Shaping the future of sovereign transition finance

There is currently an astonishing USD65 trillion of outstanding sovereign debt in the global fixed income market. This figure represents a powerful opportunity to accelerate the transition to Net Zero. Investors, through their roles as sovereign bondholders, have a critical influence over how governments shape their climate agendas, including their sovereign transition planning. But so far, that potential is largely untapped. 

Sovereign transition planning matters to investors because it directly impacts the long-term sustainability of investments   

Government climate action is a key determinant of future economic prosperity, mitigating potential climate change-driven economic losses and developing a resilient pathway to prosperity. As we are seeing more and more implementation of climate policies, we are also starting to see evidence of how they contribute to economic prosperity, including through supporting financial stability. As an example, a study across 88 countries between 2000 and 2020 found that stronger climate-related financial policies are linked to lower credit risk and more robust banking systems. This matters to sovereign bondholders.  

A guide for assessing Sovereign Transition Planning 

How should investors, including sovereign bondholders, assess and engage on government climate action, and understand how that relates to the long-term sustainability of their investment? Current frameworks are in early-stages of development and fragmented.  

To close the gap, Climate Bonds is developing a framework with the goal of supporting investor engagement on sovereign transition planning for a sustainable future.  

Read the report.

The report unpacks key elements of sovereign transition planning, including: 

• Commitments and targets
• Action on policy and investment
• Governance and reporting 

The goal is to help investors be actors of change while safeguarding profit by working with governments to finance their transition, and to spot the countries turning promises into pipelines. For investors, this offers a more structured way to engage sovereigns and unlock new opportunities and accelerate the global transition. 

"Robust sovereign transition plans are critical to unlocking finance for the transition, as they can kickstart whole-economy transition and drive transition investment pipelines from both public and domestic companies.  As sovereign transition planning is an emerging practice, it is hoped that this initial paper can support investors to engage with sovereigns to jointly pursue investable climate ambition." 

-Anna Creed, Director of Thought Leadership, Climate Bonds Initiative. 

We apply this framework to a number of countries, illustrating how these elements show up (or don’t) in published climate plans.  

This work complements our other guidance for banks and corporates, including the recently launched Bank Transition Disclosure: Recommended Best Practice. 

We want your input  

This report is a first draft for consultation with the aim of gathering feedback from investors and relevant stakeholders. A final paper will be published in Q4 2025. Climate Bonds particularly welcomes feedback on the following questions: 

• Which of the elements (commitments, targets, action on investment, transition policies, governance, reporting and review) is most important to you?
• Which elements require expansion/additional guidance?
• Are there additional examples of good practices that could be highlighted? 

For investors:  

• Do you look at sovereign transition planning in the context of sovereign bondholding? Do approaches differ for labelled and unlabelled bond holdings?
• What are the barriers you encounter in assessment of sovereigns’ climate actions?
• Do you assess sovereigns’ climate actions in the context of corporate bondholding? If so, how? 

For sovereigns  

• Do the identified elements reflect your experiences in transition planning?
• Do these elements reflect your conversations with investors?  

We welcome feedback until 26 August, via our website, or via email at policy@climatebonds.net. 

Let’s build the future of Sovereign Finance — together 

This is a crucial moment. Trillions are flowing into sovereign debt. With the right tools and engagement, that capital can accelerate real-world climate action. Help us shape the path forward. 

Contribute to the consultation. Click here.