ICMA unveils climate transition bond label

The International Capital Market Association (ICMA) has announced the publication of new guidance for Climate Transition Bonds, marking the introduction of transition bonds as a new category of labelled use-of-proceeds instruments. These bonds join Green, Social, Sustainability, and Sustainability-linked bonds, aimed at financing climate transition strategies and projects, particularly in high-emitting sectors.

This development follows a report released last year by ICMA, highlighting sustainable bonds’ role in financing key climate transition components like renewable energy and clean transport. However, it noted that the market has not sufficiently financed the transition of hard-to-abate sectors, such as fossil fuels. The new Climate Transition Bond (CTB) label will enable companies in these sectors to raise funds for transition-related projects.

In its publication, ICMA stated: “It is estimated that $30 trillion of additional capital, including corporate and infrastructure investments, is needed to decarbonise eight high-emission sectors representing 40% of global GHG emissions by 2050. Several influential investor initiatives have in recent years also highlighted the need to provide financing for the transition of high-emission issuers to achieve credible and impactful real-economy decarbonisation. The ambition of the Guidelines is to enable a greater role for the sustainable bond market in financing these priorities.”

The guidelines provide recommendations for CTB issuers in key areas such as Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds, and Reporting. They describe climate transition projects as including assets, investments, and activities leading to substantial and quantifiable GHG emissions avoidance, reduction, or removal. Issuers are encouraged to ensure project integrity by aligning with climate transition strategies, supporting the analysis of low-carbon alternatives, and identifying carbon lock-in risks.

The guidance also outlines a non-exhaustive list of climate transition project categories, including Carbon Capture, Utilisation and Storage (CCU/CCS), carbon removal technologies, early retirement and decommissioning of high-emission assets, fuel switching from coal to gas, lower-carbon fuels, and methane and flaring abatement in oil and gas infrastructure.

For more information, access the ICMA’s CTB guidelines.