FINANCING
THE CORPORATE
CLIMATE
TRANSITION
WITH BONDS
A step-by-step guide to issuing a corporate bondto finance the climate transition.

Prepared by the Climate Bonds Initiative and the European Bank for Reconstruction and Development and funded by the Green Climate FundContents

Contributors

Contributors 2

European Bank for Reconstruction
and Development

Introduction 3
Background and overview 4
What is climate transition finance? 4
Why climate transition finance? 4Market trends 5
The foundations of climatetransition finance 6
Standards and guidelines forthematic labels 7
The issuance process 8
Getting organised andsetting milestones 8
Timelines 8
Internal team 8External reviewers, underwriter,and investors 8
Step 1: Building your transition planand disclosing it 9
Establishing the baseline 9
Linking the transition plan to the bonds
to ensure credibility 10
Scope 3 emissions: 13
Closing the loop and externalverification 14
Step 2: Selecting a thematic label 15
Use of Proceeds orsustainability-linked bond 15
Structuring 15
Additional considerations for all
thematic labels 17
Step 3: The sustainablefinancing framework 17
What is a sustainable financing
framework? 17
Use of Proceeds bonds 18
Sustainability-linked bonds 19
Step 4: Bond issuance 21
Step 5: Post-issuance reporting 22
Post-issuance reports 22

The European Bank for Reconstruction andDevelopment (EBRD) was created in 1991 tofoster the transition towards open marketoriented economies and to promote privateand entrepreneurial initiatives. Since then, it
has invested over EUR180billion in more than
6,500 projects across three continents.
The EBRD has committed to dedicate allits investments to support the transition toa green economy by 2023 and be alignedwith the Paris Agreement, thereby making
investments consistent with curtailing theincrease in the global average temperature
to well below 2°C above pre-industrial
levels, and pursuing efforts to limit that
increase to 1.5°C.

The Green Climate FundThe Green Climate Fund (GCF), a criticalelement of the Paris Agreement, is the world’s
largest climate fund, mandated to support
developing countries raise and realise their
Nationally Determined Contribution (NDC)
ambitions towards low-emission, climateresilient pathways.

Climate Bonds Initiative
Climate Bonds Initiative (Climate Bonds) is aninternational organisation working to mobilise
global capital for climate action. The Climate
Bonds Standard and Certification Scheme
is a labelling scheme for bonds, assets, andwhole entities. The scheme is used globallyby bond issuers, governments, investors, andthe financial markets to prioritise investments
which genuinely contribute to addressing
climate change.

The outlook for transition finance 23
Appendix 1.
Summary of regulations 24
Annex 1. Glossary 25
Acronyms
EBRD: European Bank for Reconstruction
and Development
GHG: Greenhouse gases
GSS: Green, social and sustainability
GSS+: GSS, SLB, and transition
ICMA: International Capital Market Association
KPIs: Key performance indicators
NDC: Nationally Determined Contributions
SLB: Sustainability-linked bond
SLD: Sustainability-linked debt
SPTs: Sustainability performance targets
UoP: Use of Proceeds
Financing the corporate climate transition with bonds Climate Bonds Initiative2

Introduction
To meet the Paris Agreement goals, all sectors of
the global economy must rapidly decarbonise
including the hard-to-abate sectors. Climatetransition finance has a vital role to play incorporate transition plans to achieve a wholeeconomy decarbonisation. This document
provides a step-by-step guide for corporate
issuers on how to prepare and issue a bond tofinance their climate transition. Highlighting
examples of best practice, it follows the Climate
Bonds Hallmarks for a credible transition andInternational Capital Market Association (ICMA)
guidance on climate transition finance andprinciples on sustainable finance instruments.
This guide covers three thematic debt labels:
green, sustainability, and sustainability linked.
All three labels can be used for the climatetransition which can be directly linked to theimplementation of a corporate issuer’s strategy
to decarbonise. These bonds share the samefinancial characteristics as equivalent vanilla
products in terms of seniority, maturity, and credit
rating, and rank on equal footing (pari passu) withother instruments of the same seniority fromthe same issuer in the event of bankruptcy. The
main difference is the alignment of the bonds
with standards and guidelines on financing theclimate transition set by internationally recognisedorganisations. The issuer explains how thebond’s proceeds will contribute to its climate
strategy including the level of disclosures market
participants expect.
This guide uses the term transition-linked bonds
to refer to the universality of bonds that can beused to finance a corporate climate transition.
The document provides entities with stepby-step guidance, using recommendations
from leading organisations on the creation ofa credible transition plan to achieve net zeroin accordance with the disclosure frameworks
required by climate transition-linked bonds.
The flow chart below illustrates the key steps inthe process of issuing a transition-linked bond.
This guide has been designed to help the
corporate entity along its transition journey. It
begins with a recap of the need for transition
finance, and following a description of thedecision-making process, presents five steps toillustrate the typical journey an entity will follow
to issue a bond.

Key steps in the process of issuing a transition-linked bond
Sustainability-linked
bond framework
Step 1
Transition plan
Step 2Which thematic label?
Step 3The bond framework

Step 4
Bond issuance
Step 5
Post issuancereportingGreen bond framework

Sustainability disclosure
Transition plan
• Set entity’s decarbonisation goals: key
performance indicators (KPIs) and sustainability
performance targets (SPTs)• Identify the activities that are
decarbonisation levers and corresponding
KPIs and SPTs

• Integrate the climate and sustainability targets
aligned with the goals of the Paris Agreement in
the entity’s strategy and governance• Identify which bond framework is needed

General financing
Sustainability -Linked Bonds

Use of Proceeds Bonds

Select KPIs, indicators of the entity’s
climate transition

Use of Proceeds

Calibrate ambitious science-basedtargets (SPTs)• Detail the expected decarbonisation impactof each activity

Bond characteristics

Project evaluation and selection

Reporting• What are the mitigants to known material risksof negative social and/or environmental impacts
from the relevant activities?

Explain how the bond’s financial and/or structuralcharacteristics can vary depending on whether theselected KPI(s) reach (or not) the predefined SPT
on the performance of the KPIs

Verificationon the performance of the KPIs

• Identify activities eligible for the climate transition• Who selects the projects/assets eligible?

Management and proceeds

Explain the measures put in place to track the
allocation of proceeds and the temporary use of funds

Reporting

Allocation of proceeds and expected impact

Second opinion/external review of bond framework and issuance
Post issuance impact and allocation reporting
Financing the corporate climate transition with bonds Climate Bonds Initiative3

Background and overview
What is climatetransition finance?
As greenhouse gas (GHG)
emissions continue to rise
across all economic sectors
globally, there is a growing
recognition that finance insupport of climate mitigation
goals must be scaled up and consistent witha pathway towards a low-carbon economy.
This means that finance must take a dynamic
and forward-looking view of corporate
decarbonisation journeys and be inclusive ofgeographies and sectors, especially emissionsintensive ones. Climate transition finance refers
to finance earmarked to fund this dynamic
process of decarbonising an entity. Climatetransition finance can be seen as a sub-set ofgreen finance because it contributes to a better
environmental outcome.
Transition-linked bonds can be used bycorporates to finance their climate transition
either as Use of Proceeds (UoP) bonds or Key
Performance Indicator (KPI)-linked general
purpose bonds:• UoP bonds, such as green or sustainability
bonds, fund projects with specific anddedicated environmental and/or social
benefits. Adhering to standards andpredetermined UoP categories is key todefining and disclosing their impact.
• KPI-linked bonds, such as sustainabilitylinked bonds (SLBs), are used for an issuer’s
general-purpose financing to set ambitious,
realistic, and explicit sustainability targets atthe corporate level. They involve penalties
or rewards linked to not meeting or meeting
pre-defined and time-bound sustainability
performance targets (SPTs) for each of its
predetermined KPIs.

Romanian-based
Autonom Services S.A.
is a privately-owned carlessor predominately
offering operating leasing
services in Romania. In
2021, the entity priced a USD54m SLB withan interest rate of 4.1% linked to one KPI: theaverage CO2 intensity, expressed in gCO2/km,
and computed in relation to the Worldwide
Harmonized Light Vehicles Test Procedure.
The company has set itself an ambitious
SPT of a 25% reduction in the carbon
intensity of its fleet by 2025 from a 2020
baseline, and a 51% reduction by 2030.

Air Liquide S.A., is a
French multinational
and a market leader
in industrial gases andservices. The entity has
established a sustainablefinancing framework which can be applied
to green, social, or sustainability bonds.
Eligible project categories for green UoP arestated as: anaerobic digestion of bio-waste,
landfill gas capture and utilisation, capture
and transport of CO2, hydrogen production
and storage etc., manufacture of O2 and N2
for climate mitigation purposes, and green
buildings. In May 2021, Air Liquide issued
a 10-year maturity EUR500m (USD610m)
green bond with a fixed coupon of 0.375%.
By May 2022, the UoP had been mobilisedfor 17 green projects.

Tokyu Fudosan
Holdings is a Japanesereal estate company
active in urban
development, strategic
investment, property
management and operations, and realestate agency. In 2021, the entity priced a
JPY10bn (USD73m) SLB with an interest rateof 0.3% linked to two SPTs:
SPT1: Reducing GHG emissions by 46.2%
by 2030 (KPI1),
KPI2 and SPT2: Achieving carbon negative
status by 2025 (the entity’s contribution
to CO2 emissions reduction, including thegeneration of renewable energy, exceeding
its CO2 emissions).
Failure to achieve either of the SPTs will
result in the following penalties to be paid
at the maturity of the bond:
SPT1: 0.25% of the amount of issuance,
SPT2: 0.25% of the amount of issuance.
The penalties will be paid to the entity’s
conservation-focussed foundation, theMidori wo Tsunagu Project or otherorganisations with similar objectives.
Green, sustainability and sustainabilitylinked bonds have been and still are used
to finance projects that have a positive
green impact but without the ambition of
implementing an entity’s decarbonisation
strategy. This guide focuses explicitly on
describing these bonds in the context ofdecarbonising a corporate issuer’s strategy.

Financing the corporate climate transition with bonds Climate Bonds Initiative

Why climate transition finance?
Financing the corporate
climate strategy
Governments have committed
to achieving net zero with thegoal of limiting global warming
to 1.5°C by announcing Nationally Determined
Contributions (NDCs), which are a country’s
self-defined national climate pledge under
the Paris Agreement. In response, sector andbusiness associations have disclosed sectorbased roadmaps to net zero. To achieve theseambitions and commitments, corporates must
decarbonise their business models and scale
climate solutions to gradually replace GHGemitting assets, products, and services.
Climate transition finance allows corporates tobetter manage the risks related to regulatorychanges and divestments while allowing themto seize new opportunities and market trends.
It is particularly needed by corporates activein the hard-to-abate sectors such as heavy
industry, agriculture, or energy that generate
the greatest global GHG emissions and will
require substantial investment to upgrade theirtechnology and infrastructure.

Regulatory change will drive
transition focus
Regulatory changes are a major driver for
corporates to accelerate their climate transition
and access dedicated financing instruments.
As countries enshrine their commitments todelivering net zero in national law, a growing
number of regulations are set in place to mandate
corporate Environmental Social and Governance(ESG), climate impact disclosure, and facilitate
the flow of finance towards climate solutions.
The Principles for Responsible Investment (PRI)
counted around 900 policy interventions alone,
as of April 2022.1 These interventions can beclassified in four broad categories:• Corporate disclosure requirements on
ESG and climate transition: mandatory
or voluntary corporate ESG disclosures havebeen effective for several years in numerous
countries (e.g., Thailand 2017, Vietnam 2013,
and India 2022). Additional requirements
specific to the climate transition have emerged
over the past two years: for instance, the United
Kingdom and the EU will require entities todisclose climate transition plans as soon as
2024. The reporting will impact non-financial
corporates but the inclusion of financial
corporates is under discussion.2

4• Sustainability or climate taxonomies: ataxonomy is a set of criteria, often presented
as a list of eligible activities that provides thebasis for assessing whether a financial asset isdeemed sustainable. They are thus created todefine eligible green and, for some taxonomies,transition activities. Examples are thetaxonomies of the European Union (EU), South
Africa, Mexico, Georgia, and the work done byvarious development banks.5• Carbon border measures, tax incentives
and other credit facilities are set tocreate incentives for investing in climatealigned technologies. In 2022, the European
Commission introduced a carbon borderadjustment mechanism (the CBAM regulations)that will equalise the price of carbon between
domestic products and imports. In parallel,governments have announced an increased
number of tax incentives or subsidies toaccelerate the transition such as the US
Inflation Reduction Act (IRA), and China’s‘Credit against tax payable’ for investments incertain environmental equipment.
To keep track of the fast rate of adoption of newpolicies and regulations, Fitch has derived apolicy tracker.6
Regulations also impact financial market
participants and transition-linked bonds
contribute to the decarbonisation of investors’
portfolios and facilitate their own ESG reporting
requirements. This also impacts corporate accessto capital markets. Therefore, motivation toalign investments with climate change reduction
efforts are also driven by a growing demand
from institutional and retail investors worldwide.
Members of the Glasgow Financial Alliance for
Net Zero (GFANZ), representing around 40%of global private financial assets, have also
committed to setting near-zero targets, which
will have a direct impact on capital allocation
decisions, favouring entities with credible
transition plans.7

1000
SLB

Green

Sustainability

600
400
200

21

20

20

20

19

20

18

20

17

20

16

20

15

20

14

20

13

20

12

20

11

20

10

20

09

20

08

20

20

20

20

07

0

06

Volume of deals (USD Bn)

800

H1 22
20
23

Appendix 1 lists a non-exhaustive list ofeffective and forthcoming regulations.

Volume of aligned deals recorded by Climate Bonds

Source: Climate Bonds Initiative

Market trends
The global green, sustainability andsustainability-linked bond market has exhibited
year-on-year growth and shown resilience in thecurrent inflationary environment, which reflects
the strong demand for these instruments frominvestors. Benefits for issuers were describedin Climate Bonds 2020 Green Bond Treasurer
Survey, which include public recognition andmarketing as well as the possibility to obtaincheaper pricing (greenium).8 Cumulative issuancereached USD3.46tn during the first half of 2023.9
Non-financial corporates have priced green bonds
with an average deal size of USD200m over the
past five years. The sustainability-linked label is amore recent market development and is embraced
by entities in hard-to-abate sectors like cement or
steel. In 2022, 78% of SLB volume originated fromnon-financial corporates with notional volumes
mainly within the USD100m to USD500m range.
While the bulk of the issuance comes fromdeveloped countries, the number of deals frommiddle- and low-income countries such as Brazil,
South Africa, Turkey, Morocco, Indonesia, andChile is growing. A full market review is given in
Climate Bonds State of the Market report.10

Climate Bonds has published 16 research reportson the topic of Green Bond Pricing in the PrimaryMarket.11 This proprietary research developed
the concept of the greenium (cheaper pricing
for bonds bearing the green, sustainable orsustainability-linked label) and continues to
explore pricing dynamics of green and otherlabelled debt. The findings of this research haveconsistently demonstrated that:
1. Green bonds achieve higher book coverand spread compression compared to vanillaequivalents in the primary market, on average.
2. Around 30% of bonds achieve a greenium.
3. Green bonds tighten more than thecomparable vanilla basket and comparable
indices based on observations made seven- and28-days post-issuance.
The most recent report, examining green bonds
priced in H1 2023, revealed that 66% of green
bonds were allocated to investors describing
themselves as green or socially responsible.
Furthermore, numerous green bond issuersemphasised that the green label supported deal
placement in volatile markets.

Aligned green bonds from non-financial corporate issuers
60
Europe50

ASEAN
AfricaNorth America

40

LATAM

30
20
USD Billions• Financial disclosure requirements: theinitial recommendations of the Taskforce
on Climate-related Financial Disclosure(TCFD) are becoming mandatory in various
jurisdictions such as the UK and Japan. In
addition, the International Sustainability
Standards Boards (ISSB) set a voluntary
global baseline in mid-2023 that received
strong support from G7 and G20 countries
and is expected to be incorporated into
national laws. ISSB disclosure standards ask
for entities’ exposure to significant climaterelated risks and opportunities and transition
plans.3,4 Similar requirements are being
proposed by the United States Securities andExchange Commission.

10
0
2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Source: Climate Bonds Initiative

Financing the corporate climate transition with bonds Climate Bonds Initiative

5

Green, sustainability and sustainability-linked
bonds can also obtain better pricing even ina market with rising yields. Based on deals
priced in H2 2022, Climate Bonds determinedthat on average, bonds bearing thematic labels
priced closer to their yield curves compared tomatched vanilla pairs.

The foundations of climatetransition finance
Since climate transition financeis directed at decarbonisationof a corporate entity, investors
must be able to assess the
economic and environmental
integrity of the entire businessstrategy. The most suitable instrument tocommunicate this information is a credible andpracticable corporate-level climate transition plan.

A climate transition plan is a timebound action plan that outlines how anorganisation will pivot its existing assets,
operations, and entire business model
towards a trajectory aligned with thelatest and most ambitious climate science
recommendations i.e., halving
GHG emissions by 2030 and reaching
net zero by 2050, thereby limiting global
warming to 1.5°C.16,17
It is increasingly recognised that a climatetransition plan needs to factor in the needs ofworkers, suppliers, communities, and consumers
because social acceptance is vital for any plan
to be realised. A just transition plan aims at
connecting actions on climate change withinclusive development pathways.
Further information can be found on page 10
regarding existing best practice guidance andstandards on transition plans.

Corporate transition plan overview,
Grupo Bimbo
Grupo Bimbo, S.A.B.
de C.V. (Bimbo) is a
Mexican multinational
food company with aworldwide presence inthe bakery sector. By
2030, Bimbo’s 2022 transition plan targets a
50% emissions reduction in scope 1, 100%in scope 2, and 28% in scope 3 compared
to a 2019 baseline; and net zero by 2050. To
implement its targets, Bimbo has pledged to:
1. Reduce scope 1 emissions via investing inzero-carbon vehicles and electric solutionsin its factory,
2. Move to renewable energy sources to cut
scope 2 emissions,
3. Reduce waste, engage with the supply
chain, and invest in regenerative agriculture
to cut scope 3 emissions.
In 2023, Bimbo published a sustainabilitylinked bond framework and issued an
MXN12bn bond.

Corporate transition plan overview,
Boliden AB
Boliden AB (Boliden) isa Swedish multinational
metal, mining, andsmelting company,
which produces zinc,copper, lead, nickel,
silver, and gold, and has operations in
Sweden, Finland, Norway, and Ireland.
It is active in the entire value chain, from
exploration and mining, to smelting andrecycling. Boliden has stated its ambition
to become a sustainable metals producer.
Boliden’s 2023 transition plan targets a
40% reduction of absolute CO2 emissionsin scope 1 and 2, and 30% reduction inscope 3 by 2030 compared to a 2021
baseline. It has a long-term goal of reachingnet-zero carbon emissions by 2050. To
implement its medium-term target,
Boliden is investing in various alternative
reduced-carbon intensive technologies andacknowledges that to meet its long-termclimate objectives, alternative low-carbon
processes will be required; hence theentity is also investing in research anddevelopment activities.

The UK Transition Plan Taskforce
recommends that a good practice transition
plan should cover:
1. An entity’s high-level ambitions to mitigate,
manage and respond to the changing climate
and to leverage opportunities of the transition
to a low-GHG and climate resilient economy.
This includes GHG reduction targets(e.g., a net-zero commitment);
2. Short, medium and long-term actions toachieve the strategic ambition, with details
on how those steps will be financed;
3. Governance and accountability
mechanisms that support delivery of theplan and robust periodic reporting; and4. Measures to address material risks to,and leverage opportunities for, the naturalenvironment and stakeholders such as theworkforce, supply-chains, communities, or
customers, which arise as part of these actions.

When choosing decarbonisation targets, anentity should consider that a transition plan is
not a one-off exercise but a process documentthat needs to be updated and improved at least
annually. Stakeholder expectations of what acredible transition plan looks like, as well as
the means to reach ambitious decarbonisation
targets, will become clearer as technologies
progress, policies change, and industrial andfinancial transitions unfold.
There are multiple impediments to theachievement of rapid near-term decarbonisation
and reaching net zero by 2050 at the sector andregional levels. When designing transition plans,
corporates can provide transparency on the logic
behind specific choices and commit to workingout solutions via supplier engagement, R&D or
advocating for enabling policies.

In 2022, Boliden published a green financeframework and by the end of the year, had
priced five green bonds with a cumulativevalue of SEK3.5bn (USD344m).

Financing the corporate climate transition with bonds Climate Bonds Initiative6

Standards and guidelines forthematic labels
ICMA’s mission is to promoteresilient well-functioning
international and globallycoherent cross-border debt
securities markets. ICMA
provides guidance andcommon expectations to capital markets
participants on the practices, actions, anddisclosures to be made available when raisingfunds in debt markets for climate transitionrelated purposes.
It is market practice that the issuance of atransition-linked bond should follow a standard
and/or ICMA principles. Several voluntaryor jurisdiction-specific bond standards fortransition-linked bonds co-exist worldwide
and an indicative list can be found on the PRI
website. ICMA principles have been integrated
in the EU Green Bond Standard (GBS) and the
Climate Bonds Standard Version 4.0, which arewidely used. ICMA has also published principles
on green, sustainability and sustainability-linked
bonds separately to act as guidelines thatrecommend structuring features, disclosure,and reporting for each label. These bonds canbe used for a wide range of sustainability related
projects. In the context of climate transition,
ICMA has published guidance on issuer-level
disclosures and climate transition strategies
in the Climate Transition Finance Handbook.12
It provides the following definitions:

UoP bonds:
1. Green Bonds are any type of bond instrument
where the proceeds or an equivalent amount will
be exclusively applied to finance or re-finance, inpart or in full, new and/or existing eligible green
projects which are aligned with the four corecomponents of the Green Bond Principles.13
Standards for green bonds differ mainly by thereference to a regional or international taxonomy,
for instance the Climate Bonds Taxonomy
and Certification scheme, the EU Green Bond
Standard, China’s guidelines for issuing green
bonds, and ASEAN green bond standards.

The Climate Bonds Standard version 4.0
employs rigorous science-based Criteria
to define which projects and assets are
consistent with achieving the goals of theParis Climate Agreement and therefore
eligible for inclusion in a Certified debt
Instrument. Climate Bonds is expanding therange of sectoral Criteria to additional highemitting sectors, usually called the transition
sectors, starting with cement, chemicals,
hydrogen and steel. It offers assurance across
UoP and KPI-linked bond instruments (orSLBs), which typically refer to the climate
performance of a corporate entity andrequire an in-depth assessment of the entity’stransition plan. SLBs and their reference
entities can be certified under two labels:
1. Transition label: for SLBs or entities
having climate mitigation performance targets
that do not align with Climate Bonds Standard
Sector Criteria but with targets and a transition
plan that will ensure they will be before 2030.
2. Aligned label: for SLBs or entities having
climate mitigation performance targets thatalign with Climate Bonds Standard Sector
Criteria and with targets and a transition planthat will ensure they remain aligned.

Climate Bonds Certification will enhance themarket positioning of the entity’s climatetransition credentials given that Certification
includes elements of the plan that might not
be publicly disclosed, and so acts as a gaugeof transition plan credibility for investors.

General purpose bonds:
1. SLBs are any type of bond instrument
for which the financial and/or structuralcharacteristics can vary depending on whether
the issuer achieves predefined sustainability/
ESG objectives. In that sense, issuers are thereby
committing explicitly (included in the bonddocumentation) to future improvements insustainability outcomes within a predefined
timeline so SLBs are a forward-looking,performance-based instrument. Those objectives
are (i) measured through predefined KPIs and (ii)assessed against predefined SPTs.15

2. Sustainability Bonds are any type of bond
instrument where the proceeds or an equivalentamount will be exclusively applied to financeor re-finance a combination of both green andsocial projects.14

Financing the corporate climate transition with bonds Climate Bonds Initiative

7

The issuance process
Getting organised
and setting milestones
The success of the climatetransition and its credibility
with investors depends on the
degree to which sustainability
is integrated into the business
together with the level of social acceptance of thecorporate strategy. The senior leadership team must
be united in its support for the transition journey but
contributions from a broad range of stakeholders
are also required, drawing upon internal resourcesfrom multiple teams including sustainability, strategy,
finance, risk and audit, operations, Information
Technology (IT), communication, and legal.

Role

Responsibilities

Board

Oversight of entity transition plan and monitoringof execution, including executive management
accountability, with appointment of appropriate
committees and task forcesCEO,
sometimes
CFO

Drive the execution of the just transition plan

All teams

Sustainability
team

Draft, monitor and disclose environmental
impacts and transition KPIs.

Operations teams, IT

Propose the levers of decarbonisation, including
the expected impact of each lever

Operations teams

Draft transition plan

Strategy

Draft the transition financing framework

Investment bank/consultant,finance/treasury
team

Risk teamIdentify and assess climate risks, response
measures and opportunities

Sustainability teamInternal audit

Independent assurance onsustainability disclosure

Board/senior
management

Strategy teamIntegrate the just transition into the overallbusiness strategy

Finance teamFinance/treasury team

Facilitate investor engagement to determine
expectations, and preferred standards anddisclosure practices

Timelines
The time and effort required to formulate an entity’s
first transition plan is highly dependent on its size,
extent of climate materiality and the complexityof its business model. A key factor is the extent towhich sustainability disclosures already form partof business operations and most medium and large
corporates have started to devise a climate strategy
with related reporting in response to regulatory,
investor or client pressure. Measuring GHG emissions
can be particularly challenging (please refer tothe glossary for scope 1,2, and 3 definitions)especially under material scope 3 emissions
when the corporate operates in multiple
locations. While a complete set of disclosures
is not a prerequisite for transition-linked bondissuance, entities would typically need at least
three years of material scope GHG emissions
disclosure to establish a baseline, credibletargets, and monitor progress.

Select an appropriate taxonomy against which
to classify and evaluate projects, assets,
and expenditures suitable for inclusion inthematic bonds

Sustainability team,
operations teams, orexternal consultant

Channel the costs of sustainability-related
objectives through formal budgeting andforecasting process

Internal teamTransforming the business model, operations, assets,
and stakeholder relationships towards low-emission,
climate-resilient pathways requires leadership fromsenior management starting with the CEO, CFO,
and extending to the Board, which should appoint
members with appropriate expertise in sustainability,
if not already represented. Given the transition will
ultimately impact every area of the business and will
require cross-functional collaboration, sustainability
and climate considerations should be embedded in
the corporate culture to facilitate execution.
To begin its transformation, an entity will needto assess its GHG emissions, starting with scope
1 and 2 emissions, and derive a decarbonisation
or low-carbon pathway. This will be the mandateof a sustainability team whose size will grow as
the transition is implemented. Online guidance
and training are provided by several internationalorganisations quoted in this guide. Alternatively,
consulting companies can be appointed.

Collaborators

Prepare finance plan for inclusion in thetransition plan
Establish process for disbursement andmanagement of proceeds of the bond
Post issuance reporting
1. Establish frequency and nature

Sustainability team,
operations teams

2. Assign responsibilities for delivery,
set timelines
3. Identify a third party for the assurance process
IT

Legal

Design and implement a tagging system toidentify suitable projects, assets, expenditures forinclusion in thematic bonds

Finance team,
operations teams

Design a system to report and tracksustainability metrics

Sustainability team,
operations teams

Prepare the bond issuance legal documentation

Finance,sustainability team,treasury

The following table gives a list of roles andresponsibilities for illustration purposes:

Financing the corporate climate transition with bonds Climate Bonds Initiative8

External reviewers, underwriter,and investors
The bond issuance process usually entails
the appointment of underwriters as well as
financial and legal advisors. Transition-linked
bond issuance is no different, with only theaddition of external independent reviewers andinternal support to manage the non-financial
requirements. The following table provides anillustrative list of external parties.

Step 1: Building your transition
plan and disclosing it
The transition plan plays
two main roles in the bondissuance process.
1. It informs how the bondwill contribute to the issuer’s
decarbonisation effort by establishing a listof eligible project categories for the UoP, anddecarbonisation targets.
2. It credibly positions the bond as an instrument
to finance the transition, particularly for issuers
operating in hard-to-abate sectors, by detailing theissuer’s strategy to investors. Therefore, the projects
and activities financed by the bond must be clearly
linked to the overall strategy of the entity.
A consensus is emerging among official andnon-governmental organisations about the
information contained in a transition plan. The
following diagram draws from existing guidance
rather than creating a new framework andillustrates how the main parts of the transition
plan, typically seen in most guidance, inform thebond issuance process.

Role

Responsibilities

Collaborators

Underwriter (investmentbanks and other firms)

Help design the sustainable financing
framework and sell the bonds

Finance/treasury

External reviewers or
certifiers/Second Party
Opinion (SPO)

Review or certify the alignment of
the bond framework with selectedprinciples or standards

Finance/treasury

Sustainability reporting
consultant

Independent and external verification
of KPIs pre- and post-issuance

Sustainability teamand finance/treasury

External Auditor

Management of proceeds andallocation reporting

Treasury

Investors

Review the bond framework andengage with the issuer

Establishing the baseline
Corporates starting their transition journey shouldmeasure their GHG emissions and establish abaseline for GHG emissions scopes 1, 2, and 3. A
detailed record per source of emission will help
to assess which activities or equipment upgrades
would have the most impact on the emission cuts
and facilitate impact reporting post-issuance.

How to ensure credible GHG
emissions disclosure and baseline
1. The metrics should follow a GHG
accounting standard and align with sectoral
practice. They are typically expressed inabsolute terms although intensity metrics
are standard for some sectors.
2. The entity boundaries used to estimate
the GHG emissions should be transparent
and if they differ from the whole entity, thereason for the difference should be given.
3. As the end goal is the decarbonisation of
the entity, absolute GHG emissions should
always be disclosed.

4. If possible, at least three years’ worthof emissions should be recorded anddisclosed before choosing a baseline
year, representative of the entity’s GHG
emissions, against which decarbonisation
progress will be calibrated. An independent
external review of the relevant historical
data points should also be included with ajustification of the choice of baseline.
5. Scope 3 is normally the most challenging
to establish and requires engagement withthe value chain. Therefore, entities starting
the process should disclose a timeline toidentify and measure scope 3. GHG Protocol
published guidance on measuring anddisclosing scope 3.18,19
6. Disclosure through sustainabilityrelated standards or frameworks suchas those provided by not-for-profits CDP
and Global Reporting Initiative (GRI)
provides a thorough overview of theentity’s social and environmental impacts
and commitments.

Anchoring the transition-linked bond in the corporate climate transition plan
Transition plan
GHG emissions
baseline

Ambition
vision performancetargets

Actions
strategy
implementation

Accountability
disclosure
governance

KPIs baseline

KPIs and SPTs

KPI and SPT
eligible activities

Post issuancereportingTransition-linked bondFinancing the corporate climate transition with bonds Climate Bonds Initiative

9

Air Liquide is a French
multinational and a market
leader in industrial gases
and services. Its GHG
emissions accounting
considers the six GHGs
highlighted by the Kyoto Protocol andis carried out in accordance with the
GHG Protocol’s carbon accounting
method. Its GHG emission breakdown issummarised in the following infographic.
Tables and texts provided in the Air
Liquide Sustainability Report 2022 provide
additional details such as explanations
about emissions variations from one year
to another, as well as the emissions foreach relevant scope 3 category.32

Figure 1: Air Liquide, Universal Registration Document 2022
Scope 1
16.3 Mt CO2eq

Scope 223.0 Mt CO2eq
0.0 Mt
CO2eq
Air separation
units (ASU)
Production ofoxygen, nitrogen,argon and noble
gases from air

Capitalgoods
ASU:
22.1 Mt
CO2eq

Businesstravel

0.2 MtCO2eq
Producttransport

How are GHG metrics used in transition finance?
Information extracted
from transition plan

Purpose

Criteria

GHG emissions: absoluteand intensity metrics

1. The metrics can be used as
potential KPIs for SLBs

1. Metrics are measurable ona consistent methodologicalbasis and can be benchmarked,
typically via a GHG accounting
standard and by following thesectoral standard
2. Metrics are externallyverifiable and subject to anindependent verification andassurance provider

Reference point selected for
improvement assessment

The entity should explain therationale driving the choice ofbaseline year

Use of soldproducts

EmployeecommutingPurchase ofgoods andservices

Linking the transition plan to the bonds toensure credibility
Various organisations have written comprehensive
guidance on what constitutes a credible transition
plan and are listed below. To ensure a justtransition, extra guidance has been provided
by the World Benchmarking Alliance and theCouncil for Inclusive Capitalism. The Grantham
Research Institute provides a framework on
financing a just transition to inform entities how
investors might incorporate the social dimension
into their assessment, stewardship, capital
allocation and policy activities.20
Before starting transition planning, the teams
involved in the process might find it useful to

Guidance on transition plans
Key principle:
United Nations.33

In addition to mandatory disclosures being
requested by a growing number of jurisdictions,various institutions set disclosure standards as
indicated in the box below.

Practical guidance:
CDP and UK Transition taskforce.34,35

Accounting methods

Non-governmental
disclosure standards

Disclosure standards common
to various jurisdictions

GHG Protocol41

CDP (Disclosure
Insight Action)43

International Sustainability
Standards Board (ISSB)45

Global Reporting Initiative44

TCFD46

ISO42

HyCO:
0.6 Mt
CO2eq

Units located on anindustrial platform whereenergy purchase ismanaged by the customer

Scope 322.1 Mt CO2eq

Baseline year for
improvement of
GHG emissions

6.5 Mt
CO2eq
Other units

Others:0.3 Mt
CO2eq

Upstreamtransportationand distribution

2. The metrics will be needed forpost-issuance impact reporting

9.6 MtCO2eq
Hydrogenproduction units(HyCO) Productionof CO and H2 fromnatural gas and steam

Financing the corporate climate transition with bonds Climate Bonds Initiative

Recommendations to ensure credibility:
OECD and GFANZ.36,37
On a Just Transition:
World Benchmarking Alliance,
Council for Inclusive Capitalism, andGrantham Institute.38,39,40

10

consult the practical guidance, information,and case studies published by Accounting for
Sustainability, which address the issue of integrating
sustainability into business processes anddecisions.21 Additionally, Climate Bonds and the
University of Cambridge have focused on the keyrole played by the CFO in the climate transition.22,23
The following section explains how the mainelements of the transition plan, common to most
guidance, inform the features of transition-linked
bonds and ensure the credibility of the issuer’s
climate change commitments. It draws fromexisting governmental and non-governmental
guidance on transition plans and incorporates
the recommendations from the ICMA Climate
Transition Finance Handbook, thereby creating
a comprehensive and coherent overview of how
to link the bond issuance process to the climate
strategy of the issuer.

Ambition
vision performance targets
The transition plan begins with a vision
outlining what the net-zero entity will
look like. The level of its ambition will be
determined by its choice of science-based,
1.5°C-aligned, decarbonisation pathway,
which determines the rate at which the entity
should decarbonise its activities.
The decarbonisation pathway(s) will set short-,
medium- and long-term targets for each activity’s
GHG emission performance indicator. For entities
with activities in various sectors, a different
pathway per activity can be chosen. These targets
attest the ambition of the entity to transitionand should be disclosed together with themethodology chosen to derive the pathway as a
key element of the transition plan.

How to ensure a credible pathway
1. The pathway(s) selected should cover the
majority of the GHG emissions of the entity.
If scope 3 cannot yet be included, a target
date for inclusion should be disclosed.
2. Transition plans should reflect theurgency to act, the most credible of which
will choose a 1.5°C-aligned decarbonisation
pathway, to ensure no or limited overshootof 1.5°C globally above pre-industrial levels.
The lack of national net-zero targets, thesetting of a national target with a later
date than 2050, or the lack of sufficientenabling policies to incentivise entity
decarbonisation have been highlighted
by the OECD as factors that could prevent
entities operating in certain jurisdictions
from being able to comply with a
1.5°C-aligned trajectory.24 As an entity’s

How can decarbonisation pathways be used in transition finance?
Metric/project orasset taken from thetransition plan

Purpose

Criteria

Target scope 1, 2, and3 GHG emissions for
short-, mid- and longterm in absolute and– depending on sector –intensity terms for eachactivity of the entity.

1. SPTs inan SLB

SPTs to be aligned with, benchmarked orotherwise referenced to recognised thirdparty, science-based trajectories where suchtrajectories exist. When third-party trajectories
are not available, industry peer comparison
and/or internal methodologies/historicalperformance should be considered.

2. PostissuanceimpactreportingGfanz and SBTi havepublished guidanceon science-based
decarbonisation pathways
and the difference between
a 1.5°C aligned and any othertemperature of alignment,
which is beyond the scopeof this guide.47,48 However,
it is important to note thattarget dates to achieve net
zero and interim reduction
targets may vary by sector, even for a 1.5°Calignment, as some sectors must decarbonise
more quickly to reach global targets. National andregional science-based sectoral decarbonisation
pathways are also available, and some recognised
non-governmental organisations have developed
sectoral or sector-agnostic, science-based
decarbonisation pathways. Target dates andinterim reduction targets may differ by jurisdiction
as achieving net zero by 2050 globally entails
varying levels of effort by different sectors andthe ability/capacity to effectively implement the

decarbonisation pathway will be informedby both national commitments and thelatest international agreement on climatechange, if the entity opts for a national or
sectoral pathway that is not 1.5°C aligned,a reasoned and detailed justification
should be provided and an alternative
Paris-aligned benchmark adopted. Climate
Bonds labelled bonds database showsthat as of mid-2023, about a quarter of all
SLBs with GHG emission KPIs were issuingdecarbonisation targets in line with a
1.5°C-aligned pathway.
3. The pathway(s) should be reviewed by
an external provider to assess the degreeof alignment with sectoral and/or regional
pathways.
4. Investors will typically assess theambition of the entity by comparing
the pathways with recognised sectoral
pathways and peers.

Financing the corporate climate transition with bonds Climate Bonds Initiativetransition varies from one jurisdiction to another.
The pathways announced by various governments
and organisations may collectively be consistent
with limiting the increase in global temperatures
to well below 2°C above pre-industrial levels andpursuing efforts to limit warming to 1.5°C, with noor low overshoot.
ICMA Methodologies registrylists several initiatives
to create pathways andbecome certified.49
SBTi also offers guidanceand emissions target validation and is widelyused by issuers (Climate Bonds labelled bonds
dataset shows that as of mid-2023, about athird of all SLB issuers of projects linked to a
GHG emissions reduction or transition to lowcarbon activities had been SBTi certified).50
Climate Bonds Initiative.51
Mission Possible Partnership.52
One Earth Climate Model.53
Transition Pathway Initiative.54

Heildelberg Materials is
one of the world’s largest
integrated manufacturersof building materials andsolutions, represented
in over 50 countries,
with leading market positions in cement,
aggregates, and ready-mixed concrete.
The entity expects the demand forsustainable building materials to growand signed the Business Ambition for 1.5°C
commitment; a global initiative aimed
at limiting global warming to 1.5°C andachieving net-zero carbon emissions
by 2050 at the latest. The company has
committed to reduce its GHG emissions
linked to cement production to 400kg per
tonne of cementitious material by 2030 and
its target is in line with the Transition Pathway
Initiative (TPI) sectoral decarbonisation
pathway. This target has been validated by
the Science Based Targets initiative (SBTi) inline with its 1.5°C framework.

11

The strategy should also ensure an equitable
and inclusive transition, involving workers andsuppliers, and understand the spill-over effects
for communities and consumers. Finally, it
should illustrate how it is contributing to theUnited Nations Sustainable Development Goals(UN SDGs) and any other sustainability metricthat is deemed relevant.
The transition plan should be as granular as possible
whilst taking competition and confidentiality
considerations into account. A credible timeline
would use 3–5-year intervals for the short- to
mid-term, and 5-to-10-year intervals thereafter
until the target date for net zero is reached.
By doing so, the entity justifies which assets
eligible for the bond’s UoP are needed totransition, and which metrics best capture thedecarbonisation effort.
When deciding on the decarbonisation
levers, the entity should ensure thatits actions will not be detrimental toother environmental objectives such asenhancing biodiversity or water quality. The
concept of Do No Significant Harm (DNSH)
in investment processes, initially introducedby the European Union but since then widelyadopted by various countries (for instanceSouth Africa), ensures that any investmentthat focuses on a particular environmental
objective is not done at the expense ofother such objectives.55,56 As a result, whenassessing the credibility of an entity’s climatetransition, investors will be looking at targets
and metrics across all environmental fields.
It has also become common practice
to include provisions that ensure
investments do not infringe on social
objectives and human rights. The
so-called minimum safeguards ensurethat companies engaging in sustainable
activities meet certain standards relating tohuman and labour rights, bribery, taxation,and fair competition. The minimum
standards have been anchored in guidanceissued by the OECD, United Nations
Global Compact, International Labour
Organisation, and United Nations.57,58,59,60

The following figure summarises some ofEnel’s commitments:

Enel has the stated ambition to achieve zero
emissions by 2040. It integrated a transition
strategy into its overall business strategy with afocus on tackling:
1. Scope 1 emissions: shifting its power
generation from thermal to 100% renewables,
2. Scope 3 emissions: promoting theelectrification of final energy consumption
while gradually exiting the gas retail business.
Enel has defined specific plans to ensure ajust transition, which include supporting thevocational requalification of direct and indirect
workers of activities affected by the transition.
To achieve its targets, Enel has detailed
which actions it will use in the short-, mid-,and long-term to decarbonise each businessline, scope of emissions, and the estimateddecarbonisation impact.

Some of the decarbonisation levers identified
in the action plans were chosen as nominatedassets for UoP green bonds, namely thedevelopment of power generation plantsfrom renewables, and projects related to thetransmission, networks and smart grids.
Enel also identified several KPIs that
capture its decarbonisation effort and werechosen as part of its 2023 sustainabilitylinked financing framework:
1. Scope 1 GHG emissions intensity relating topower generation (gCO2eq/kWh).
2. Scope 1 and 3 GHG emissions intensity
relating to integrated power (gCO2eq/kWh).
3. Absolute scope 3 GHG emissions relating to
gas retail (MtCO2eq).
4. Renewable installed capacity percentage (%).
5. Proportion of capex aligned with
the EU taxonomy (%).
Source: Enel sustainability report 202225

Targets (gCO2eq/kWh) and action plans to reduce scope 1
GHG emissions intensity of Enel’s power generation
Scope 1 (gCO2eq/kWh) of Enel’s power generation

This section articulates the climate decarbonisation
strategy and the main actions that will be taken
to reach the carbon emission reduction targets
defined previously. These decarbonisation levers
will either ensure the decarbonisation of theactivities that have a material environmental
impact and/or the diversification into new lowcarbon business activities.

Enel is an Italianmultinational manufacturer
and distributor of electricity
and gas. Its businesses
include green and thermal
power generation, electricity
distribution, and retail electricity and gas.

400

300

200

100

0

Gradual phase-out
of coal fired capacity;
target less than 0.5% ofconsolidated capacity
to be coal-fired by 2025

Exit coal-fired
generation by
2027

Exit the thermal electricity
generation business achieving
a 100% renewable energy mix

Investment
to reach 130
GW of newrenewable
capacityby 2030

No use of carbon
removal technologies

Installing 17GW of new
renewable capacity
2017

2022

2025

2030

2040

Targets (gCO2eq/kWh) and action plans to reduce scope 3
GHG emissions of Enel’s gas retail25
Scope 3 (MtCO2eq) of Enel’s gas retail

Actions
strategy implementation

20
15
10
5

Exit gas sale to retail by 2040
Achieve 100% sales of energy
covered by renewable source

Promote the switch ofcustomers from gas
to electricity targeting
20% of customers in
2025
Promote electrificationenabling services to
end customers andincrease demand
response to 12.4 GW
by 2025

0
2017

Financing the corporate climate transition with bonds Climate Bonds Initiative

2022

Increasing
the switch ofcustomers toelectricity to
30% in 2030
and demand
response of
more than
20GW by 2030

2025

No use of carbon removal
technologies

2030

2040

12

Scope 3 emissions:

Several institutions can help to identify the levers of decarbonisation:

CDP has published a document detailing therelevance of scope 3 per sector.26 Supplierengagement, collaboration, selective
procurement, rethinking product design, R&D
and policy engagement are examples of levers totackle scope 3. Joining sectoral or cross-sectorbusiness coalitions can reinforce the credibility ofthe effort in tackling scope 3.

• International Energy Agency

Rexel is a French
manufacturer ofelectrical installationequipment with astrong internationalpresence, operating in
21 countries. Scope 3 is the main source ofgroup emissions, mostly originating fromdownstream consumption of its lighting
product range. To reduce scope 3, Rexelis actively engaging with its suppliers andconsumers to develop solutions withenvironmental constraints that reduce
the environmental impacts. Rexel has
identified the percentage reduction ofscope 3 GHG emissions intensity, related tothe consumption of products sold, as a KPI
to decarbonise its activity. Rexel issued a
EUR600m (USD696m) SLB in 2021 with this
KPI, aiming at a short-term reduction targetof 23% from a 2016 baseline as of end of2023, and a mid-term reduction target of
45% from the same baseline asof end of 2030.

How to ensure a credible
transition strategy
1. The entity should ensure the strategy
covers all material sources of emissions
and factors in the broader environmental
impact, considering potential futurescenarios which may impact current
determinations concerning materiality.
When doing so:a. The impact each action is expected todeliver should be disclosed and linked to the
trajectory of changing GHG emission SPTs.
b. The entity should disclose a materiality
matrix informing which environmental
metrics are material.27
c. The strategy should incorporate ananalysis of climate-related risks andopportunities, taking into accountpotential future scenarios to assess
current determinations of materiality,
but also adequacy of decarbonisation
levers chosen, as per the disclosures
recommended by the TCFD.28,29

Sectoral trade and industry organisations:for instance• Responsible Steel,61• Global Cement andConcrete Association,62• ICMM,63• Cool Farm Tool64
On the circular economy:• Ellen MacArthur Foundation65

2. Entities operating in sectors with immature
alternative 1.5 C
̊ -aligned technologies need to
inform stakeholders of the technologies they
are exploring, and how these are supported
via research and development, policy
advocacy, or collaboration. Entities should not
rely on carbon credits or offsets as the primarymechanism to reduce GHG emissions, the useof which should be explained along with details
on the internal carbon credits procurement
policy and associated governance. The
Voluntary Carbon Markets Integrity Initiative
provides a guide on the use of carbon credits.30
3. The credibility and measurement oftargets that reduce scope 3 emissions while
ensuring a just transition can be enhanced bya robust sustainable procurement policy withappropriate due diligence processes, andthe existence and content of a supplier codeof conduct; guidance on which has been
provided by United Nations Global Compact
and BSR.31 Such policies allow issuers toindicate percentage targets for supplierengagement, of suppliers with good quality
disclosure, GHG reduction targets, etc.
4. Selecting levers may involve making a
choice between decommissioning assets andinvesting in new low-carbon technology or
retrofitting/redesigning high-emitting assets.
If the existing asset is incompatible with a
net-zero economy (e.g., a coal-fired furnace),delaying the switch to new technology
risks carbon lock-in and potential asset
stranding. To limit the risk associated withretrofitting, the entity should:
a. Detail the reasons why thischoice was made,b. Ensure the retrofitting enables forthe future use of net-zero emission
technologies such as low-carbonhydrogen to replace natural gas,c. Commit to fund R&D on
low-carbon alternatives if one
is not immediately available,

Financing the corporate climate transition with bonds Climate Bonds Initiative

Cross sector coalitions of businesses:
for instance• Energy Transitions Commission,66• Mission Possible Partnership,67• World Business Council For
Sustainable Development68
Global networks programs:
for instance• Sustainable Development
Solutions Network,69• Just Rural Transition,70• Food and Land Use Coalition71

d. Commit to a target date to switch tothe alternative solution,
e. Regularly review the situation to assess
if the alternative technology could be
implemented earlier.
5. The implementation plans should beaccompanied by an associated financeplan linked to the bond proceeds, whichshould be quantitative initially, and morequalitative later on. Taking competition andconfidentiality considerations into account,it should indicate:a. Cost estimates detailing capital
expenditures (capex) and operating
expenditures (opex) associated with thedelivery of the transition action plans;
including R&D, phase out plans, and social
expenditure to ensure a just transition.
b. Disclosure on the percentage ofassets, revenues, expenditures, anddivestments aligned to the various
decarbonisation levers.
c. A quantitative assessment of thepotential locked-in GHG emissions fromthe issuer’s key assets and products.
d. The evolution of significantly harmful
spending in relative and absolute terms,
and explanations around its flattening or
reduction. This could include:
i. The use of internal carbon pricing
to anticipate future impact andunderlying assumptions.
ii. The share of green spending asa percentage of the issuer’s total
spending and how it is expected to
grow over time.
ICMA recommends having the finance plan
independently reviewed if possible and if
not, to provide a forward-looking analysis of
how the capex and opex plans support theclimate transition.

13

How action plans and KPIs are used in transition financeMetric/project or asset takenfrom the transition plan

Purpose

Criteria

KPI assessing the progress
made per action planned

For use as a KPI in an SLB and for postissuance impact reporting.

KPIs should be core, relevant, material, measurable orquantifiable on a consistent and disclosed methodologicalbasis. They should also be externally verifiable and if relevant,able to be benchmarked with issuer’s peers with at least three
years’ history available. ICMA further recommends that issuers
aim to report on at least a limited number of sector-specificcore indicators to facilitate comparison.

Several KPIs can be chosen to capture thetransition progress and those selected for the
SLB can be a subset of those.

Projects or assets leading to
the decarbonisation of theissuer’s core activities

List of nominated assets or projects for a UoPbond and disclosure for SLBs.

Each project or asset contributes to the decarbonisation
effort and its impact can be captured by qualitative or
quantitative performance indicators.

Projects or assets
contributing to a meaningful
diversification into new lowcarbon business

List of nominated assets or projects for a UoPbond and disclosure for SLBs.

An impact indicator: for instance, the growth
in low-carbon revenues.

Accountability
disclosure governanceInternally, the entity’s governance structure
informs how it provides oversight, incentive, andsupport to the transition.

How to ensure credible governance
1. The Board should review and approve
the transition plan, and have oversight ofthe execution and monitoring of progress.
2. The entity should align its internal key
policies and public policy engagement toaccelerate the climate transition in linewith the Global Standard on Responsible
Corporate Lobbying.
3. Executive compensation, tied toperformance against the decarbonisation
targets, should link to the KPI(s) used toassess the performance and quantify thepercentage of remuneration linked to the
KPI(s).

Closing the loop and external verification
As the climate strategy is implemented,
monitoring and disclosure of the KPIs needs totake place annually, making any adjustments
to the transition plan as required. For example,
corrective actions might be needed as a result of
the influence of market changes or technologicalevolution. Experience gained in the planningand implementation of the transition will allow
initial decarbonisation targets to be revised andbecome more ambitious.
The transition plan should be reviewed by anindependent organisation and updated regularly.
ICMA recommends the review to include:
1. Alignment of both the long-term and short/medium-term targets with the relevant regional,
sector, or international climate scenario;
2. The credibility of an issuer’s climate transition
strategy to reach its targets; and3. Level/type of independent governance andoversight of an issuer’s climate transition strategy.

4. Internal monitoring should be in place
to identify in a timely manner actual or
anticipated underperformance of the KPIs
and provide mechanisms to determine
corrective actions.

Review and feedback on transition
plans can also be provided by not-forprofit organisations:
1. Climate Bonds Initiative(as part of their Certification scheme)72
2. ACT73
Several non-governmental organisations
are assessing the level of commitmentof companies on the whole transition
plan or on specific sections and illustrate
the level of transparency transition plans
should have:
3. Influence Map produces LobbyMap,
the world’s leading system for tracking
corporate climate policy engagement andindustry associations.74
4. Carbon Tracker Initiative
assesses capex alignment, audit andaccounting practices.75
5. Transition Pathway Initiativeand Climate action 100+ assesstransition plans.76,77
6. Climate Arc is developing an opensource tool gathering several NGO transition
plan reviews.78

5. The Board should provide for a full review
and update of the performance targets andtransition plan over the lifetime of the bond.
6. The entity should discuss how theclimate transition capex roll-out plan
informs capex decision making.

Financing the corporate climate transition with bonds Climate Bonds Initiative

14

Step 2: Selecting a thematic labelWith a transition plan ready,the next step is to contact theunderwriter to determine themost appropriate thematic
debt instrument and discuss
the possibility of using abond standard.
UoP bonds and SLBs have different
characteristics and the choice of which to use
depends on the specifics of the transition plan,
sector, entity and/or geographic jurisdiction.

Use of proceeds orsustainability-linked bond
The transition plan should highlight a list of opex
and capex needed to finance the transition, butalso KPIs and associated SPTs that could beapplied to raise SLB finance.
• UoP bonds are a well-established asset classtrusted by investors with the advantage of astandardised format and framework. However,they can only be used when the issuer has
identified a critical mass of green projects,
activities, assets, or expenditures that will makea meaningful contribution to decarbonisation,
and which will remain eligible for the durationof the bond. The two most common labels are:
Green bonds for which various standards
exist as they have been used historically tofinance low-carbon assets, but whose use
remains limited in hard-to-abate sectors.79
Sustainability bonds, which can support
a just transition with UoP earmarked for
projects with a combination of social andenvironmental objectives.80• Entity level SLBs can be issued if the entity
does not have sufficient assets, activities, or
expenditures for inclusion in a UoP bond. The
funds are not earmarked for any specific purpose,
which makes these instruments very flexible, but
the cost of capital is tied to the achievement ofspecified SPTs linked to stated KPIs. Therefore,
they drive the transition by their forward-looking
nature and use of targets and are perceived as the
instrument of choice by the hard-to-abate sector.
Step 3 presents the financial characteristics ofthese instruments. The climate credentials of
issuers have been challenged in the past where
SPTs were not judged material enough or there
was no visibility as to the use of the funds. The
recently released Climate Bonds Standard
Version 4.0 has been updated to include
corporate entity and SLB Certification to makethe link between SLB issuance and ambitioustransition plans transparent.
• Sustainability-linked green bonds are a hybrid,
combining the UoP model of a green bond withthe performance-based structure of the SLB toensure both a forward-looking nature and strong
credibility through the green label. Althoughrarely used in the market, this structure could
attract attention in the future as it captures thebest of both UoP and performance-linked bonds.
Climate Bonds Standard and Certification Scheme
ensures that an entity Certified under the transitionor aligned label can raise any type of labelled or nonlabelled bond, with the Certification acting as therecognised badge of best practice in green finance.

Structuring
Green bonds and SLBs are the main labels used tofinance the climate transition and the issuer can refer
to ICMA principles for additional guidance on social
projects and indicators that could be integrated.81
Green label
In the context of climate transition finance, thegreen label typically applies to:• Activities that are considered aligned with a netzero economy because they are at or near zero
emissions. Wind power generation is an example.
• Activities that are known to assist a
sector following the 1.5°C or Paris-aligned
decarbonisation pathway, which are typicallycalled transitional activities.82 To be fully
credible, these activities must not hamper thedevelopment or deployment of low-carbon
activity, nor lead to a lock-in of GHG emissions
that is inconsistent with Paris alignment.

Climate Bonds cement
mitigation criteria:
Installation, upgrade,
retrofit and operation of
measures which achieve
emissions savings
equivalent to the emissions decrease forfacilities between the start year of the bondand the end year (the measure or bundleof measures must achieve a reduction inemissions of 13% at plant level to be eligible).

Taxonomies and sector criteria
A taxonomy is a rulebook or a classification system
for identifying low-carbon economic activities. Asof 2023, more than 40 countries and regions had ataxonomy or were in the process of developing one.
Recently published taxonomies for Thailand, Mexicoand ASEAN demonstrate that there are different, butconverging, routes to this goal. Taxonomies typicallycover low-carbon and transitional activities listed
above, but also enabling activities that support theimplementation of other activities (e.g., data centre).
Sector criteria are the basis of a labelling scheme for
credible green products that deliver real impacts.
Each sector criteria sets climate change benchmarks
for that sector, which are used to screen assets andcapital projects so that only those that have climate

Examples of transitional activities across various taxonomies
1. South African green taxonomy for watertransport, whose criteria illustrate examples ofnear zero and of transitional activity:• Zero direct emissions waterborne vessels;• Until 31 December 2025, hybrid vessels using
at least 50% of zero direct (tailpipe) CO2
emission fuel mass or plug-in power for theirnormal operation.
2. South African green taxonomy forthe manufacture of cement, a sector withtransitional activities:
Mitigation measures should be incorporated
into a single investment plan within adetermined time frame (five or 10 years)
that outlines how each of the measures incombination with others will enable the activity
to meet the threshold defined below. The
activity manufactures one of the following:a. Grey cement clinker where the specific GHG
emissions are lower than 0.722 tCO2e per tonneof grey cement clinker;
b. Cement or alternative hydraulic binder,from grey clinker, where the specific GHG
emissions from the clinker and cement oralternative binder production are lower
than 0.46931 tCO2e per tonne of cement oralternative binder manufactured.

Financing the corporate climate transition with bonds Climate Bonds Initiative

In this example, the CO2 emission thresholdreflects the average value of the 10% mostefficient installations in 2016 and 2017 as
set out in the Annex to the Commission
Implementing Regulation (EU) 2021/447 of 12
March 2021.
3. EU taxonomy eligibility criteria for the
manufacture of carbon black:
GHG emissions from the carbon black
production processes are lower than 1,141
tCO2e per tonne of product.
4. Climate Bonds example of steel
production capex:
Optimisation of blast furnace that became
operational prior to 2007, via for instance,
pulverised coke injection, top gas recycling or
stove waste gas heat recovery. Eligibility is on
condition that the investment shall not be forrelining and decarbonisation measure(s) andhas been/will be implemented at the facility andhas/will reduce the facility’s emissions intensity(tCO2/t steel) between 2022 and 2030 by 50%.
As can be seen in the Climate Bonds example
above, performance indicators have been
added to ensure that the decarbonisation
measures are bringing an emissions reductionaligned with a 1.5°C pathway.

15

integrity, either through their contribution to climate
mitigation, or to adaptation and resilience toclimate change, will be recognised as green.
Transitional activities require ongoing disclosureof thresholds or performance indicators. These
ensure the decarbonisation rate of the activity
is in line with the decarbonisation goals of theParis Agreement. Sector Criteria such as those
provided by Climate Bonds provide examples ofactivities and decarbonisation thresholds thatare compatible with a 1.5°C decarbonisation
pathway for hard-to-abate sectors.
An issuer choosing a taxonomy or a sector criteria
is encouraged to understand the drivers of thetaxonomy/criteria development process toensure the criteria of eligibility are in line with theParis Agreement. To help issuers and investors
further, Climate Bonds regularly supports
and publishes research on country taxonomy
development and interoperability.83
In addition to taxonomies, issuers can refer toother internationally recognised standards suchas ISO and FSC standards to justify that the UoP
is eligible for green bond financing.84 The Ellen
MacArthur Foundation recommends lifecycle
analysis, if properly applied.85 Additionally, theEBRD, International Energy Agency (IEA), andMission Impossible Partnership have developedor are developing technology roadmaps that are
sector and/or country specific.86

Transition bonds can beseen as a subset of green
bonds and the label isgaining traction following
the implementation ofnational sustainablefinance frameworks and technology
roadmaps, such as from the Japan Ministryof Economy, Trade, and Industry (METI)).88
They are used to finance the climatetransition by issuers from economic sectors
with the largest GHG emissions under thegreen umbrella. However, the transition
label has been criticised for fragmenting thesustainable debt market and making a false
distinction between green and transition.
Moreover, it exposes issuers to accusationsof greenwashing when used to label bonds
with a level of climate ambition that would
not be acceptable under a green label.
At its heart a transition bond should havesufficiently ambitious performance targets
that align with a pathway to limit the
global temperature increase to 1.5°C and,at the very least, to well below 2°C. If thiscriterion is met, issuers may choose to label
the bond green or green transition, underguidance from the underwriter related tomarket appetite for the label.

Limak İskenderun
Uluslararası Limanİşletmeciliği A.Ş.
(‘LimakPort’) operates
the Port of Iskenderun, acontainer and general cargo
port located in Turkey. The following example
is an extract from the SPO (Sustainanalytics)
review of the LimakPort SLB Framework. It
illustrates how a KPI that is not part of GHG
emissions will typically be assessed.
The KPI measures the percentage of dieselpowered port vehicles that have been
converted to electric-powered vehicles.
The vehicles targeted for conversion into
electric-powered include all vehicles thatcan be converted to electric and include:
1. 100% of terminal trucks (36 out of 36).
2. 85% of forklifts (32 out of 37).
3. 100% of passenger vehicles used byport personnel when performing port
duties (32 out of 32).
The KPI is a directly observable number
and calculated by dividing the quantity of
total vehicles that have been converted
to electric power by the total quantity ofvehicles available.
SPT: baseline is 0% as of 2020.
1. By 2028 45% of the terminal trucks,
45% of the total forklifts, 45% of thevehicles used by the port personnel havebeen converted to electric.
2. By 2030, 100% of the terminal trucks,
85% of the total forklifts, 100% of thevehicles used by the port personnel havebeen converted to electric.

As these initiatives are a recent market
development, ICMA green bond principles do
not stipulate which methods to use. ICMA refers
to the initiatives quoted above and sustainability
consultants for guidance on selecting eligible
projects. Taxonomies are preferred by investors.

Sustainability-linked bonds:
As already mentioned, SLBs feature and measure
the transition of the corporate entity throughthe selection of KPIs and SPTs that include
GHG emissions, and/or the means to measuredecarbonisation pathways.
When the KPI(s) monitor the GHG emissions:
1. KPIs related to GHG emission reduction
should be material when compared to theissuers total GHG emission profile. For some
sectors like cement and concrete production,scope 1 is the most material (close to 80%) and
SLB issuers will typically use scope 1 emissions

Financing the corporate climate transition with bonds Climate Bonds Initiative

In its assessment of the relevance of the KPI,
Sustainalytics mentions:‘Sustainalytics considers LimakPort’s
definition and methodology to calculate
KPI performance to be clear and consistentbased on the simplicity of the calculationand ease of interpretation of the KPI. The
KPI measures the conversion rate of dieselpowered vehicles to electric powered vehicles,
and thus Sustainalytics considers the KPI
as an indirect measure of the performanceof the Company on its emissions reduction
targets. Sustainalytics notes that the KPI
does not follow an externally recognised
methodology as it was formulated in thecontext of company-specific operations,and the KPI does not lend itself well tobeing benchmarked. Overall, Sustainalytics
considers the percentage conversion rate ofport vehicles from diesel-powered to electric
powered to be an adequate KPI given that the
select vehicles account for 50% of Scope 1 and
44% of Scope 1 and 2 emissions, and the KPI
speaks to a material environmental issue inthe marine ports subindustry.’
In the assessment of the level of ambition,
Sustainalytics mentions:‘Sustainalytics has relied on the historicalperformance as the SPT does not support
peer analysis or benchmarking with sciencebased targets. LimakPort has clarified that theCompany does not have any electric powered
vehicles in its fleet, and the SPT includes all
vehicles that are eligible for conversion as of2020(…). Given that LimakPort currently has noelectric vehicles, and the Company intends toachieve substantial emission reduction throughthe achievement of the SPT, Sustainalytics
consider the SPT to be ambitious and abovebusiness-as-usual trajectory.’89

only. For other sectors, scope 1 and 2 combined
are less relevant and cover a small fractionof the total GHG emission profile. In thoseinstances, scope 1 and 2 alone do not constitutea material KPI and scope 3 emissions should be
addressed. Given the complexity of establishingbaselines and targets for scope 3, transition
plans may include a commitment for its
measurement and reduction, instead of a target.
A KPI could capture the commitment to tackle
scope 3 or cover part of scope 3 emissions withan undertaking to include remaining material
scope 3 sources in the future.
2. SPTs should refer to science-based scenarios
as described on page 11.
3. The entity’s activities should provide the levers
to achieve the SPTs, financed directly or indirectlyby the bond, rather than through other means,e.g., market movements, divestments, or offsets.

16

For KPIs capturing the means to decarbonise:
4. The SPTs should represent a material
improvement in the respective KPIs, be beyond
a business-as-usual trajectory, and be linked tothe decarbonisation or low-carbon pathway. The
baseline for comparison for instance could be
the performance of the entity over the last three
years and its industry peers over the same period.
5. They should be determined on a predefined
timeline, set before or concurrently with theissuance of the bond.
Examples of KPIs relevant to specific sectors
can be found in taxonomies and/or country
and sectoral technology roadmaps. ICMA also
publishes an illustrative KPIs registry.

Additional considerations for
all thematic labels
Irrespective of the thematic label chosen
for the bond, investors will require preissuance information on how the funds willbe allocated and an assessment of the levelof additionality. The assessment informs theextent to which the instrument will contributeto the transition and does not pay for emission
reductions that would have occurred anyway.
The level of additionality can be communicatedby disclosing the percentage of new projects
expected to be financed.
Public scrutiny of greenwashing andcarbon lock-in risk has increased with theproliferation of green and sustainability labels
accompanied by unsubstantiated climate
pledges and commitments in certain cases.
The OECD identifies UoP labelled bondsand SLBs as susceptible to accusations ofgreenwashing.87 While a robust transition
plan can limit the risk, the following conditions
should be screened against:
1. The bond is used to refinance investments thatwere not linked to the transition.
2. The transition plan is incomplete
and/or non-transparent.
3. An SLB or UoP bond is used to finance carbon
lock-in activities and no safeguards were added,
as explained on page 12.
4. SLBs use a composite ESG rating as a KPI andlink the deal to an ESG score. This has been flagged
as non-transparent practice and ESG scores are
currently highly dependent on the assumptions
used by ESG ratings and data providers.

7. There is a lack of transparency pre-issuanceon the percentage of the UoP allocated torefinancing and the projects to be refinanced,
with the risks that this includes stranded or
lock-in activities. The issuer should define thelook-back period for refinanced eligible transition
projects and their nature.

Step 3: The sustainablefinancing framework
What is a sustainablefinancing framework?
The sustainable financing
framework (framework) is themain document supporting
the issuance of transition-linked bonds. The
document will inform on:• The history of GHG emissions and assurance
reports on the GHG emission disclosures.
• A description of the entity’s sustainability
journey which will lead to the rationale forestablishing a bond framework.
• The alignment of the bond with a standard or thecore components of the relevant ICMA principles
and Climate Transition Finance Handbook.
• Information on external review provider(s) thatwill assess through a pre-issuance external
review, the alignment of the bond frameworkwith the standard chosen or ICMA principles.
The framework can be referenced in successive
deals, but the information should be kept up-todate and keep track of past information to testify
to the issuer’s progress in transitioning.
The framework should not be confused with thebond prospectus, which is the legal document
providing information on the bond offering uniqueto each deal, and would not include details onalignment with a standard or ICMA principles.
The typical content of a framework issummarised below for bonds following ICMA
green bond principles or SLB principles. In thecase of multiple labels, the framework should
separate the information provided for each label
by introducing subsections with appropriate
headings. Issuers choosing to follow Climate
Bonds or another green bond standard or
ICMA guidelines should also refer to thatorganisation’s documentation.

Green bond framework
1. Introduction to the entity
2. Sustainability-related disclosureand reporting
3. Description of transition plan
4. Rationale for establishing a green bondframework
5. Alignment of green bond with the ICMA
green bond principles
a. UoPb. Process for project evaluationand selection
c. Management of proceeds
d. Reporting
6. Information on possible engagementwith providers of external review ofalignment of the bond framework with ICMA
principles or other bond standards
7. Commitment of the issuer to obtainan external verification on allocation andimpact reporting.

Sustainability-linked
bond framework
1. Introduction to the entity
2. Sustainability-related disclosure andreporting
3. Description of transition plan
4. Rationale for establishing a sustainabilitylinked bond framework
5. Sustainability-linked bonda. Selection of KPIs
b. Calibration of SPTs
c. Bond characteristics
d. Reportinge. Verification
6. Information on possible engagementwith providers of external review ofalignment of the bond framework with ICMA
principles or other bond standards

5. The UoP are earmarked for the developmentof technologies whose efficiency indecarbonising remains unproven and the entity
is not actively engaged or collaborating todevelop these technologies.
6. SPTs are not perceived as ambitious enough or
the KPIs are not material.

Financing the corporate climate transition with bonds Climate Bonds Initiative17

Grupo Bimbo, S.A.B.
de C.V. (Bimbo) is a
Mexican multinational foodentity with a worldwide
presence in the bakery
sector. Bimbo has detailed
in its sustainability report the levers used
to decarbonise. Its April 2023 updated
Sustainability Financing Framework covers
both green bonds and SLBs. The framework
includes various eligible project categories for
its green bond that will allow it to decarbonise
its three scopes of emissions. The table
presents an extract.

Eligible Category

Eligibility Criteria

Contribution
to UN SDGs

Renewable
EnergyExpenditures related to the construction,
development, acquisition, maintenance, andoperation and connection of assets and infrastructures
for renewable energy derived from solar, wind,certified hydro, and/or green hydrogen (produced
using renewable sources with a carbon intensity lower
than 100gCO2e/kWh) as renewable, including:• On-site renewable energy projects including solar
rooftop panels and wind,• Sourcing expenditures pursuant to long-term
power purchase agreements (PPAs) or Virtual Power
Purchase Agreements with renewable projects,• Renewable energy Li-ion battery storage systems.

Use of Proceeds bonds
Each UoP bond issued should be consistent withthe specifications of the issuer’s framework in thefollowing ways:
Use of Proceeds
The eligible project categories should be those
identified in the transition plan as having amaterial contribution to the climate transition.
If existing assets, projects, activities, or
expenditures are eligible for inclusion, theframework should specify the lookback period.
It is important to have a buffer of eligible assets
exceeding the face amount of the outstanding
bond to safeguard against assets becoming
ineligible or their impact on the transition
immaterial. This is also a consideration for repeat
issuance. Issuers that have received preferential
pricing and other benefits for bonds bearing
the green label, are inclined to prioritise thedevelopment of green expenditures.
Project evaluation and selection process
The governance process dictates how the issuer
evaluates and selects the individual items within
the list of nominated projects and assets.
The decision-making process must include:
1. How the climate-related objectives of the debt
instrument are positioned within the context
of the issuer’s transition. This would typicallyreference the action plans of the transition plan.
2. A process to determine whether thenominated projects and assets meet theeligibility requirements of the label or standard
chosen, i.e., the alignment of projects with official
or market-based taxonomies.
3. A process in place to identify mitigants toknown material risks of negative social and/or environmental impacts from the relevant
project(s). Such mitigants may include clear andrelevant trade-off analysis undertaken in addition to

Bimbo’s project evaluation and selection process introduced in the previous section:
Projects that will potentially receive allocation
amounts related to the Green Finance
Framework are evaluated and selected by
the Bimbo Group Sustainable Investments
Committee (Committee), formed byrepresentatives of the sustainability, treasury,
net zero, financial planning, agrobusiness,
vehicles, and procurement teams and/or
other advisers. The Committee will screen andassess that the projects meet the eligibility
criteria of the Green Finance Framework as
well as Bimbo’s sustainability policies andprocedures for inclusion in the portfolio of
eligible green projects.

Once screened, the sustainability, net zero,financial planning, and treasury departments
track actual expenditures on eligible projects
using internal systems and ensure that no
double-counting of expenditures for the UoP
occurs across green finance instruments.

monitoring where the issuer assesses the potential
risks to be meaningful. ICMA stipulates that while
there is no requirement for green activities todemonstrate a positive social impact, they should
not cause any social harm.

4. Finally, ICMA encourages issuers to identifyalignment with market-wide green, social ordevelopment objectives, such as the SDGs, tohelp investors that may use them as part of theirinvestment decisions.

Cadent’s project
evaluation andselection process
Cadent is the largest
gas distributor in the UK.
In March 2023, it updated its Green Bond
Financing Framework, which included its netzero commitment, science-based targets, andambition to reduce its scope 3 emissions. The
framework included a single eligible project
category that covers the transmission anddistribution networks for renewable and lowcarbon gases.
Cadent describes its process to identify
acceptable projects as follows:

Financing the corporate climate transition with bonds Climate Bonds Initiative

The Committee will meet at least once a year
to review and monitor the list of eligible green
projects against the eligibility criteria. It is also
responsible for the exclusion and replacementof projects which no longer comply with theeligibility criteria, on a best-efforts basis.

‘Our climate change risks are managed
in line with our overall risk management
framework. This includes a thorough,consistent, and documented approach toidentifying, assessing, treating, monitoring
and reporting risks.’90
Cadent mentions that it has a standard forprotection and restoration of biodiversity
and ecosystems that sets ‘the biodiversity
expectations for all permanent andtemporary worksites, including for managing
and protecting habitats, flora and fauna’and it engages external consultants to
conduct ecology surveys to identify risks
and suggest improvements.

18

Management of proceeds• Issuers should describe the internal governanceto manage the UoP, including the supervision,
tracking, and reporting of the proceeds.
• Proceeds should be credited to a sub-account,
moved to a sub-portfolio or otherwise tracked
in an appropriate manner (e.g., tagged in theinternal accounting systems). Temporary
placement for the balance of unallocated net
proceeds should be documented.
Best practice would ensure that:
1. During the lifetime of the bond, the balance of
unallocated net proceeds is not invested in any
project inconsistent with the delivery of a lowcarbon economy.
a. Funds are earmarked to nominated projects
and assets. Funds could also be ring-fenced.
b. If any of the proceeds are to be used forrefinancing, the framework should provide
an estimate of the proportion, identify which
nominated projects and assets may be
refinanced and to the extent relevant, theexpected look-back period for refinanced eligible
projects. The issuer can also state an intended
timeframe for the deployment of the proceeds.
c. The framework should describe theprocedure for reallocating proceeds earmarked
for projects that cease to qualify. To ensuretransparency, an external auditor, or otherthird party, should verify the internal tracking
method and the allocation of funds.
Reporting
The issuer should commit to annual reportingwith current information on the UoP until full
allocation, on a timely basis in case of material
developments. Refer also to Step 5 on postissuance reporting.

Sustainability-linked bonds
The following information should be disclosed in
the framework.
Selection of key performance indicators
KPIs should follow the criteria detailed in thetransition plan and the considerations given on
pages 16 and 17.
Calibration of sustainability
performance targets
Calibration of the SPTs should follow therecommendations of the transition plan and given
on pages 16 and 17. As far as is practicable theframework should disclose plans for their fulfilment.

Grupo Bimbo’s management of proceeds
The Sustainable Financing Framework of
Grupo Bimbo (referenced above) states:‘We intend for the proceeds of any Green
Financing Instrument to be allocated to
Eligible Green Projects within 3 to 5 years
of incurrence of the debt, subject to thespecific projects in consideration. In thecase of refinancing existing Eligible Green
Projects, expenditures which have been
made within the 36 months preceding
the date of issuance of a Green FinanceInstrument shall be considered forinclusion as Eligible Projects.

JSW Steel Limited
KPI selection
JSW Steel Limited is India’s
leading integrated steel
manufacturer. Its 2021 SLB
Framework included one KPI which was:Relevant to the transition, core, andmaterial to the entity’s overall business:‘CO2 emissions intensity for scope 1 and 2
emissions, expressed as tonnes of CO2 per
tonne of crude steel produced’. The KPI
covered 100% of its crude steel production
and accounted for around 99% of thecompany’s total emissions.
Quantifiable on a consistentmethodological basis: The methodology
used to measure GHG emissions followed theWorld Steel Association CO2 data collectionuser guide.
Externally verifiable: ‘The assurance of
GHG Emissions is conducted in accordancewith Limited Assurance procedures as per
International Federation of Accountants(IFAC) International Standards on Assurance
Engagements (ISAE) 3410, Assurance
Engagements on GHG Statements.’
Able to be benchmarked ‘The standards
used for reporting GHG emissions for the
integrated steel operations cover various GRI
Standards- 305-1, 305-2, and 305-4.’

Vestas SPT calibration
Vestas Wind Systems
A/S is a Danish designer,
manufacturer, installer,and services provider
of wind turbines. Its 2022 SLB Framework
included KPIs that captured the total tonnageof non-recycled waste from Vestas’ own
operations per MW of wind turbines produced

Financing the corporate climate transition with bonds Climate Bonds Initiative

Pending full allocationof such amounts tothe portfolio of Eligible
Green Projects, we may
hold and/or invest thebalance of net proceeds not yet allocated,
at our discretion, in our Treasury liquidity
portfolio (in cash or cash equivalents,
money market funds, etc.) in line with
our Treasury management policies orused to repay a portion of outstanding
indebtedness, which will exclude carbonintensive activities.’

JSW Steel Limited’s 2021 SPT calibration
SPT 1: CO2 emissions intensity reduction toequal or be less than 1.95 tonnes CO2 per tonneof crude steel produced (tCO2/tcs), equivalent toa reduction of 23% from a 2020 baseline, by 2030.91
To justify the calibration, JSW Steel Limited:• Disclosed the value of the SPTs for the three
years preceding the baseline of 2020, andhighlighted that 2020 was not a year withhigh emissions.
• Discussed how ambitious the target was:
‘In 2017, as part of its Intended Nationally
Determined Contributions (INDC), India’s
Ministry of Steel included in its National
Steel Policy specific reduction targets of GHG
emissions in the iron and steel sector to a levelof 2.2–2.4 tonnes per tonne of crude steel inthe BF-BOF route and 2.6–2.7 tonnes per tonneof crude steel in the DRI-EAF route by 2030.
Recognising our role as one of the leading
steel producers in India, we have set ourselves
the target of reducing our CO2 emissions
intensity by 2030 to 1.95 tCO2/tcs, significantly
exceeding the Ministry of Steel’s targets under
the Paris Agreement. (…) Our 1.95 tCO2/tcs
target is derived from the International Energy
Agency’s (IEA) Iron and Steel Technology
Roadmap, published in 2020.’• Explained how the SPTs would be met.
• Benchmarked the target using an IEA pathway.

and shipped in the year. Vestas targeted a
90% reduction in the ratio by 2030 and thecreation of the first wind turbine from fully
recycled material. To illustrate the ambitionof this target, Vestas’ SLB Framework (page 15)
included a projection for its share of blade
waste to 2030 which estimated this could
potentially avoid 100,000 tonnes of waste.

19

The SPTs should remain ambitious as the entity
progresses in its decarbonisation effort andbe aligned with the decarbonisation pathway.
Accordingly to ICMA guidelines, disclosure on
target setting should make clear reference to:• The timelines for the target achievement,
including the target observation dates/periods,
the trigger event(s) and the frequency of the
SPTs. These targets must be set before orconcurrently with the issuance of the bond.
• Where relevant, the verified baseline or reference
point selected for improvement of KPIs as wellas the rationale for that baseline or reference
point to be used (including date/period).
• Where relevant, in what situations
recalculations or pro-forma adjustmentsof baselines will take place.
• Any other key factors beyond the issuer’s
direct control that may affect the achievementof the SPTs.
Bond characteristics
The framework must describe how the bond’s
financial and/or structural characteristics willchange if the selected KPIs reach (or miss) the
predefined SPTs. The underwriter will offer
guidance on the appropriate financial mechanism.
While the most common financial feature is a
coupon step-up that punishes underperformanceagainst the identified targets, the current universeof SLBs is small and fragmented making it
difficult to establish best practice.
Vestas Wind Systems
A/S in its 2022 SLB
Framework specified a
coupon increase in theevent that:• A KPI failed to achieve the SPT on thereference year, or• The reporting did not meet therequirements as set out in the terms
and conditions of the relevant bonddocumentation, or• The verification of the KPI performance
was not provided and made public on or
prior to the reference year.

Mind the gap
The most common financial feature isthe coupon step-up (58% of SLBs issued
between 2018 and Q1 2023, according to
Climate Bonds Database) whereby theentity commits to pay a higher coupon if
the SPT is not reached. The average coupon
size increased from 25 bps in 2019 to 36 bps
in Q1 2023. Alternatives include a coupon
step-down, which is very rare. In only 1.2%of cases do coupons step up or down (6.5%)or there is a redemption premium linked tosustainability projects (18% of the SLBs).92
The materiality of the penalty is the
subject of ongoing debate. The materialityof the cost-of-capital might convey themessage of how serious the issuer is aboutsustainability and a material penalty might
be beneficial to the issuer at the time of
the issuance. At the same time, an SLB
should not impact the issuer’s credit risk.
SLBs are a nascent market segment (firstbond issued in 2018) and the standard on
SLB structuring is likely to evolve. At of the
beginning of 2023, the financial structure of
SLBs was a collaboration between entities
and underwriters.

ICMA recommends that the variation of thebond’s financial and/or structural characteristics
be commensurate and meaningful relative to theissuer’s original bond financial characteristics.93
In addition, any fall-back mechanisms, if the
SPTs cannot be calculated or observed in asatisfactory manner, should be explained. Issuers
may also consider including, where needed,language in the bond documentation to take
into consideration the potential occurrenceof exceptional events that could substantially
impact the calculation of the KPI, the restatementof the SPT, and/or proforma adjustments ofbaselines or KPI scope. Finally, issuers should
disclose key assumptions underlying theattainment of the SPTs and whether these would
impact the requirement to reach the targets.

Finally, a credible SLB would also link
the financial structure of the bond with thetransition, in particular, observation dates ofany trigger events should span the duration of
the bond with enough intermediate observation
dates chosen to show the impact of theinvestment. Any call dates should be set after
observation dates to not minimise the financial
incentive of reaching the target.

Climate Bonds
SLB Database Methodology
Climate Bonds had recorded cumulative
volume of USD252bn in sustainabilitylinked bonds (SLBs) at the end of H1 2023.
This underscores the rapid growth in thislabel since the first deal was priced in 2017.
Historically, Climate Bonds has recorded, but
not screened, SLB deals but in June 2023,
it published its SLB Database Methodology
which will enable screening going forwards.95
The methodology organises SLBs into
four categories:
1. Fully aligned: SLB targets cover allmaterial sources of emissions and arealigned with the relevant pathway.
2. Strongly aligned: SLB targets cover allmaterial sources of emissions and will bealigned with the relevant pathway by 2030.
3. Aligning: SLB targets cover all material
sources of emissions, are aligned with thepathway on a % reduction basis, and theissuer has the basic tenets of a transition plan.
4. Not aligned: SLB targets fail to meet
any of the above criteria, or do not meetthe other requirements detailed in the SLB
Database Methodology.
This methodology clearly defines
expectations for SLBs in terms of themateriality of KPIs and alignment withsector-specific pathways, and this isintended to contribute to more discipline in
the design of such instruments, as well as
enabling investor discernment.

Vestas
The sustainability-linked
bond framework of Vestas(referenced above) states:“The levels of CO2eemissions (…) and material efficiency(…) during the base years for the KPIs
will be recalculated to reflect any
significant changes in Vestas’ structure(e.g., acquisition, divestiture, mergers),
or technical changes (i.e., an updated IT
system, changes required for obtaininga higher level of assurance)”.

Financing the corporate climate transition with bonds Climate Bonds Initiative

20

Reporting
This section of the framework describes theissuer’s process for reporting on the performanceof the KPIs against the SPTs and the level ofambition of the SPTs that could change as thetransition plan is adapted. ICMA recommends acontractual annual reporting with the activationof a trigger event (e.g., coupon variation) in
the case that there is a lack of reporting on theobservation dates of the SPTs.94
Verification
The corporate entity must commit to put in place
an independent and external verification (limited
or reasonable assurance) report relative to the
SPTs, outlining the performance against the SPTs
once a year, and in the case of any date/period
relevant for assessing the SPT performanceleading to a potential adjustment of the SLB
financial and/or structural characteristics, until
after the last SPT trigger event of the bond has
been reached.
Link with sustainability-linked loans
Entities with experience in raising sustainabilitylinked loans (SLL) may find significant
similarities between the SLB principles andthe sustainability-linked loan principles. The
sustainability-linked bond framework can beused to finance SLLs.
However, owing to the more public natureand typically broader distribution of SLBs, ahigher level of transparency on the underlying
sustainable project is needed for SLBs pre- andpost-issuance. SLBs expose the issuer’s climate
strategy to the broader market, with the potential
for a higher impact on the issuer’s reputation.

Step 4: Bond issuanceOnce the bond framework isin place, the lead underwriter
has a critical role in guiding theissuer through the final stagesof the bond issuance process.
Refinitiv publishes a league
table of underwriters in its sustainable financereview, which is dominated by the largest French,
American, Japanese, and German investmentbanks, achieving typically between 2% to 6% ofmarket share.96
For large deals, the lead underwriter will lead anunderwriter syndicate; a group of investmentbanks which come together for the purposeof selling the bond to investors and spreading
the risk. The syndicate is compensated by theunderwriting spread, which is the difference
between the price paid to the issuer and the pricereceived from investors when the issue goes public.
The bond issuer will decide if the bond isdomestic, a Eurobond or a foreign bond.97 One
major distinguishing characteristic of foreign
bonds is the potential currency risk the issuer canbe exposed to.
Before moving to marketing and distribution thefollowing should be completed:

The underwriter will take the lead in themarketing process to achieve a widespread
investor interest and the most cost-effective
pricing. They will arrange a series of meetings,
the roadshow, with key investors with thefollowing objectives:
1. The underwriter will reach new ESG investors
to diversify the issuer’s investor base. The
underwriter will actively build an open dialogue
with investors on sustainability issues to help
build trust and lower perceived risk.
2. The issuer and underwriter will prepare a shortpresentation covering:a. The climate transition plan of the entity andhow the bond fits with the issuer’s strategy,b. The bond description,c. An overall credit review of the entity.
3. The underwriter should use its market
knowledge to propose an execution window
where the market is generally active (outside any
holiday period), avoiding uncertain economic
announcements and free, if possible, fromcompeting supply.
Once the issuer and underwriter are satisfied thatsufficient interest has been obtained, the bondcan be priced and distributed to investors.

1. The SPO. ICMA has published a pre issuancechecklist and recommends completing an SLB
information template.98,99
2. Legal documentation, including the bondprospectus which includes the bond’s financialfeatures (maturity, seniority, currency) andreference the bond framework to satisfy thelabel and standard chosen. SLBs can use one
or several KPIs listed in the sustainability-linked
bond framework.

Financing the corporate climate transition with bonds Climate Bonds Initiative

21

Step 5: Post-issuance reporting
High on investor agendas anda requirement of all bondstandards, post-issuancereporting illustrates how
the proceeds of the deal arebring mobilised, or progress
towards meeting the SPTs. The highest credibility
is achieved by timely and accurate reporting,preferably annually and for the whole durationof the bond. The entity is advised to update
its transition plan annually to incorporate theupdated value of its transition KPIs.
Post-issuance reports should be easily
accessible for investors and the public
on the corporate website.

Post-issuance reports
Post issuance and preferably annually, theissuer should report on the progress made tokeep investors informed of the impact of theirinvestments on decarbonisation. This is done
via updates on the GHG emissions and othertransition related KPIs and transition plans,
including a comparison of completed actions
to planned actions in the prior reporting period,
highlighting any underperformance to date andcorrective actions to address, by submitting thereports described below.
Allocation report (for UoP bonds)
The report should include:
1. The list of the eligible projects to whichbond proceeds have been allocated, as well
as a brief description of the projects and theamounts allocated.
2. A comparison with the commitment made preissuance in terms of fund allocation.
3. An estimate of the share of the net proceeds
used for financing and refinancing, detailingwhich nominated projects and assets have beenrefinanced. This may also include the expectedlook-back period for refinancing nominatedprojects and assets.
4. If relevant, any temporary investment
instruments used for the management of
unallocated net proceeds.

Eligibility reporting (for UoP bonds)
This is relevant for UoP aligned with a taxonomy,
where the report should provide:• Confirmation that the nominated projects
and assets continue to meet the relevant
eligibility requirements applicable at the timeof obtaining the label.
• Information on the environmental
characteristics or performance of nominatedprojects and assets prescribed by the relevant
sector eligibility criteria of the taxonomy used.
Impact reporting (for UoP bonds and SLBs)
The impact report aims to disclose theenvironmental and potentially the social impact ofthe projects financed under the bond framework,i.e., whether spending took place as anticipatedin the implementation plan, quantitative andqualitative explanations of the contribution of theproceeds to the transition, and the expected andobserved reduction in GHG emissions or othermetrics capturing the transition.

Air Liquide
In its 2023 allocation andimpact report following
issuance of a EUR500m
green bond raised in May
2021, Air Liquide stated:
As of the end of 2022, the full EUR500m
proceeds of the inaugural green bond areallocated:
43% for financing new projects,
57% for refinancing.
The allocation reports specified the amountattributed to each eligible project and theimpact of the project; for instance, in theenergy efficiencies category, two projects
were financed for a total of EUR27.2m
and the annual reduction of energy
consumption amounted to 17,520MWh
while the estimated CO2 emissions were7008 tCO2eq/y.

If the projects did not achieve the expected
outcome, the report should explain why.
For SLBs, the selected KPIs are reported, and thereport also provides an opportunity to update
investors on the level of ambition of the SPTs andon any change of level of materiality of the KPIs.
For UoP deals, qualitative performance indicators
are used and, where feasible, quantitative
performance measures of the outcomes or
impacts of the nominated projects and assets.
Additional considerations and guidance arefound in ICMA’s harmonised framework for impact
reporting of green and social projects.100,101
VestasVerification/assurance report fora sustainability-linked bondThis report monitors the performance against the
SPTs and should be independently audited by aspecialist firm that will provide the market andinvestors assurance that:
1. The SPTs set to date have been met.
2. The issuer is on track to meet future SPTs. This
may include assessment of any compensatory
measures where underperformance against theinitial transition plan exists or is anticipated.
3. Any recalibration of SPTs or transition plans
has not led to the lowering of SPTs.

In its 2022 KPI progress
report on reducing
the amount of waste,
Vestas announced a
20% reduction from the 2021 baseline andquoted the actions undertaken. Vestas also
attached the external verification report.

If confidentiality considerations restrict the detailthat can be disclosed, or if there are many small
projects being financed, the reporting can be
set at the portfolio level. However, disclosureof the impact of some of the projects financed
is recommended as indicative of the portfolio.
Issuers are encouraged to explain the key
characteristics of the approach they select for
their report. There may also be double-counting
concerns if the same underlying project(s) is
reported both by the original transition-linked
deal and by subsequent ones.
Finally, the external auditor, or other third party,
will verify the allocation of funds.
Financing the corporate climate transition with bonds Climate Bonds Initiative

22

The outlook for transition financeThis guide can assist any practitioner in thecorporate sector to develop a plan to reach a
Paris-aligned future. As the number of issued
bonds and transition plans increases, practices
and recommendations will likely evolve.
Although transition finance is a relatively recent
development the market is growing rapidly.
By the end of H1 2023, the volume of aligned
green, sustainability, and sustainability linked
bonds recorded by Climate Bonds had reached
USD3.46tn. Further, H1 2023 was the mostpromising half-year yet for alignment with therecently published Climate Bonds SLB Database
Methodology, with aligned SLBs reachingalmost one quarter (24.8%) of total issuancecount, and a slightly higher percentage by
issuance volumes (27.2%).
Climate Bonds has identified five areas oftransition finance that can be developed to movethe market forwards.

1. Regulatory frameworks
and policy support
More corporates are engaging
in transition finance as market
and regulatory initiatives
consolidate. These initiatives
include taxonomies, disclosure
frameworks, industry roadmaps
and sector level decarbonisation pathways andstandards for transition finance instruments. All
these tools can contribute to robust transition
planning. Meanwhile, clear policy support inJapan and China for the hard-to-abate sectors
has contributed to the proliferation of credible
transition finance in those countries. However,the versatile nature of the SLB structure hashelped its popularity in Latin America where such
instruments constitute a much larger share of thelabelled bond market than globally with 17.2%
versus 5.4% respectively.102

2. All scopes of emissions
The consistent recognitionof scope three emissions
among SLB KPIs is the next
frontier. Issuers should be
encouraged to address all
scopes of emissions in theirtransition plans, even if they are not yet equipped
to tackle them all. The scope of corporate
ambition is notable. For example, Latin America’s
largest restaurant chain and the world’s largest
McDonalds franchise, Arcos Dorados Holdings,
became the region’s first restaurant chain to
price an SLB in April 2022. The USD350m deal
had a coupon step-up linked to a single KPI, thereduction of scope 1, 2 and 3 GHG emissions.
Upstream scope 3 emissions, in the form of the
carbon footprint in its supply chain accountfor more than 93% of Arcos Dorados total GHG
emissions, so the SLB framework addresses
almost 100% of their total emissions footprint.
Sustainalytics reviewed the deal, and theframework was confirmed to align with ICMA’s
Sustainability-Linked Bond Principles (SLBP).103

3. Resilience
Resilience is gaining traction
as an important theme. The
USD1.2m green bond issued
by Interchile S.A. in 2021 had
UoP earmarked for upgrading,
improving, and retrofitting oftransmission infrastructure and substations,aiming to enhance the resilience of the system
to weather-related events. Although small, thisdeal demonstrates how transition finance can
support resilience efforts in regions vulnerable
to climate change.

Financing the corporate climate transition with bonds Climate Bonds Initiative

4. Entities operating in all
sectors must participate.
New sectors have entered thestage of the climate transition
agenda, including foodsystem value chains which areresponsible for about a third of
GHG emissions. These are very
difficult to decarbonise due to the multiplicity ofsmall actors, regional specificities, and their strong
linkage with social and economic development
in developing countries. However, Climate Bonds
has noted a sharp increase in the number ofcompanies raising SLBs with scope 3 emissions,which signifies that engagement with the supply
chain is mature enough to identify and act upon
the levers of scope 3 emissions reduction.

5. Just transition
and biodiversity
The just transition, while
conceptually established, stillneeds to be fully integrated
into transition plans along withnew themes that have emerged
from the global agenda suchas the promotion of a nature positive transition
to respond the urgent need to protect andrehabilitate natural ecosystems while at the sametime pursuing climate adaptation and resilience.

23

Appendix 1. Summary of regulations
Regulations on sustainability related disclosures for non-financial corporates as of April 2023
Jurisdiction

Name

StatusYear enacted/ planned

BrazilResolution no. 59

Effective

2023

Mandatory

CanadaClimate-related Disclosure Rule

Under development

N/A

MandatoryUS

Climate-Related Disclosures

Under development

2024/2025

Mandatory

China

Measures for Corporate Disclosures of Environmental Information

Effective

2022

Mandatory

CERDS Guidance

Effective

2022

VoluntaryBusiness responsibility and sustainability reporting by listed entities

Effective

2022

Mandatory

Consultation Paper on ESG Disclosures, Ratings and Investing

Announced

N.A.

Mandatory

Japan

Japan Corporate Climate Disclosures

Effective

2022

Mandatory

South Korea

ESG Corporate Disclosure Rules

Effective

2021

VoluntaryEU

Corporate Sustainability Reporting Directive (CSRD)

Effective

Phased implementation

Mandatory

UK

Companies (Strategic Report) (Climate-Related Financial
Disclosure) Regulations 2022

Effective

2022

Mandatory

South Africa

JSE Climate Change Disclosure Guidance

Effective

2022

Voluntary

Singapore

Singapore Listing Rules

Effective

Phased implementation

Mandatory

Australia

climate and sustainability-related disclosure standards

Announced

Phased implementation

Mandatory

India

Financing the corporate climate transition with bonds Climate Bonds Initiative

enforcement24Annex 1. Glossary
Net zero: from UNFCC, Race to Zero Lexicon.
When anthropogenic emissions of greenhousegases to the atmosphere are balanced byanthropogenic removals over a specified period.
Organisations are considered to have reacheda state of net zero when they reduce their GHG
emissions following science-based pathways,
with any remaining GHG emissions attributable
to that organisation being fully neutralised, either
within the value chain or through purchase ofvalid offset credits.
Decarbonisation pathway: provides the pace
and timing of GHG emissions reductions.
Paris Agreement or Paris-aligned: from
UNFCC, Race to Zero Lexicon. Goals are
considered ‘Paris-aligned’ or if they are inline with what the latest climate science
deems necessary to meet the goals of theParis Agreement – limiting global warming towell-below 2°C above pre-industrial levels andpursuing efforts to limit warming to 1.5°C, with noor low overshoot.
1.5°C aligned or 1.5°C trajectory or pathway:
in this guide refers to an entity decarbonisation
pathway aligned with the latest and mostambitious climate science recommendations
as communicated by the Intergovernmental
Panel on Climate Change (IPCC) i.e., halving
greenhouse gas (GHG) emissions by 2030 andreaching net zero by 2050, thereby limiting global
warming to 1.5°C with no or low overshoot.
Thresholds and target dates differ per sector.
Science-based decarbonisation pathway: GHG
emission reduction targets are considered sciencebased if they are in line with what the latest
climate science deems necessary to meet thegoals of the Paris Agreement, as communicatedby scientifically reliable and reputable
institutions such as the Intergovernmental Panelon Climate Change (IPCC).

Internal Carbon pricing: Carbon pricing isa highly adaptable mechanism designed tomake organisations price in the cost of theircarbon dioxide (CO2) emissions to their financial
decisions and encourage emission reductions. It
effectively brings the cost of the environmental
damage caused by greenhouse gas emissions
back to the emitter.

Just transition: From the World Benchmarking
Alliance: ‘Sustainable development can only
be achieved by striking the right balance
between economic, environmental, and social
components. Decarbonisation of our global
economy will only succeed if climate justiceincludes solutions for workers and communities,
also known as a just transition.’106

Carbon lock-in occurs when fossil fuelinfrastructure or assets (existing or new) continue
to be used, despite the possibility of substituting
them with low-emission alternatives, delaying
or preventing the transition to near-zero or zeroemission alternatives.

Additionality: Additionality refers to a positive
impact or outcome that would not haveotherwise occurred without additional resources
or capital investment. See also the discussion
in the following reference on the importance ofadditionality in impact investing.107

Asset stranding: stranded assets are assetsthat ‘have suffered from unanticipated orpremature write-downs, devaluations, orconversion to liabilities’.104
Scope 1 emissions: From GHG Protocol, direct
GHG emissions occur from sources that are
owned or controlled by the entity.
Scope 2 emissions: From GHG Protocol,
electricity indirect GHG emissions.
Scope 3 emissions: From GHG Protocol, otherindirect GHG emissions. Scope 3 emissions are aconsequence of the activities of the entity but occur
from sources not owned or controlled by the entity.
Greenwashing: According to the European
banking authority, ‘a practice whereby
sustainability-related statements, declarations,actions, or communications do not clearly andfairly reflect the underlying sustainability profile ofan entity, a financial product, or financial services.
This practice may be misleading to consumers,
investors, or other market participants.’105

Financing the corporate climate transition with bonds Climate Bonds Initiative25

Endnotes
1. PRI. (n.d.). regulation database (last update Q1 2022 as of Q2 2023).
https://www.unpri.org/policy/regulation-database.
2. European Central Bank. (2021). Overcoming the tragedy of thehorizon: requiring banks to translate 2050 targets into milestones.
https://www.ecb.europa.eu/press/key/date/2021/html/ecb.
sp211020~03fba70983.en.html.
3. ISSB. (2023). General Requirements for Disclosure of Sustainabilityrelated Financial Information. https://www.ifrs.org/issued-standards/
ifrs-sustainability-standards-navigator/ifrs-s1-general-requirements/.
4. ISSB. (2023). IFRS S2 Climate-related Disclosures. https://www.ifrs.
org/issued-standards/ifrs-sustainability-standards-navigator/ifrs-s2climate-related-disclosures/.
5. EIB. (2021). Common principles for climate mitigation financetracking. https://www.eib.org/attachments/documents/mdb_idfc_
mitigation_common_principles_en.pdf.
6. Fitch. (2023). ESG Regulations and Reporting Standards Tracker.
https://www.sustainablefitch.com/corporate-finance/esg-regulationsreporting-standards-tracker-30-05-2023.
7. Net Zero Asset Managers Initiative (NZAM), Net-Zero Asset Owner
Alliance (NZAOA), Net-Zero Banking Alliance (NZBA), Net ZeroFinancial Service Providers Alliance (NZFSPA), Net-Zero Insurance
Alliance (NZIA), Net Zero Investment Consultants Initiative (NZICI),
and the Paris Aligned Asset Owners (PAAO)
8. Green Bond Treasurer Survey, Climate Bonds, 2020, Green Bond
Treasurer Survey 2020 | Climate Bonds Initiative
9. Climate Bonds database.
10. Climate Bonds Initiative. (2023). Sustainable Debt Market
Summary H1 2023.
11. Harrison, C. (2023). Green Bond Pricing in the Primary Market H12023. Climate Bonds Initiative.
12. ICMA. (2023). Climate Transition Finance Handbook, Guidancefor Issuers.
13. ICMA. (2021). Green Bond Principles, Voluntary Process Guidelines
for Issuing Green Bonds.
14. ICMA. (2021). Sustainability Bond Guidelines.
15. ICMA. (2022). Sustainability linked bonds Related questions.
https://www.icmagroup.org/assets/documents/Sustainablefinance/2022-updates/SLB-QA-CLEAN-and-FINAL-for-publication2022-06-24v2-050822.pdf.
16. The European Financial Reporting Advisory Group (EFRAG) makes
the distinction between a transition plan as a part of a corporate’s
overall strategy for its transition towards a climate-neutral economy,
from a climate change mitigation action plan that is the part of atransition plan that is specific to GHG emission reductions.
17. As communicated by scientifically reliable and reputable
institutions such as the Intergovernmental Panel on Climate
Change (IPCC)
18. SBTi. (n.d.). To be published ( scope 3 stepping up science based
action). https://sciencebasedtargets.org/blog/scope-3-stepping-upscience-based-action.
19. GHG Protocol. (2013). Technical Guidance for Calculating Scope
3 Emissions. https://ghgprotocol.org/sites/default/files/2023-03/
Scope3_Calculation_Guidance_0%5B1%5D.pdf.
20. Grantham Institute. (2021). From the grand to the granular:translating just transition ambitions into investor action. https://www.
lse.ac.uk/granthaminstitute/wp-content/uploads/2021/07/From-theGrand-to-the-Granular_translating-just-transition-ambitions-intoinvestor-action.pdf.
21. Accounting for Sustainability. (n.d.). The A4S Essential Guide
Series. https://www.accountingforsustainability.org/en/knowledgehub/guides/About-A4S-Essential-Guide-Series.html.
22. Climate Bonds Initiative. (2023). The role of the Chief Finance
Officer in achieving the low carbon climate transition .
23. University of Cambridge. (2023). How CFO and Finance can help
drive sustainability.
24. OECD. (n.d.). Guidance on Transition Finance: Ensuring Credibilityof Corporate Climate Transition Plans.
25. sustainability-report_2022.pdf (enel.com)
26. CDP. (2023). CDP Technical Note: Relevance of Scope 3 Categories
by Sector. https://cdn.cdp.net/cdp-production/cms/guidance_docs/
pdfs/000/003/504/original/CDP-technical-note-scope-3-relevance-bysector.pdf?1649687608.
27. AccountAbility. (n.d.). Materiality review. https://www.
accountability.org/advisory/materiality-review/.
28. TCFD. (n.d.). Reporting Climate-Related Financial Information.
https://www.fsb-tcfd.org/publications/.
29. IFRS. (2023). IFRS S1 General Requirements for Disclosure of
Sustainability-related Financial Information.
30. Voluntary Carbon Markets Integrity Initiative. (2023). Claims Codeof Practice.
31. United Nations Global Compact and BSR. (n.d.). Supply chain
sustainability. https://d306pr3pise04h.cloudfront.net/docs/issues_
doc%2Fsupply_chain%2FSupplyChainRep_spread.pdf.
32 Air Liquide, Sustainability Report 2022, air-liquide-sustainabilityreport-2022.pdf (airliquide.com)
33. United Nations. (2022). Integrity Matters: Net Zero commitments
by Businesses, Financial Institutions, Cities and Regions. https://www.
un.org/sites/un2.un.org/files/high-level_expert_group_n7b.pdf.
34. CDP. (2022). CDP Technical Note: Reporting on Transitions Plans.
35. UK Transition plan taskforce. (2023). The TPT Implementation
guidance. https://transitiontaskforce.net/publications-2/.
36. OECD. (2022). OECD Guidance on Transition Finance.
37. Gfanz. (2022). Expectations for real-economy transition plans.
38. World Benchmarking Alliance. (2021). Just Transition
Methodology. https://assets.worldbenchmarkingalliance.org/app/
uploads/2021/07/Just-Transition-Methodology.pdf.
39. Council for inclusive capitalism. (n.d.). Just
Transition Framework for company action. https://inclusivecapitalism.com/wp-content/uploads/2023/05/
JustTransitionFrameworkForCompanyAction_2May2023_v2.1.pdf

40. Grantham Institute. (2021). From the grand to the granular:translating just transition ambitions into investor action. https://www.
lse.ac.uk/granthaminstitute/wp-content/uploads/2021/07/From-theGrand-to-the-Granular_translating-just-transition-ambitions-intoinvestor-action.pdf.
41. GHG Protocol. https://ghgprotocol.org/
42. ISO. https://www.iso.org/home.html
43. CDP (Disclosure Insight Action). https://www.cdp.net/en
44. Global Reporting Initiative. https://www.globalreporting.org/
45. International Sustainability Standards Board. https://www.ifrs.org/
news-and-events/news/2023/06/issb-issues-ifrs-s1-ifrs-s2/
46. TCFD. https://www.fsb-tcfd.org/
47. Gfanz. (2022). Sectoral Pathways for Financial Institutions.
48. SBTi. (2019). Foundations of Science-based Target Setting
49. ICMA Methodologies registry. https://www.icmagroup.org/
sustainable-finance/the-principles-guidelines-and-handbooks/
climate-transition-finance-handbook/
50. SBTi. https://sciencebasedtargets.org/set-a-target
51. Climate Bonds Initiative https://www.climatebonds.net/climatebonds-standard-v4
52. Mission Possible Partnership. https://missionpossiblepartnership.
org/sector-transition-strategies/
53. One earth. https://oneearth.uts.edu.au/
54. Transition Pathway Initiative (2022) https://www.
transitionpathwayinitiative.org/publications/2022-tpi-sectoraldecarbonisation-pathways.pdf?type=Publication
55. European Commission. (n.d.). EU Taxonomy navigator. https://
ec.europa.eu/sustainable-finance-taxonomy/home.
56. Republic of South Africa. (2022). South African Green FinanceTaxonomy . https://sustainablefinanceinitiative.org.za/wpcontent/downloads/SA-Green-Finance-Taxonomy-1st-EditionFinal-01-04-2022.pdf.
57. OECD. (2023). Guidelines for multinational enterprises. https://www.oecd.org/corporate/mne/.
58. United Nations Global Compact. (2011). Guiding Principles on
business and human rights. https://unglobalcompact.org/library/2.
59. United Nations. (n.d.). Internation Bill of Human Rights. https://www.ohchr.org/en/what-are-human-rights/international-bill-humanrights#:~:text=The%20International%20Bill%20of%20Human%20
Rights%20is%20a%20powerful%20statement,agree%20to%20
abide%20by%20them.
60. International Labour Organisation . (2022 ). ILO declaration on
Fundamental Principles and Rights at Work. https://www.ilo.org/
declaration/lang--en/index.htm.
61. Responsible Steel. https://www.responsiblesteel.org/
62. Global Cement and Concrete Association. https://gccassociation.org/
63. ICMM. https://www.icmm.com/en-gb/our-work/environmentalresilience/climate-change/mitigate-ghg-emissions
64. Cool Farm Tool. https://coolfarm.org/
65. Ellen MacArthur Foundation. https://ellenmacarthurfoundation.org/
66. Energy Transitions Commission. https://www.energy-transitions.org/
67. Mission Possible Partnership. https://missionpossiblepartnership.org/
68. World Business Council For Sustainable Development. https://www.wbcsd.org/
69. Sustainable Development Solutions Network. https://www.unsdsn.org/
70. Just Rural Transition. https://justruraltransition.org/
71. Food and Land Use Coalition. https://www.
foodandlandusecoalition.org/
72. Climate Bonds. https://www.climatebonds.net/standard/the-standard
73. ACT. https://actinitiative.org/
74. Lobby Map. https://lobbymap.org/
75. Carbon Tracker. Carbon Tracker.https://carbontracker.org/
76. Transition Pathway Initiative. https://www.
transitionpathwayinitiative.org/sectors
77. Net Zero Company Benchmark: Clmiate Action 100+. https://www.
climateaction100.org/net-zero-company-benchmark/78. Climate Arc. https://agm-tool.climatearc.org/
79. PRI, https://www.unpri.org/policy/regulation-database
80. ICMA. (2023). Social Bond Principles.
81. Platform on sustainable finance. (2021). Transition finance report.
https://finance.ec.europa.eu/system/files/2021-03/210319-euplatform-transition-finance-report_en.pdf.
82. Climate Bonds. (2023). Comparison study between the Colombianand EU taxonomies. https://www.climatebonds.net/files/reports/
cbi_col_eu_taxonomy_01e.pdf.
83. Canadian standards Association. (2022). Global FInancial
taxonomies. https://www.csagroup.org/wp-content/uploads/CSAGroup-Research-Global-Financial-Taxonomies-Considerations-forthe-Canadian-Context.pdf.
84. Forest Stewardship Council. https://fsc.org/en/fsc-standards
85. Ellen Mac Arthur foundation. (n.d.). https://ellenmacarthurfoundation.org/life-cycle-assessment-for-the-circulareconomy.
86. Mission Impossible Partnership. https://
missionpossiblepartnership.org/sector-transition-strategies/
87. OECD. (n.d.). Guidance on Transition Finance: Ensuring Credibilityof Corporate Climate Transition Plans.
88. Japan Ministry of Economy, Trade and Industry (METI). Transition
Finance / METI Ministry of Economy, Trade and Industry
89. https://www.limakports.com.tr/files/2021/06/limakportsustainability-linked-bond-framework-second-party-opinion.pdf
90. Cadent (2023). https://cadentgas.com/nggdwsdev/media/Downloads/
investor%20relations/Cadent-Green-Financing-framework.pdf
91. https://www.jswsteel.in/sites/default/files/assets/industry/steel/
IR/Corporate%20Announcement/Final_JSW%20Sustainability%20
Linked%20Bond%20-%20DNV%20GL%202nd%20party%20
opinion%20-%20Pre%20Issuance%20-%20Main%20Version%20
3.0%20-10-09-2021%20Signed.pdf
92. For 15% of the SLBs, the information on the financial mechanism
could not be disclosed.

Financing the corporate climate transition with bonds Climate Bonds Initiative

93. ICMA. (2022). Sustainability linked bonds Related questions.
https://www.icmagroup.org/assets/documents/Sustainablefinance/2022-updates/SLB-QA-CLEAN-and-FINAL-for-publication2022-06-24v2-050822.pdf.
94. ICMA. (2023). High Yield Sustainability-linked Bonds Practical
Recommendations.
95. Climate Bonds Initiative, Sustainability-Linked Bond Database
Methodology, June 2023 Sustainability-Linked Bonds Database |Climate Bonds Initiative
96. Refinitiv. (S1 2023). Sustainabe finance review.
97. CFI.(n.d.).InternationalBonds.https://corporatefinanceinstitute.
com/resources/fixed-income/international-bonds/.
98. ICMA. (2023). Pre-issuance Checklist for Green Bonds/ Greenbonds programmes. https://www.icmagroup.org/assets/documents/
Sustainable-finance/2023-updates/Pre-issuance-Check-List-forGreen-Bonds-Green-Bond-Programmes-June-2023-220623.pdf.
99. ICMA. (2023). Sustainability linked bond information
template. https://view.officeapps.live.com/op/view.
aspx?src=https%3A%2F%2Fwww.icmagroup.org%2Fassets%2Fdocu
ments%2FSustainable-finance%2F2023-updates%2FSustainabilityLinked-Bond-Information-Template-2023-220623.
docx&wdOrigin=BROWSELINK.
100. ICMA. (2023). Handbook- harmonised framework for impact
reporting.
101. ICMA. (2023). Harmonised Framework for Impact Reporting forSocial Bonds. https://www.icmagroup.org/sustainable-finance/
impact-reporting/social-projects.
102. Dagnino Contreras, V., et al, LAC Sustainable Debt State of theMarket 2022, Climate Bonds Initiative July 2023.
103. Arcos Dorados. 2022. Sustainability-Linked Financing
Framework. https://api.mziq.com/mzfilemanager/v2/d/67d33ccca514-4298-9d4bd205a4046dc6/de3949db-e2c3-7cde-e34160403fabdc09?origin=2104. Caldecott, Ben; Howarth, N; McSharry, P, Stranded Assets inAgriculture: Protecting Value from Environment-related Risks, Smith
School of Enterprise and the Environment, University of Oxford, 2013
105. European Banking authority, https://www.eba.europa.eu/
sites/default/documents/files/document_library/Publications/
Reports/2023/1055934/EBA%20progress%20report%20on%20
greewnwashing.pdf
106. World Benchmarking Alliance (2023). https://www.
worldbenchmarkingalliance.org/research/2021-just-transitionassessment/
107. T. Rowe Price, The importance of additionality in impact
investing, 2023

26

Prepared by Climate Bonds Initiative, The European Bank for Reconstruction and Development and The Green Climate Fund

Author:Sabine Laurent, Transitions Senior Analyst, Climate Bonds
EBRD Contributors:
Massimiliano Riva, Principal, Green Climate Fund
Dimitri Koufos, Head of Sustainable Business, Industry, Agribusiness and Commerce (ICA) EBRD
Climate Bonds Contributors:
Anna Creed, Director of Environmental Impact & Thought Leadership, Climate Bonds
Rachel Hemingway, Head of Transition Programmes, Climate Bonds
Fabrizio Palmucci, Senior Advisor, Climate Bonds
Zalina Shamsudin, Head of Technical Assistance & Capacity Building, Climate Bonds
Reviewers:
Aldo Bonati, Etica
Fabio Moliterni, Etica
Nazmeera Moola, Ninety One
Nicholas Pfaff, ICMA
Elia Trippel, OECD
Simone Utermarck, ICMA
Jessica Wood, Children’s Investment Fund Foundation
Editorial support:
Caroline Harrison, Stephanie Edghill
Design:Godfrey Design, Joel Milstead
If you would like to discuss this paper in more detail please contact:sabine.laurent@climatebonds.net
Prepared by Climate Bonds Initiative.
© Published by Climate Bonds Initiative, November 2023
www.climatebonds.net

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or
debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites.
The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken
as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of adesignated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate
Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole or in part on
any information contained within this, or any other Climate Bonds Initiative public communication.
This publication has been produced with the assistance of the EBRD. The contents of this publication are the sole responsibility of the Climate Bonds Initiative and do not necessarily reflect the views of the EBRD.

Financing the corporate climate transition with bonds Climate Bonds Initiative

27