ICMA Publishes Transition Bond Guidelines


Stockholm (NordSIP) – To support the growth of climate transition finance in line with the 2°C global warming limit goals of the 2015 Paris Agreement, the International Capital Market Association (ICMA) and Climate Transition Finance published the Climate Transition Finance Handbook.

The report provides a roadmap on climate change strategy disclosures that transition bond issuers should make when raising funds in debt capital markets. The guidelines are informed by the experience of the Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines, and Sustainability-Linked Bond Principles.

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“The Climate Transition Finance Handbook is essential complementary guidance for issuers that wish to position their green, sustainability or sustainability-linked bonds within a transparent and science-based climate transition strategy,” Martin Scheck, ICMA Chief Executive, says.

The recommended disclosures in the new Handbook are based on the work of the Climate Transition Finance Working Group made up of representatives from more than 80 capital markets organisations, under the auspices of the Green and Social Bond Principles Executive Committee.

The handbook proposes four recommendations. First, it argues that a “transition” label should be applied to a debt security to signal that the issuer will implement a corporate strategy to transform the business model to be aligned with the goals of the Paris Agreement. Secondly, “the planned climate transition trajectory should be relevant to the environmentally-material parts of the issuer’s business model, taking into account potential future scenarios which may impact on current determinations concerning materiality.” The climate transition strategy should also be “science-based” and include targets and pathways. The fourth recommendation is about transparency and the need to provide the market as much information as possible about the expenditure of the proceeds from the security.

“With only a decade left to meet the goal of halving greenhouse gas emissions globally, the Climate Transition Finance Handbook is a timely document,” said Denise Odaro, Chair of the Green and Social Bond Principles Executive Committee. “The Handbook comprises disclosure recommendations to facilitate the necessary flow of capital to issuers required to decarbonize and implement a climate transition strategy on the basis of a science-based alignment with the Paris Agreement.”

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