Climate Bonds Initiative and Credit Suisse announced today that they have published a paper, Financing Credible Transitions, presenting a framework aiming to assist in the mobilization of global capital flows towards activities which enable the transition to a Paris Agreement-aligned economy, by expanding the market beyond traditional green sectors.

According to Climate Bonds Initiative and Credit Suisse, most green finance frameworks to date have been targeted at activities which can be considered ‘already green,’ while significantly less investment has been made into transitioning activities and assets that are associated with the highest carbon-emitting industries and businesses. To help achieve this, the new framework supports the rapid growth of a transition bond market as part of larger and liquid climate-related market. The establishment of this market aims to deliver confidence for investors, clarity for bankers and credibility for issuers.

Sean Kidney, CEO, at Climate Bonds Initiative, said:

“We have a tough job ahead to achieve our Paris Agreement targets and avoid catastrophic climate change. We’ve started, with clean energy, EVs and of course green finance. Now we must tackle hard to abate sectors, like steel, oil and gas, plastics and cement. We need to transition them, quickly. Financing them with Transition Bonds. This paper sets out the pathways for that transition investment market to grow.”

The transition bond concept aims to open up sustainable investment flows to issuers that would normally be excluded from the green and sustainable bond markets, namely those from high emitting sectors, enabling them to transition to decarbonised business models. By doing so, the paper promotes an economy-wide transition in which companies should transition away from existing activities towards better alternatives. While in some cases low or zero-emission solutions are possible, in others there are no such solutions, so substitute low-emission activities are in development.

Marisa Drew, Chief Sustainability Officer and Global Head of Sustainability Strategy, Finance and Advisory at Credit Suisse, said:

“While much of the focus on the capital markets has rightly been on green and sustainability bonds, we see transition bonds as being a significant game changer in terms of broadening the universe of issuers who can begin to transition towards sustainability. This paper represents an important milestone in the development of the sustainable finance markets and one which helps us all transition to a low-carbon economy.”