Climate Transition Bond Guidelines
The International Capital Market Association (ICMA) releases climate transition bond guidelines, aimed at introducing climate transition bond labels to help high emission issuers achieve transition financing.
The ICMA previously released a report on bond market transition financing, which divided transition financing into economic transition, climate transition, and carbon emission transition, and believed that the sustainable bond market is an important channel for transition financing.
Related Post: International Capital Market Association Releases Report on Transition Finance in Bond Market
Introduction to Climate Transition Bond Guidelines
Climate transition bonds refer to bonds that raise funds for material allocation to climate transition projects, and issuers can use this label and disclose information. When the raised funds are not specifically intended for climate transition projects, the issuer should allocate the funds to eligible green projects in the Green Bond Principles. This guide does not distinguish between climate transition projects and green projects, and issuers need to make judgments based on their own assessments.
Climate transition bonds need to adhere to the core structure of Green Bond Principles, including:
- Use of proceeds: Climate transition projects refer to assets, investments, actions, etc. related to high carbon emission activities that can significantly and quantitatively avoid, reduce, or eliminate greenhouse gas emissions. It is a supplement to qualified green projects aimed at achieving the goals of the Paris Agreement. The issuer needs to consider the contribution of the project to the climate transition strategy, the technical and economic feasibility of the project, and the relationship between the project and the decarbonization roadmap.
- Process for Project Evaluation and Selection: The issuer is required to provide the intended use of the benefits from the climate transition project, regularly review and update its project eligibility criteria, and communicate to stakeholders the measures it can take to mitigate material environmental impacts. The issuer also needs to consider the impact of the project on just transition, climate change adaptation, and nature and biodiversity conservation.
- Management of Proceedings: The proceeds of climate transition bonds need to be tracked in an appropriate manner and demonstrated in climate transition projects. The issuer may consider hiring external auditors to strengthen its ability to manage and allocate funds.
- Reporting: The issuer is required to disclose annually the introduction, amount, and impact of the allocated climate transition projects, and develop performance indicators, disclosing the underlying methods and assumptions in the indicators. For undistributed funds, the issuer needs to disclose the upcoming plan and update it when there is material progress.
The International Capital Markets Association’s recommendations for issuers of climate transition bonds include:
- Bond framework: The issuer needs to demonstrate the relationship between its capital adequacy ratio and the core structure mentioned above and outline its sustainable development strategy and climate transition strategy in the climate transition framework, as well as background information such as infrastructure and incentive measures.
- External review: The issuer may hire an audit firm to review the consistency between the bond and the core structure before issuance, and to review the use of raised funds after issuance, providing external audit reports to stakeholders.
Reference:
Climate Transition Bond Guidelines
ESG Advertisements Contact：todayesg@gmail.com
