Global Corporate Transition Finance Report
The Carbon Disclosure Project (CDP) releases a global corporate transition finance report, aimed at summarizing the development of corporate transition finance.
CDP believes that the global scale of transition finance will expand from $2 trillion per year to $6.7 trillion per year, and stakeholders need to work together to ensure that transition finance flows to companies that are truly undergoing transition.
Related Post: World Economic Forum Releases Report on Net Zero Transition Financing
Introduction to Global Corporate Transition Finance
The global transition finance scale in 2024 is $2 trillion, but only 7% flows into emerging technology industries. To achieve the net zero emissions goal by 2050, global transition finance will reach $6.7 trillion by 2030. These differences are not only in terms of fund size but also require consideration of fund allocation issues. The challenges faced by transitional financing include:
- Scale: Many transition funds need to come from mixed financing and private financing, so it is necessary to establish a clear investment framework and policy environment to ensure the allocation of transition funds.
- Scope: The scope of transition finance must go beyond clean energy and electric vehicles, and expand to industries such as cement, steel, chemical, aviation, shipping, and agriculture, which only receive 7% of transition funds annually.
- Credibility: Financial institutions need to enhance the credibility of transition finance to ensure that the companies receiving financing are implementing feasible transition strategies and strengthening their ability to withstand climate and natural risks.
Introduction to Transition Plan and Transition Ecosystem
The transition plan is the foundation of enterprise transition finance, and it has the following application scenarios:
- Fund allocation and product development: Establish credible standards to identify transitional financing opportunities for different asset classes, such as sustainable development linked loans and transitional bonds.
- Risk management and portfolio monitoring: Quantify and manage stranded assets and transition risk exposures, provide information for credit, collateral, and stress testing, and prevent greenwashing.
- Proactive management: Interact with companies in the investment portfolio, optimize resource allocation, and support companies in strengthening their transition strategies.
- Sustainable finance tracking and goal setting: Use transition plans to measure the consistency between investment portfolios and net zero commitments and reliably report sustainable fund flows.
The transition ecosystem can provide guidance for transition finance, and the classification of transition ecosystems is as follows:
- Assessment Methodologies: Provide standards for evaluating the quality and implementation of transition plans. Common market participants include the Climate Bonds Initiative (CBI), the Organization for Economic Co-operation and Development (OECD), and others.
- Policy Development: Provide a regulatory framework for credible transitional financing. Common market participants include the EU Platform on Sustainable Finance, the International Transition Plan Network, and others.
- Market Guidelines: Methods for developing asset allocation and transitional financing tools. Common market participants include the International Capital Market Association (ICMA), the Institutional Investor Group on Climate Change (IIGCC), and others.
Reference:
From Plans to Capital: Unlocking Credible Transition Finance at Scale
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