Major economies are now striving to meet the objectives enshrined in the Paris Agreement, limiting the global temperature increase this century to lower than 2°C above pre-industrial levels by cutting greenhouse gas emissions. Capital markets play a critical role in this climate transition process by ensuring the efficient flow of financing from investors to issuers who want to change their businesses to address climate change risks. To support the growth of climate transition finance, the market community behind the Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines and Sustainability-Linked Bond Principles has launched clear guidelines on the disclosures that should be made by issuers on their climate change strategy when raising funds in debt capital markets.
The new Climate Transition Finance Handbook clarifies the information that should be made publicly available to investors in connection with the issuance of ‘use of proceeds’ bonds aligned with the Green and Social Bond Principles or Sustainability Bond Guidelines, or general corporate purpose bonds issued in line with the Sustainability-Linked Bond Principles.
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 entities participating in the capital markets, under the auspices of the Green and Social Bond Principles Executive Committee. They reference existing climate change disclosure frameworks developed by relevant industry groups, regulatory bodies and the scientific community.
The recommendations have four key elements:
- Issuer’s climate transition strategy and governance;
- Business model environmental materiality;
- Climate transition strategy to be ‘science-based’ including targets and pathways; and,
- Implementation transparency.
The Handbook specifies that relevant disclosures can be included in the issuer’s annual report, framework document, or investor presentation, as long as they are publicly accessible to investors. Concurrently, the recommended independent review, assurance and verifications can be included as either a Second Party Opinion or provided in the context of an issuer’s ESG reporting.
A dedicated Q&A has also been released to further guide market participants.
“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.”
Martin Scheck, ICMA Chief Executive, added: “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.”