The Climate Bonds Initiative introduces a tool for financial institutions to assess their corporates’ transition to net-zero

INSIGHT by the Climate Bonds Initiative

Building on the foundational work launched last year, Climate Bonds Initiative, together with the Institutional Investors Group on Climate Change (IIGCC), Sustainable Markets Initiative (SMI), Glasgow Financial Alliance for Net Zero (GFANZ) and Climate Arc, today announced the release of their paper “Navigating Corporate Transitions(link sends e-mail): a tool for financial institutions”.  This describes the methodology for a new tool designed to aid financial institutions in assessing and categorising corporates by their transition credibility and maturity.

Last year, Climate Bonds Initiative began a collaborative effort to demystify the landscape of transition finance frameworks, releasing a mapping of corporate transition frameworks. This was the first step in creating a navigator tool that enables financial institutions to orient their corporate portfolios consistently with those frameworks. Today’s paper builds on this initial mapping, offering a practical application of the transition guidance from multiple sources, for financial institutions to effectively manage their transition assessments.

Anna Creed, Director of Thought Leadership at Climate Bonds Initiative, commented on the importance of the new tool, stating: “As we navigate the critical path toward global decarbonisation, it’s paramount that we have robust, credible tools that can assist financial institutions as they look to reallocate capital to finance and facilitate corporate transition. This new classification system is designed to bring much-needed clarity and harmonisation to their assessment processes, ensuring that financial institutions can effectively contribute to the collective goal of a net-zero future. The market needs this tool to navigate transitions with ease and credibility.”

The classification system delineates five categories of corporate decarbonisation transition maturity and sets out key indicators for inclusion in each category. It is informed by extensive consultation with financial institutions and draws on a wide array of existing frameworks, focusing on core, prioritised indicators of credible corporate transition.

It will facilitate a collective push by financial institutions to ensure all corporates are progressing toward their decarbonisation goals, thereby accelerating the transition of the real economy towards sustainability.

The proposal will undergo further consultation with the authors of many existing transition frameworks used to inform this tool, as well as with selected financial institutions. It will also be pilot tested against the real portfolios of a number of financial institutions. Feedback will be collected to refine and enhance the classification system, following which the intention is to embed it in an online tool linked to independent analysis of corporates’ transitions and transition plans, for voluntary use by financial institutions globally.

For more information on the “Navigating Corporate Transitions” paper or to register for the Climate Bonds Connect event in Shanghai, please visit here.