamic approach to criteria development
These are the first versions of the Cement Criteria. However, all Climate Bonds criteria aim to improve in line with industry best practice and evolving scientific understanding. It will thus be reviewed regularly. It may also be subject to earlier change if future market definitions or standards are underpinned by differing criteria. This will depend on the Technical Working Group deciding that such criteria are robust and workable enough to be adopted.
The last word – thank you and acknowledgments
The cement criteria are the first of a slate of new sector-specific criteria designed to facilitate industrial transition. Criteria for basic chemicals, 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 Criteria.
‘Till next time,
Climate Bonds
