Report
Transition finance for transforming companies
A Climate Bonds discussion paper: Transition Finance for Transforming Companies
Tools to assess companies' transitions and their SLBs
This paper explicitly addresses the challenge of the climate mitigation transition, and specifically, assessing the credibility of a company’s decarbonisation, presenting Climate Bonds’ proposal of Five Hallmarks of a Credibly Transitioning Company, i.e. a company whose transition is rapid and robust enough to align with the global goal to nearly halve emissions by 2030 and reach net zero by 2050, in line with the Paris Agreement.
Climate Bonds is developing two specific tools and offerings to support the market that use these Hallmarks as their foundation.
The first is the structural expansion of the Climate Bonds Standard and Certification Scheme, now open for public consultation, to certify, potentially with differentiated certification labels:
- Non-financial corporates that are credibly transitioning to align with 1.5 degree pathways (including those already aligned and those who will align by 2030); and
- Non-financial corporates that are already near zero (so already near alignment with 1.5 degree goals without the need for further deep transition); and
- SLBs issued by any such corporate.
The second is the expansion of Climate Bonds’ market screening capabilities (and data provision) to include all SLBs issued in the market. Further details on this will be available later this year.
Hallmarks of a credible company transition
This framework consists of five hallmarks of a credibly transitioning company (the ‘Hallmarks’). The Hallmarks address:
- The requisite ambition in terms of company-level performance targets set; and
- The company’s willingness and ability to deliver on those forward-looking targets.
The Hallmarks complement existing ESG frameworks and methodologies but go beyond them. They emphasise key governance elements that are important indicators of a company’s willingness and ability to deliver on its decarbonisation targets, but also add the granularity needed to ensure that those targets are ambitious and in line with the agreed climate goals.
They move away from a world of relative measures such as ‘best in class’, ‘sector benchmarking’ or ‘improvements compared to a historic baseline’, to the more absolute measures tied to transition pathways that are common to all actors in the sector. This approach has worked well in the green UoP market and is reflected in the upsurge in green or sustainability taxonomies worldwide.
The five Hallmarks of a credible company climate mitigation transition are:
- Paris-aligned targets
- Robust plans
- Implementation action
- Internal monitoring
- External reporting.
Posted Sept 06, 2022
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