Beyond green: inside the nascent space of transition bond funds
A major challenge for net-zero-focused bond investors is finding not only credible but also financially attractive transition finance opportunities
Decarbonising hard-to-abate sectors, such as energy, aviation, and steel requires expensive changes, from the retrofitting of plants and physical infrastructure to the adoption of new technologies and a shift to renewable energy sources.
The World Economic Forum estimates the need for an eye-watering $13.5trn in investments in such sectors by 2050. The industrial sector currently accounts for 34% of emissions, with 70% of industrial emissions coming from hard-to-abate sectors, according to United Nations.
Transition finance as a concept covers different objectives, instruments, and ambitions. The most obvious instrument is sustainability-linked bonds (SLBs), which tie the bond’s performance to specific sustainability-related KPIs. Another route is the niche yet growing space of transition bonds, a species of use-of-proceeds bond that targets industrial decarbonisation.
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