FINANCING THE CORPORATE CLIMATE TRANSITION WITH BONDS

The guide outlines a five-step process for corporates to issue transition-linked bonds: building a credible transition plan, selecting a thematic label, creating a sustainable financing framework, executing the bond issuance, and conducting post-issuance reporting. It emphasizes the necessity of science-based, 1.5°C-aligned decarbonisation pathways and the integration of social safeguards to ensure a just transition. The document details the differences between Use of Proceeds (UoP) bonds and Sustainability-Linked Bonds (SLBs), providing criteria for selecting material Key Performance Indicators (KPIs) and Sustainability Performance Targets (SPTs). It also highlights market trends, such as the 'greenium' (cheaper pricing for labelled debt), and warns against greenwashing risks associated with non-transparent frameworks or carbon lock-in activities.

• The issuance of a credible transition-linked bond requires a corporate-level climate transition plan that aligns 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.
• There are two primary structures for transition-linked bonds: Use of Proceeds (UoP) bonds, which fund specific green projects, and Sustainability-Linked Bonds (SLBs), which are general-purpose bonds with financial characteristics tied to the achievement of predefined sustainability performance targets (SPTs).
• To ensure credibility, GHG emission metrics used in transition finance should follow accounting standards, be externally verifiable, and typically require at least three years of historical data to establish a baseline.
• The 'greenium' refers to the phenomenon where bonds with green, sustainable, or sustainability-linked labels achieve cheaper pricing, higher book cover, and greater spread compression compared to vanilla equivalents in the primary market.
• Sustainability-linked bonds (SLBs) are particularly favored by hard-to-abate sectors, such as cement or steel, because they provide flexibility for entities that may not yet have a critical mass of specific green projects for a UoP bond.
• A common financial mechanism for SLBs is the coupon step-up, where the issuer pays a higher interest rate if the predefined SPT is not met; the average coupon size for these increased from 25 bps in 2019 to 36 bps in Q1 2023.
• To avoid greenwashing and carbon lock-in, issuers should avoid using bonds to refinance non-transition investments, avoid relying on carbon offsets as a primary reduction mechanism, and ensure that retrofitting does not prevent the future use of net-zero technologies.
• A 'just transition' is essential for the success of corporate climate strategies, requiring the integration of social safeguards to protect workers, suppliers, and communities affected by the shift to a low-carbon economy.
• Post-issuance reporting is a mandatory requirement of bond standards and should include allocation reports for UoP bonds and impact reports for both UoP and SLBs to track progress against KPIs and SPTs.

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} }