Labelled Bonds for a Low Carbon Transition

Matthew MacGeoch

In this video, Matthew explores the critical role of transition finance in decarbonising hard-to-abate sectors such as steel, cement, and agriculture. He explains how financial instruments like use-of-proceeds bonds and performance-linked bonds fund credible transition plans aligned with 1.5°C climate goals. He also highlights the challenges and opportunities in financing these industries and discusses the role of policies, taxonomies, and sustainable debt markets in enabling low-carbon transitions.

ESG Bond Markets

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Labelled Bonds for a Low Carbon Transition

4 mins 33 secs

Key learning objectives:

Understand the role of transition finance in decarbonising hard-to-abate sectors
Recognise the difference between use-of-proceeds bonds and performance-linked bonds in transition finance
Identify the challenges and opportunities in financing hard-to-abate sectors like steel, cement, and agriculture
Outline the role of policy support and sustainable debt markets in enabling low-carbon transitions

Overview:

Transition finance is essential for decarbonising hard-to-abate sectors like steel, cement, and agriculture, enabling their shift to a low-carbon economy. It uses financial instruments like green bonds and performance-linked bonds to fund credible transition plans aligned with 1.5°C goals. Policy support and evolving taxonomies guide these efforts globally, ensuring financial flows reach critical industries. Transition finance reduces emissions, fosters innovation, and drives progress toward climate targets, emphasising the need for comprehensive, strategic plans within organisations.

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Summary

What is transition finance, and why is it important?

Transition finance funds decarbonisation in sectors needing significant operational changes. It supports hard-to-abate industries like steel, cement, and agriculture, which are critical to achieving climate goals but face complex transition challenges.

What financial instruments are used in transition finance?

Transition finance employs two types of instruments:

Use-of-proceeds bonds (e.g., green bonds) focus funds on sustainable projects
Performance-linked bonds (e.g., sustainability-linked bonds) tie financial terms to decarbonisation targets

Why is transition finance focused on hard-to-abate sectors?

Hard-to-abate sectors have high emissions but lack clear transition pathways, unlike energy or transport. Transition finance channels capital to these industries, enabling necessary innovations and decarbonisation efforts that were previously underfunded.

How do policies and tools support transition finance?

Policies like the EU Taxonomy, Japan’s coordinated sectoral pathways, and UK disclosure standards provide frameworks for financing and reporting transitions. These regional approaches align with global goals, fostering investment in sustainable projects.

What are the broader impacts of transition finance?

Transition finance reduces emissions, fosters competitiveness, and drives innovation in critical industries. It supports the global low-carbon transition and ensures financial flows align with strategic, ambitious climate action plans.

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Matthew MacGeoch

Matthew MacGeoch is a Senior Research Analyst at Climate Bonds' Research Team, specialising in transition plans, transition finance, and hard-to-abate sectors. He has led the development of Climate Bonds' SLB dataset and methodology, and has since developed their transition plan monitor. He has experience from the UN Department for Economic and Social Affairs, the Oxford Institute for Sustainable Development, and the Oxford Silk Road Society Think tank. He has also worked at the Afghanistan and Central Asian Association and Lafiya Nigeria, focusing on social issues.

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