FINANCING THE CORPORATE CLIMATE TRANSITION WITH BONDS

This guide, prepared by the Climate Bonds Initiative, the European Bank for Reconstruction and Development, and the Green Climate Fund, provides a step-by-step framework for corporate issuers to finance their climate transition using thematic bonds. It details the process of creating a credible transition plan, selecting appropriate debt labels—such as green, sustainability, or sustainability-linked bonds—and establishing a sustainable financing framework to ensure alignment with the Paris Agreement goals.

• Climate transition finance is a subset of green finance designed to fund the dynamic process of decarbonising an entity, particularly in hard-to-abate sectors like heavy industry, agriculture, and energy.
• The guide identifies three primary thematic debt labels for climate transition: Use of Proceeds (UoP) bonds (including green and sustainability bonds) and sustainability-linked bonds (SLBs). UoP bonds fund specific projects with environmental benefits, while SLBs are general-purpose bonds with financial characteristics tied to the achievement of predefined sustainability performance targets (SPTs).
• A credible corporate climate transition plan is essential for investor assessment and should be a time-bound action plan aligned with the latest climate science, specifically aiming to halve GHG emissions by 2030 and reach net zero by 2050 to limit global warming to 1.5°C.
• To ensure credibility, GHG emissions disclosure should follow accounting standards, be transparent regarding entity boundaries, and include absolute emissions. The guide recommends that entities record and disclose at least three years of emissions before selecting a baseline year.
• The guide warns against 'carbon lock-in,' which occurs when fossil fuel infrastructure is maintained despite low-emission alternatives. To mitigate this, issuers should avoid using bonds to refinance non-transition investments and should provide detailed justifications when choosing to retrofit rather than decommission high-emitting assets.
• Sustainability-linked bonds (SLBs) typically use a 'coupon step-up' mechanism as a penalty for failing to meet SPTs. According to Climate Bonds database data, this was the most common financial feature, used in 58% of SLBs issued between 2018 and Q1 2023, with average coupon sizes increasing from 25 bps in 2019 to 36 bps in Q1 2023.
• The Climate Bonds Standard version 4.0 introduces two labels for SLBs and their reference entities: a 'Transition label' for those with targets that will align with Sector Criteria before 2030, and an 'Aligned label' for those whose targets already align and will remain so.
• Post-issuance reporting is a requirement for all bond standards to maintain credibility. This includes allocation reports for UoP bonds (detailing how funds were used), eligibility reporting (confirming projects still meet taxonomy criteria), and impact reporting for both UoP and SLBs (disclosing observed reductions in GHG emissions).

APA

Laurent, S. (2023). FINANCING THE CORPORATE CLIMATE TRANSITION WITH BONDS. Climate Bonds Initiative. https://www.climatebonds.net/files/documents/publications/Financing-the-Corporate-Climate-Transition-with-Bonds.pdf

Chicago

Laurent, Sabine. FINANCING THE CORPORATE CLIMATE TRANSITION WITH BONDS. Climate Bonds Initiative, 2023. https://www.climatebonds.net/files/documents/publications/Financing-the-Corporate-Climate-Transition-with-Bonds.pdf.

Wikipedia

{{cite report |last1=Laurent |first1=Sabine |title=FINANCING THE CORPORATE CLIMATE TRANSITION WITH BONDS |publisher=Climate Bonds Initiative |date=November 2023 |url=https://www.climatebonds.net/files/documents/publications/Financing-the-Corporate-Climate-Transition-with-Bonds.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{laurent2023financing, author = {Laurent, Sabine}, title = {{FINANCING THE CORPORATE CLIMATE TRANSITION WITH BONDS}}, institution = {Climate Bonds Initiative}, year = {2023}, month = nov, url = {https://www.climatebonds.net/files/documents/publications/Financing-the-Corporate-Climate-Transition-with-Bonds.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }