2023

The role of the
Chief Financial
Officer in driving
low-carbon transition

This report was prepared by the Climate Bonds Initiative1. Foreword
Accelerating the transition
to a low-carbon future

Sustainable finance as a driver fora sustainable futureThis guidance is meant to inspire, challenge andsupport Chief Financial Officers (CFOs) worldwide
in their work to accelerate the low-carbon climatetransition and implement industry-specificdecarbonisation plans.

The world of a CFO is about managing risks andtaking advantage of opportunities.

When the Sustainable Development Goals (SDGs)
were launched in 2015 with a 2030 agenda, few
could have imagined what lay ahead. The 2023
SDG mid-point stock take revealed moderate orsevere deviations from the desired trajectory,
highlighting an urgent need for increased efforts
to achieve a sustainable future.1
At the entity level, action is no longer an
option but an imperative. CFOs must seize
this opportunity to anticipate industry leveltransition. As stewards of trillions of dollars ofcorporate investments worldwide, CFOs must
apply vision and ambition to their planning
process. They must bring long-term competitive
advantage to business and demonstrate to theirpeers best practices to achieve the low-carbon
climate transition.
CFOs face the unique challenges of satisfying
the demands of consumers and clients, while
amplifying environmental and social values
and meeting the expectations of stakeholders
and shareholders. To succeed, sustainability
and finance must move in tandem towards thecommon goals of reducing greenhouse gas (GHG)
emissions and decarbonising our planet.
We face unprecedented global challenges. Now
more than ever, we must take urgent action for abetter world, and CFOs have a huge opportunity
to do their best. Let this paper be your guide.
Sanda Ojiambo
Executive Director and CEO of
the United Nations Global Compact

Climate change presents a mix of both.
On one hand, the world faces an enormous
challenge in addressing climate change; theInter-Governmental panel on Climate Changes
says that, if we are to avoid catastrophic
climate change, we need to see as a minimum
global cuts in emissions of 60% by 2035. In themeantime, the impacts of global warming (or“global boiling” as UN Secretary-General Antonio
Guterres calls it) are being felt in increasingly
severe heat incidents, storms, and floods. The
World Meteorological Organisation now says theG20 target of holding warming to a maximum of
1.5°C will be breached in 2027; we now need toactively pursue sequestration solutions to gettemperatures back down.
On the other hand, governments around theworld have now committed to sharp emission
reductions by 2030, and substantive activity
is manifest in mini-booms created by the
US Inflation Reduction Act, in the European
Commission’s REPowerEU programme, andin Japan’s JPY1tn Green Transformation
Programme. With clean power already generally
cheaper than fossil fuel power, and electricvehicles mushrooming everywhere, it’s becoming
clear that the shape of the global economy istransforming. The future has been decided; theonly question now is the speed of change, and
who will be winners and losers.
Investors are acutely aware of this; that’s driven
the rapid growth of what is now a USD4.2tn
sustainable debt market – often referred to as“the place to signal green change” – and theproliferation of pro-active shareholding and asset
engagement strategies.
All companies are now expected to be developing
transition plans (they’re becoming mandatory inEurope and the UK) to show how they are dealing
with the pressures around climate change.
Trillions of dollars of capital are starting to flow
to climate-fit investments; transition project andbusiness plans stand to unlock tens of trillions.
CFOs are central to this.
Sean Kidney
CEO, Climate Bonds Initiative

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative22. Report Summary
Climate change touches on every aspect of life
impacting on people’s health and livelihoods,
and extending to ecosystems, infrastructure,supply chains and the financial sector.
Companies have an important part to playin the low-carbon transition with the senior
management team at the centre. However, theimpact of the CFO merits further investigation.
This report, produced in partnership with the
CFO coalition for the SDGs of the UN Global
Compact, sets out to determine how CFOs cantake a leadership role in their entity’s transition
to net zero, and seeks to identify best practices.
It provides insights and makes a series ofrecommendations which could be used byother CFOs and sustainability officers looking
to minimise the impact of their business on the
climate and protect their revenues from theimpacts of physical and transition risks.
To support CFOs, sector specific guidanceis now available to assist companies to plan
their decarbonisation so that it aligns with thecommitments of the 2015 Paris Agreement andG20 on climate change.2 Broader sector neutral
guidance for corporates on how to develop
their climate strategies and transition plans has
also been published in the last two years, andfinancial instruments are available to support
the implementation.3,4,5
The findings and recommendations presented
in this report reflect the results of Climate
Bonds first CFO survey. The survey was basedon conversations with 50 respondents from32 entities, conducted in the first half of 2023.
Respondents represented companies operatingin 21 GICS economic sectors from both emerging
and developed markets (see Annex 2, page 18). As of the end of H1 2023, respondent entities
had collectively issued aligned green bonds withcumulative volume of USD29.7BN and SLBs withcumulative volume of USD49.2bn.

Respondents were either part of the CFO
Coalition of the UN Global Compact or issuers ofsustainability-linked debt.
Respondents were at different levels of theirsustainability journeys, but all were keen to
express their commitment to guiding theirentities to reaching net zero.
About the CFO Coalition for the SDGs
The CFO Coalition for the Sustainable
Development Goals (SDGs) was convened as aplatform for CFOs to interact with their peers,investors, financial institutions, and the United
Nations to share ideas, develop new concepts
and frameworks, and provide recommendations
to unlock private capital and create a market formainstream SDG investments.
It stems from the recognition that, as stewards oftrillions of dollars in corporate investments, CFOs
are uniquely positioned to reshape the future ofcorporate finance and investment as a catalyst
for growth, value creation, and social impact.
About the Climate Bonds Initiative
Climate Bonds Initiative (Climate Bonds) is aninternational organisation working to mobilise
global capital for climate action. It promotes
investment in projects and assets needed fora rapid transition to a low-carbon, climateresilient, and fair economy. The mission focus
is to help drive down the cost of capital forlarge-scale climate and infrastructure projects
and to support governments seeking increased
capital markets investment to meet climate andgreenhouse gas (GHG) emission reduction goals.
Climate Bonds conducts market analysis andpolicy research; undertakes market development
activities; advises governments and regulators;
and administers a global green bond Standard
and Certification scheme.

Key Findings
Climate Bonds conversations withrespondents highlighted:
1. Competitive advantage
opportunities. Low -carbon
transition is an inevitablereality for entities operatingin most economic sectors. An
early, well planned, low-carbon transition
strategy could provide a competitive
advantage (commercial, financial, andregulatory).
2. Building the businesscase. All climate-related
investment and planningmust be underpinned
by a business case (atthe company’s hurdle rate). This robust
business case should be supported byassumptions and scenarios that go beyond
business as usual, with an emphasis on theprice and consequences of inaction.
3. The CFO is pivotal tothe implementation.
CFOs have a crucial rolein embedding climate
information and action into
the financial framework of a company andmainstreaming it throughout operations.
Sustainable finance products (such as
green and sustainability-linked bonds) are
important tools to mobilise internal andexternal stakeholders.
4. Demand fortransparency unlikely
to subside. Investors arebeing clearer and more vocal
in their climate transition
demands. As experts in measurement, CFOs
have the skills and responsibility to define,measure and communicate the progress of
their company’s transition and the related
investment decisions.
5. Transition leadershipversus status quo. CFOs
can help their companies tobe recognised as transition
leaders in their sectors andmonetise their transition efforts. The
financial ecosystem (e.g., investors, rating
agencies and others) is still working to fully
understand the credibility and relevanceof transition plans in different sectors andtherefore give benefit to early movers.

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative33. Introduction
The CFO has a key role in managing the risks andopportunities emerging from the low-carbon
transition because as the person ultimately
responsible for capital allocation, they will
influence whether to finance the activities
related to the transformation. Uninformed risk
management and delayed action may expose
a company to physical, regulatory, and financial
climate risks which could be negatively priced byinvestors, eroding the value of the company, andbringing long-term reputational damage. In contrast,
anticipatory action can bring a sustainable, longterm, competitive advantage to businesses.
As an investor-focused non-profit working
to set standards for credible climate action,
Climate Bonds is at the intersection of financeand climate change. The scale and pace ofthe transition needs to rapidly increase to
avoid the worst impacts of the climate crisis.
Investors are increasingly demanding action,
yet project pipelines and corporate transition
plans remain lacking in ambition and volume.
The CFO Coalition for the SDGs, a group of
Global Compact companies and their CFOs arecommitted to align investments and financing
with sustainable development priorities. In
partnership with the CFO coalition of the UN
Global Compact, Climate Bonds has exploredthe role of the CFO in the climate transition to
identify opportunities for driving progress andovercoming barriers to change.
The emergence of the sustainable finance market
and climate policy disclosure frameworks arean opportunity for CFOs, heads of finance (andChief Sustainability Officers (CSOs)) to comeforward and guide their organisations towards
climate-aligned business models. There are somedistinctive CFO skills and responsibilities thatmake them the ideal candidates to both guideand facilitate the implementation of the transition
to a low-carbon economy. As financial markets
increasingly integrate sustainability metrics in
corporate assessment, the CFO needs to become
an expert in sustainability topics (of which climate
is a major component) including all sustainabilitylinked finance instruments.6 These instruments
can be effective tools to signal, influence andreduce the cost of capital for a company.

This research is intended to inspire those whohave just started or who will shortly embark
on the journey to design and implement theirtransition plan, supporting these emerging
actors to pre-empt challenges. The interviewssought to capture impediments and explore
solutions. One clear message that was repeatedduring the interviews was that the low-carbon
transition is unavoidable. However, despite
the challenges, every company should start
the process as soon as possible and make it asource of competitive advantage.

Bruno Calo Fernández
CFO AstraZeneca Portugal.
“In the same way as it iscritical for a CFO tocontinuously keep up
to date with the latest developments
in IT, digital systems, and AI, it is also
important for the CFO to upskill on GHG
accounting and develop know-how on
those technologies that have the potential
to not only accelerate the decarbonisation
journey of the organisation, but also
support the enterprise to drive significant
bottom line improvements.”
Fernando Tennenbaum
CFO, Anheuser-Bush InBev.
“As a company, we seek
opportunities to create value
in a sustainable way, whichis consistent with and enhanced byaccelerated decarbonisation efforts. It justmakes sense for our business.”

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

Content
1. Foreword

2

2. Report summary
Key Findings
3. Introduction

33
4

4. Why start a transition journey?

5

Transition is risk management 5
What is a low-carbon
climate strategy? 5
The role of the CFO

5Tackling sector andregional differentiation

6

Respondents from the most polluting
industries had advanced knowledge 6
Transition plans can be adapted
to apply globally 6
Triggers to strategic transition plans

6

5. Recommendations and challenges

7

Recommendations 7
1. Start the decarbonisation journey
to gain a competitive edge 7
2. Make a business case arounda decarbonisation plan 8
3. Get internal and external
stakeholder buy-in 9
Overcoming Challenges 12
1. Identification and calibrationof the goals 12
2. Financing the low
carbon transition 13
3. Tackling scope 3 emissions 15
6. Outlook: An opportunity for Chief
Financial Officers 17
Annex 1: Participating companies
Annex 2: Interview Questions

18

18

4

4. Why start a transition journey?
Transition is risk management
The Taskforce on Climaterelated Financial Disclosures(TCFD) is a guiding frameworkthat establishes common
principles for how entities
should provide informationon the risks and opportunities associated with
Climate change. The TCFD explains:
Transitioning to a lower-carbon economy may
entail extensive policy, legal, technology, andmarket changes to address mitigation andadaptation requirements related to climate change.
Depending on the nature, speed, and focus of thesechanges, transition risks may pose varying levels offinancial and reputational risk to organisations.7
Risks are associated with both climate action andinaction; however, the risks of inaction continue
to increase. These are clearly important for highemitting and hard-to-abate sectors, but other sectors
are also under increased scrutiny considering moresophisticated analysis from investors and improving
transparency in supply chains. Although a more
systematic approach is required, capital markets
are increasingly integrating transition risks into
credit risk analysis and financial analysis, leading tomore accurate pricing of the risk.8 ESG assessment
providers and some rating agencies are now
providing net-zero assessments of companies.9
More broadly, according to research published by
Moody’s in October 2022, ‘sectors facing very highor high environmental credit risk now account for
USD4.3tn in rated debt, up 27% from USD3.4tn
in December 2020 and up 109% from USD2tn
in November 2015, at the time of the Paris
Agreement’s initial unveiling’.10 Those sectors are
not limited to coal, oil and gas but also include theindustrial sectors and agriculture, among others.
Corporate and personal legal risks are also
increasing because of inaction with recent researchfrom LSE recording more than 200 legal casesin 2022.11 Personal liability is at stake too, forexample, with the action by an NGO and a groupof institutional investors in 2023 to sue the Boardof Directors of Shell UK for climate inaction.12
Although this action failed at an early stage of
litigation, the reputational damage has cut deep.
The other side of risk is opportunity. Respondents
have described how integration of a credible netzero transition plan into the business strategy canhelp to build a competitive advantage, increase
operational efficiency and reduce a company’s
cost of capital (see section on pricing).13 This is
not limited to heavy-emitters, as many sectors
can harness a competitive advantage from lowcarbon practices and decarbonised supply chains(see below discussion on scope 3 emissions)in response to rising demand for low-carbon
products across the economy.

Figure 1. Credit risk faced by different sectors
Sector

2015

2018

2020

2022

2.0bn

2.2bn

3.3bn

4.2bn

3%

3%

4%

5%

Coal Mining and Coal Terminals
Chemicals
Mining- Metals and Other Materials, excluding Coal
Oil & Gas- Independent Exploration & Production
Oil & Gas- Refining & Marketing
Oil & Gas- Integrated Oil Companies
Unregulated Utilities and Power Companies
Automobile Manufacturers
Building Materials
Steel
Shipping
Surface Transportation and Logistics
Airlines
Oil & Gas- Midstream Energy
Oil & Gas- Oilfield Services
Protein and Agriculture
Total Debt (USD Bn)
Percentage of Total Debt
Very High Risk

High Risk

Moderate Risk

Low Risk
Source: Moody’s Investors Service

What is a low-carbon
climate strategy?
Simply put, a low-carbon
strategy is the businessstrategy to reduce GHG
emissions to net-zero by2050 or before.14 The primary
corporate tool to deliver on
the strategy is the transition plan for which
guidance is increasingly available. Transition
plans have some standard features that need to
be underpinned by a framework for credibility
and based on science and transparency.
Although regulatory guidance on transition
plans is in its infancy and mainly focused on
disclosure, expectations for the managementof climate risk are building globally. Banks in
Europe must demonstrate to the regulator
how they manage climate risk, while thedevelopment and disclosure of transition plans
is expected to become mandatory in the UK,
US and EU. Additionally, the G7 has endorsed
disclosure guidance from the IFRS International
Sustainability Standards Board (ISSB).15

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

The role of the CFO
Sustainability issues whichfall under the remit of the
CSO, need to be prioritised by
the CFO as they clearly relate
to material business risks
and opportunities. Pressure
is mounting from investors (Engine No. 1 andExxon is a case in point) and other actors willingto use litigation against companies that are notembracing their climate action responsibilities.16
In addition, pressure is increasing from thedependencies within a company’s ecosystem.
During our interviews, several respondents
mentioned joint-venture projects that were
derailed or delayed because one of the companies
involved suddenly had to implement net-zeropractices such as electrification of operations,disrupting the whole project both operationally(new planning) and financially (new economics).
Consumers are also making their voice heard as
they become increasingly more aware of theirconsumption-driven carbon footprint.
According to the consultancy company PWC
there are four reasons CFOs play a role, which arelisted below with additional context (in bold) thatwas collected during interviews.17
5

The CFO plays a key role in the low-carbon
transition because:

Tackling sector and regional
differentiation

Triggers to strategictransition plans

1. The link between enterprise value andfinancial value stands with CFOs. The CFO needs
to have a vision for the company’s futurebusiness model under different scenarios.

The focus of this report is therole of CFO across industries
and regions, but regional andsector specific context need tobe considered.

Respondents emphasised that committing to atransition plan was a non-linear process. Someof the trigger points leading them to pivot to a
strategic low-carbon transition plan were:

2. CFOs can drive better business outcomes
and capital allocation by bringing ESG into theirdecision-making process. Strategic decisions
will have a cost and benefit. Managing andquantifying those costs and benefits is key
and falls within the remit of the CFO.
3. A credible ESG story is essential for capitalraising and engaging with the market. In
addition to capital raising, reporting is anothersituation when a company needs a clear
story, and both sit with the CFO. Reportingis a key CFO responsibility due the growing
importance of non-financial disclosures andthe need to keep coherence between financial
and non-financial information.
4. CFOs need to have in-depth knowledge of
ESG strategies to balance the interrelationships
between financial and sustainability measures.
In addition, CFOs have the power and influence
to drive the transition, especially given that any
new project will likely require financing. Several
respondents described how CFOs had leveraged
their unique position to lead the transition or toproactively partner with their colleagues in thesustainability department.
Pedro Freitas
CFO, Braskem.
“Given the pivotal role of the
CFO in funding the low-carbon
transition, it is important thatthe company’s culture allows the CFO to playa role in the strategy of the company”.
Nicole Della Vedova
Head of Corporate andStructured Finance, Enel.
“There is not a sustainability
and a financial plan. There is
one integrated plan”.
Luca Passa
CFO, SNAM.
“Having board members who
are knowledgeable about
the low-carbon transition
is immensely beneficial, as their expertisecomplements the management’s efforts
in driving the company’s strategy towards
reducing the carbon footprint”.

Respondents from themost polluting industries had advanced
knowledge
A first clear differentiation factor between
sectors is the level of carbon intensity, and its
materiality. Respondent CFOs in more carbon
intensive sectors were generally more confident
when discussing decarbonisation strategies. For
example, companies operating in the cement
industries tended towards a sophisticated andadvanced approach to the integration of carbon
emissions in their overall strategy such as the useof an internal carbon price.
In contrast, the less directly carbon-intensive
industries (in terms of scope 1 and 2 emissions)
often had the challenge of dealing with supply
chain and product use scope 3 emissions.
This was the case for the oil and gas, financial
services, and agriculture sectors where scope
3 often represents over 90% of the emissions.
Respondents highlighted that these are
increasingly being scrutinised by investors
and consumers and need more attention, as
corporate sustainability frameworks have beenless focused on scope 3 emissions so far.
According to data from Climate Bonds, just
22% of firms that have issued SLBs included
scope 3 emissions in their targets.18 This topic
is explored in more depth later in the research.
Other important sector considerations include
the ease of transition (based on cost of andavailability of technology) and the speed oftransition. For example, electricity generation andthe agriculture, forestry, and land use (AFOLU)
sectors need to reach net-zero before 2050 whilst
cement production may be slower given thetechnological challenges.

Transition plans can be adapted
to apply globally
Many stakeholders have argued that transition
is more challenging in emerging economies,
which require more flexibility. However, most
respondents had a global footprint with aninternational investor base with net-zerocommitments. Their decarbonisation policies
therefore tend to be applied globally. Additionally,
even in an EM context, respondents explained thatcompanies with advanced transition plans wereable to effectively decarbonise despite the moredifficult environment. It is therefore both possible
and necessary for EM located companies to invest
in reducing emissions despite the challenges.

• The push from investors.
• A defining event/moment in the history of thecompany (such as a disaster).
• The appointment of a new CEO or CFO.
• Pressure from civil society.
• Regulatory pressures (i.e., carbon pricing) or
incentives (i.e., subsidies).
• The launch of a new technology or competitive
pressure from peers.
Those triggers often led to discussions on theoverall strategic direction and vision that thecompany wanted to pursue.
Respondents highlighted that the convictions
and the leadership of individuals were very
important to setting and implementing
ambitious net-zero targets. In 60% of cases,that impulse stemmed from the leadership of
the CEO or CFO. However, regardless of who isspearheading the transition internally, the CFO
will lead its execution, validate the feasibility,
create the financing plan, construct the narrative,raise the capital, and supervise the reporting on
the plan and its progress.
A transition plan is a company-wide effort that
goes beyond company management. In fact,
supportive and knowledgeable board members(including independent directors) are extremely
important to get an ambitious decarbonisation
plan adopted. However, the overarching themeis the importance of the leadership of individuals
and their intrinsic motivation, this means that theindividual is a critical driver of change and should
not be held back by corporate or societal inertia.

Who is spearheading
the transition plan?
Sustainability
team
13%

CEO
33%

C-suite
13%

Board
13%
CFO
27%
Source: Climate Bonds Initiative

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative6

5. Recommendations and challenges
There was broad consensus among respondents
around three main recommendations andthree key challenges associated with thedecarbonisation journey.

Recommendations
Respondents highlighted recommendations
falling into three categories.

Figure 2. Benefits of early climate action
Easier hiring,
retention

Higherrevenues

Save cash
and carbon

40% of talent seek

+4–25 pp CAGR

~50% of emissions

Lower
regulatory risks

CheaperfinancingHighervalue+2–12pp EBIT–100 bp WACC

+3 pp TSR for

sustainability

1. Start the decarbonisation journey togain a competitive edge
Companies should deploy decarbonisation as a
strategic competitive advantage and the processof decarbonisation should start as soon as
possible. Starting earlier helps spread the cost of
the transition over a longer timeframe, as well as
to preserve and create value.
RECOMMENDATION
Start the decarbonisation journey togain a competitive edge, preserve andcreate value
Company case studies:
Danone
TCFD & ISSB related themes:
Strategy & risk management,
metrics & targets
Top tips• Competitive advantage includes
operational expertise, clarity
over supply chain risks andopportunities, bargaining powerwith policymakers, better dialogue
with investors, and technological and productmix innovation.
• Decarbonisation plans can entail significant
cost and opportunities, both financially and intime, and require continuous refinement.
• Investors will also continuously push theboundaries and require consistent improvement.
Pedro Christ
CFO, Beontag.
“Strategic climate-aligned
investments can promote
a competitive edge andcreate better shareholder value.
Investing in technologies, services,and products with reduced impact on
the environment is one of the ways ofcontributing to a low-carbon transition”.

margin after EU
Carbon Border Tax forcompanies abating
55% of emissionsof sales growth for“green” products

for top quartile
environmental
performers in Europe

Note: 1. Based on €75/tCO2 Carbon price assumption for 2030

The path to decarbonisation can be very longand may require companies to constantly push
the boundaries. Some companies do not feel thesense of urgency if there is no formal ESG ratingor the absence of a transition plan is not yet
fully included in cost of capital. However, whenregulators, investors or customers do requiredetailed emission reduction plans, it will be toolate, or it will be more costly.
For example, pivoting investments into producing
renewable energy for a utility company 10 to
15 years ago required a strong vision with along-term focus. An executive had to balance
the pros and cons of an investment, including
uncertain long-term economics, with a vision of
the power markets 10 to 20-years down the line.

reduction at net zero
cost in key sectors

top quartile
environmental
performers globally

Source: World Economic ForumThe technology was unproven (for example,
wind factors were a question mark), risks ofcost overrun were high, and companies had tobuild their operational expertise. Fast-forward
15 years, the technology has proven itself,
there is clear demand and need for renewableelectricity, and the economics are favourable.
That early pivot by some of those companies
required a leap of faith (though based on data
and assumptions about the future) with a key
assumption being that business as usual (use offossil fuel) was seriously under threat.
This respondent CFO feedback is validated further
by World Economic Forum research which indicatesclimate leaders gain competitive advantage acrossa number of business metrics (figure 2).

CFO insight: Danone’s expected business value fromdecarbonisation plan
Before embarking on a decarbonisation
effort, the CFO should quantify the expectedvalue generated by the effort and required
investment. French multi-national foodproducts manufacturer Danone expects thatits decarbonisation efforts and push towards
regenerative agriculture will generate businessvalue for the company in three different ways.
1. More sustainable farming practices will help
increase yield efficiency from milk production
over time, which will make farmers and thecompany more competitive.
2. As the company supports farmers toembed more sustainable farming practices,
the relationship between farmers and thecompany will strengthen. Those stronger
relationships can help secure milk sourcing,which is a competitive advantage for thebusiness in the form of reliable supply chains.
3. The attention to farmers and their communities
can help improve the company’s brand.

Expected business value fromdecarbonisation plans
Efficiency (feed, yield) = competitiveness& licence to grow
Resilience of milk sourcing =Business continuity
Brands and sales = Licence to sell
Source: Danone

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

7

Targets and ambition need to keep evolving.
The process of decarbonisation is a long journey
and requires the CFO and executive team toadjust, adapt as they learn, and keep innovating.
The plan and strategy need to be in constantevolution towards the next frontier. From scope 1
and 2 to scope 3, from scope 3 to the assessmentof the interdependencies with broader
environmental and social issues, such as natural
capital or the just transition. If tackling scope 1
and 2 ten years ago was innovative, today thisis not enough. In the current context, scope 3
emissions and the consideration of nature are
regarded as the next frontier.
That evolution is also being reflected in funding
products offered by capital markets. Beyond Useof Proceeds (UoP) instruments like green loans
and bonds, today sustainability-linked bonds(SLBs) and loans (SLLs) can embed scope 1, 2
and 3 targets into the cost of capital.

2. Make a business case arounda decarbonisation plan
A business case at the company’s hurdle rateneeds to be built. For this to succeed, short,medium, and long-term scenarios that highlightboth the cost of action and inaction need to
be presented. These include the business
opportunities and risks such as increased
revenues, higher initial outlays, or higher demandfor products and services considered green.

Table1. Example of possible trade-off considerations
for the cement industry
Trade-offs

Business as
usual scenario

Negative

Positive• Margin compression from higher
carbon price• Lower capex spend• Loss of revenue from low-carbon
cement demand• Regulatory risk for highcarbon productsCompany case studies:
Danone, Buzzi Unicem
TCFD & ISSB related themes:
Strategy & risk management

Top tips:• Decarbonisation or transition
plans need to be embedded
into the business plan.
• The decarbonisation plan andcapital requirement need to be underpinned bya financial return at the company’s hurdle rate.
• A detailed materiality analysis to the enterprisevalue is required to fully assess the short-,
medium-, and long-term risks and opportunities
from climate transition and physical risks.
• Scenario analysis, with assumptions beyond
the status quo, is crucial to understand andvalidate the business case for decarbonisation.
The cost of inaction should be quantified.
• Convert transition, and physical risks andopportunities, into metrics that can be measured
and translated in the scenario analysis.

• Requires less effort/time fromthe management team to change
the business• Exposure to litigation• Stigmatisation of sector/company• Increased stakeholder concern• Negative stakeholder feedback
Decarbonisation
scenario• Significant capex spend• Capturing emerging demand forhigh margin/low-carbon cement• Increase in leverage• Some uncertainty about the payback• Uncertainty around carbon prices• Possible unsuccessful investment
in innovative technologies• Better competitive position toreflect shifting demand.
• Potential for lower operating
expenses (e.g., through efficiency
gains and cost reductions)• Licence to operate• Potential for lower cost of capital• Capturing tax or other (forexample, contracts for difference)
regulatory incentives

RECOMMENDATION
Make a business case arounddecarbonisation-related investments• Lower leverage

CFO insight: Danone’s validation checklist for decarbonisationrelated capital expenditure projects
1. There is no single approach for businesses
to assess whether capex projects have both
decarbonisation and financial benefits.
Danone uses a checklist to validate any
decarbonisation-related capital investment.

On the left hand-side (pre-requisites for thebusiness case), requirements include avoided
future capex or supply optimisation. The
criteria for the business case validation also
includes several GHG-related dimensions.

Business case checklist for decarbonisation-related capex
Pre-requisites for Business Case

Criteria for Business Case Validation• Brand & commercial levers activated(leverage topline)• Net investment (after 3rd party financing)• Supply optimisation• Operational efficiencies captured• Avoided future opex evaluated(“cost of inaction”)• Net GHG cost effectiveness(tCO2e reduced/year)• GHG reduction contribution against thedifferent scopes• License to operate dimension• External co-financing formalized
assessment• Financial payback including“internal CO2eq tax”

• Eventual validation by a global function (isrequired by sustainability governance)• “Danone Impact Journey” impact

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

Source: Danone

8

CFO insight: Buzzi Unicem’s payback period for its
decarbonisation measures
The assessment of the profitability of GHG reduction related capex projects will depend on
several assumptions including the payback for the different projects and technologies
Payback duration
Clinker content in cements<5 years

Alternative fuels with biomass content<5 years

Fossil fuels with lower emission factors

5-15 years

Efficiency in electric and thermal energy consumptions

5-15 years

Decarbonisation of electricity

5-15 years

CCU/S2< 5 years
Source: Buzzi Unicem.

Respondents highlighted that any
decarbonisation plan needs to be validated
by a business case with a hurdle rate in linewith any other capex project. This is especiallyrelevant for more transformative capitalintensive decarbonisation plans where thereturns on investment are not always obvious
from a business-as-usual perspective. Here,scenario analysis with long-term assumptions
that quantify the expected market changes (CO2prices, demand, margins, etc.,) should be an
important tool.
The scenario analysis should include at least two:the business-as-usual and the decarbonisation
scenario, both offering trade-offs. Those
qualitative trade-offs need to be quantified tomake those strategic decisions.
Scenario analysis is a useful tool to understandtrade-offs and assess how, and which levers
a company can pull to create value and gain
further competitive advantage in a scenario
where climate risks (transition and physical)
keep increasing. These scenarios and trade-offs(and the key assumptions therein) need be to becarefully discussed by the Board.

3. Get internal and external
stakeholder buy-in
CFOs and the management team must secure
broad buy-in. CFOs should leverage theirhigh-profile platform as a key decision-makerin resource allocation to influence internal
stakeholders. CFOs can use investor calls
to present their decarbonisation strategies,
especially in capital-intensive businesses.
RECOMMENDATION
Get internal and external
stakeholder buy-in
Company case studies:
Autostrade Per L’Italia, EBRD,
Astrazeneca Portugal
TCFD & ISSB related themes: GovernanceTop tips• Ambitious decarbonisation plans
are strategic and require buy-infrom all stakeholders.
• Employees across the firm needto embrace the plan as ultimately, they will bedelivering it on the ground.
• Investors need to understand the costs andhow the planned decarbonisation investments
benefit the company’s business model overdifferent time horizons.

Internal - involve employees at every stage
The implementation of a net-zero plan willentail new ways of working and new operational
processes. This requires acceptance from theworkforce that will ultimately be delivering on
the plan. Those new processes might be seen
as disruptive from business as usual, which,coupled with some uncertainty regarding theimplementation of a plan might make it hardto deliver. The uncertainty might be around thefuture demand for a product, the ability of acompany to procure certain types of products
from its supply chain (for example low-carbon
steel), regulation, or the viability of a technology.
It requires effort to convince internal stakeholders
who are used to a way of working. Possible
solutions mentioned by respondents included
the governance, tone from the top, the internal
storytelling and benchmarking with othercompanies. The CFO (as per their position on the
Board and the steward of value creation in thebusiness) and the broader finance team can playa decisive role in the internal communication
strategy bringing gravitas to the initiative.
Respondents noted the need for strong internal
collaboration. Working with the business andoperational teams is helpful for two reasons:
1. The CFO can leverage their role in capital
allocation for the company to give morecredibility to the message and narrative delivered
to the business.
2. The partnership with the business is crucial
to design and implement the plan. Ultimately
it is the business that will be delivering thedecarbonisation and bringing forward innovative
decarbonisation solutions and practices.

Laura Palmeiro
Sustainable FinanceDirector, Danone.
“Given the new scope of
responsibilities attributed
to the CFO, it would be fair to say that thisrole should be renamed Chief Value Officer,
understanding by this that they would be
responsible for measuring and tracking
value creation not only in the financial field
but also environmental and social values”.

• CFOs, given their role in capital allocation, can bevery persuasive both to employees and investors.
Effective communication with all stakeholders,both internal and external, is important toachieve buy-in and facilitate adoption of thecompany’s decarbonisation strategy. Here again,
the CFO has a critical role to play. In the following
sections, communication strategies and casestudies for employees and investors are explored.
Specific techniques to engage the upstream
supply chain will be addressed in the specificsection on challenges (scope 3).
The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

9

CFO insight: Autostrade Per L’Italia ESG ambassador
At Autostrade Per L’Italia (ASPI), the CFO is
directly involved in the internal engagement
strategy as the CSO reports directly to the CFO.
In 2023, ASPI priced a EUR750m (USD816m)
SLB maturing in 2031. The coupon repayments
were tied to environmental KPIs (theseinclude for example scope 1, 2 and 3 upstream
emissions) providing a natural incentive for
the CFO to ensure that the targets would beachieved by the business.19

To translate the overall ESG objectives of thefirm into concrete and recognisable metrics
and actions by the business units, the company
created the role of ESG ambassador. ESG
ambassadors are managers focused on theimplementation of ESG projects, scouting for
new possible initiatives and promoting the ESG
culture of the Group. They implement ASPI’s
ESG projects in accordance with company
initiatives and goals. They also coordinate withthe rest of the Group to ensure awarenessand education throughout ASPI. This
structure allows for consistent and dedicatedmessaging and support to be provided acrossthe company on ESG goals, and progress ondelivering them.

Autostrade Per L’Italia ESG governance.
Governance structure

ESG & HS
Board
Committee
ESG
Management
Committee
DE&I Sub-Committee

Sustainability
Department

ESG
Ambassador
External – keep investors informed
Investors are becoming increasingly
sophisticated in their understanding of company
decarbonisation. Many asset managers and asset
owners have dedicated funds for decarbonisation
strategies, partly because of their own
commitment to decarbonise their investment
portfolios. Several initiatives and alliances havebeen launched in the last two years gathering
asset owners, asset managers and banks, among
others, to publicly commit to decarbonise theirportfolios. Those commitments include short-,
mid-, and long-term 2050 targets. For example,
the net-zero asset-owner alliance (NZAOA) initialdecarbonisation targets are set for 2025-26.
Investors will keep applying pressure to investee
companies given that they are themselves on thehook to decarbonise. Respondents stated three
things that investors look out for:

Roles & responsibilities• Evaluates ESG strategy and guidelines,
the annual and long-term objectives, thesustainability plan initiatives, and monitors
related risks and opp.ortunities• Examines the layout and structureof the Sustainability Report/NonFinancial Statement.

• Proposes the Group’s ESG guidelines to the
ESG & HS Committee.

• Monitors the progress of the Sustainability
Plan initiatives and coordinates
implementation of ESG activities byliaising with the other committees andcompany divisions.

• Validates the Sustainability Plan promoting
the integration of ESG initiatives in the Group’s
short and long-term planning.
• Ensures the Sustainability Report/NonFinancial Statement is compliant withlegislation and reporting standards andmonitors the evolution of the ESG-related
regulatory framework.

• Disseminates the Group’s ESG guidelines
and objectives to all corporate structures.
• Collaborates with the competent
corporate structures to define, update andmonitor the Group’s Sustainability Planand related KPIs.

•Translates the ESG strategy into initiatives,
identifies KPIs, baselines and targets
and monitors their implementationin collaboration with the
Sustainability Department.

• Identifies and promotes new initiatives inline with ESG guidelines.

1. The decarbonisation plan is an integral
part of the business strategy. That plan (andunderlying targets) would then ideally be madepublic. One of the attractions of SLBs is thatemissions reduction targets become public andcontractual commitments.

investments is not always straightforward andrequires a strong vision and a calculated leapof faith. An experienced CFO, wearing the hatof guardian of capital allocation, can play animportant role in communicating this.

2. Access to detailed reporting on the above.
Respondents said that the transition plan details
can sometimes be difficult to track or find acrossthe reports being published by a company.
A detailed capex plan supporting the wider
transition plan is also critical but is a rare find.
3. A CFO with a good grasp on a well-designed
transition plan, including the relative climate
ambition levels of performance targets and
KPIs. CFOs can educate investors about how thecompany makes decisions on decarbonisation
investments. The business case for those

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative10

CFO insight: Reporting progress, the EBRD framework and expectations
The European Bank of Reconstruction
and Development (EBRD) approach toalignment with the Paris Agreement is guided
by an approach agreed by the multilateraldevelopment banks (MDBs). For Paris
Agreement alignment of indirectly financed
investments, the EBRD’s approach foresees
four pillars:

1. The assessment of the counterparty’s
commitment to the Paris Agreement.

4. The eventual formulation of a transition
plan and its monitoring, if required.

2. A review based on eligibility criteria for the
UoP for financial institutions or of the potential
pipeline of transactions for equity funds.

The methodology describes the process
and content of the pillars, including theminimum requirement of a transition plan,
when it is required.20

3. A review of the counterparty policies andclimate related business practices.

CFO Insight: Collective action from the SMI Health Systems Task Force
The healthcare sector is responsible for about
4% to 5% of total global emissions, of which
over half (see below) originate in the supply
chain.21 In order to address the challenge
collectively, the Sustainable Markets
Initiative (SMI) Health Systems Taskforce, led
by global healthcare companies, has issued an
open letter to their suppliers to set minimum
climate and sustainability targets, the“minimum supplier targets”.22,23 These include,
among others:• Assess and disclose scope 1, 2, and3 emissions by 2025.
• By 2025, commit to set short-term targets
aligned with the 1.5-degree pathway
determined by the Science Based Targets
Imitative (SBTi).
The SMI Health Systems Taskforce waslaunched at the 26th United Nations Climate
Change Conference (COP26) with the central
aim of accelerating the delivery of net-zero,patient-centric, health systems that improve
individual, societal, and planetary health.
The public-private partnership brings
together CEOs and leaders from AstraZeneca,
GSK, Merck, Novo Nordisk, Roche, Samsung
Biologics, Sanofi, the Karolinska Institute,
National Health Service (NHS) England, theSustainable Healthcare Coalition, UNICEF,
the University of Pavia, and the World HealthOrganization (WHO).

Healthcare sector emission sources.
Supply chain (products) >50%

R&D <5%

Patient care settings <35%

Patient <10%

~25%

2.4Gt
CO2e

Heat &
power

~20%

Raw
materials

Agriculture
R&D

<10%
<5%

<5%
Other

Transport

Anaesthetic~20%

Productuse~5%
Buildings

~5%

Fleet
Total
healthcare
emissions

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

~5%

~5%

Patient& visitor~5%

Source: SMI.

11

External – cross-sector partnership & buy-in
Investors increasingly require detailed
decarbonisation plans to include scope 3 emissions.
However, reducing scope 3 emissions can bedaunting without a collaborative approachtargeting the sector and its supply chain. Such an
approach normally requires common standards
to facilitate scalable, cross-industry action.
Setting a common ambition is a critical step
yet must be followed by action. It is common
practice in several industries, including
pharmaceuticals, for country or area-level CFOs
to also lead supply chain operations, given theirsignificant financial impact and the link between
critical suppliers with contracts and finance.
Such CFOs play a key role in implementing
sustainability commitments, engaging withexternal stakeholders, including their peers fromacross the industry, and deploying sector-wide
projects that can help each national healthsystem to accelerate the transition to net zero.
Sustainable finance can catalysea transition journey
CFOs today have many sustainable financetools they can use to trigger strong internal
momentum towards decarbonisation. In fact,
the internal mobilisation is often quoted as oneof the benefits of the implementation of these
instruments. These include thematic loans andbonds or other types of financing including
supply chain financing.
The path to decarbonisation at the Warehouse
Group, the largest retail group in New Zealand,
was initiated by the CFO and finance team (seebox opposite). In the example, the company
started its decarbonisation journey by issuingan SLL, for which the CFO was responsible. As
the SLL required data tracking the company’s
decarbonisation, an ESG committee was createdto oversee the data provision and monitor
progress. Given their role in monitoring andreporting to the originating bank, the CFO has a
key role in the committee. The decarbonisationcommitment was later expanded by the CEO intoa broader net-zero plan with public commitments.

CFO insight: Translating the global commitment into practical actions
AstraZeneca Portugal, and its CFO, areputting shared climate targets into practiceby leading a country-wide initiative to bringstakeholders from the Portuguese healthcare
system together to work collectively on
the reduction of GHG emissions across thecountry’s health service. This initiative has
three steps:
1. Mapping out emissions acrossthe health service (“CO2 Patient
Care Pathway”)
AstraZeneca Portugal established apublic-private partnership with two major
national healthcare institutions (ULS
Matosinhos Porto and Hospital de Braga)
to deliver a CO2 Patient Care Pathway study,
identifying major sources of emissions in thePortuguese health system, and measuring
scope 3 emissions.

2. Gaining stakeholder buy-in (Annual
Net-Zero Health Systems Summit)
AstraZeneca Portugal is organising an Annual
Net-Zero Health Systems Summit where theoutcome of studies such as the CO2 Patient
Care Pathway are presented to all NHS
stakeholders. This contributes to sciencedriven consensus between industry andpublic institutions on the topic of healthcare
decarbonisation, and educates stakeholders on
the pathways to reaching net-zero patient care.
3. Providing solutions and targets
by supply chain areas
AstraZeneca Portugal is identifying
different focus areas (energy production,transportation, consumables, patient caresettings, etc.,) to ensure that key stakeholders
are aligned on specific reduction targets. Suchcollective action will accelerate the transition
to net-zero healthcare.

Figure 3. Finance as a catalyst for net-zero plans
ExamplePressurefrom abank totake
SLL Loan

ESG
committee
set-up toreport on
SLL KPIs

Overcoming Challenges
Despite the opportunities, respondents
highlighted many challenges that any CFO will
likely face. Those challenges can be broadlygrouped into three categories, each of which isaddressed here.

CEOkeen andleads onnet-zeroplan

Net-zeroplanestablishedpoints and triggers (see above) vary bycompany. As noted above, sustainable financeproducts are powerful catalysts to either start orturbo-charge the journey, and the CFO can takethe lead in this process.

1. Identification and calibrationof the goals

Luca Passa
CFO, SNAM.

TCFD theme: Metrics and targets
Respondents emphasised that the mostimportant point of a decarbonisation journey
is to get started. Setting goals and targets iscompany specific according to the sector,
geography, stage of maturity, etc. The starting“You may make errors at
the beginning, but you needto start somewhere. From those errors you
then improve your own target setting. It is alearning process”

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative12

Top tips:• Get started – there is plentyof generic and sector specifictransition plan and performancetarget guidance.24

A third of CFOs were confident
about how to reach theirmedium-term climate targets
at the time of setting them.

• Focus on internal communication as much as
on investors (see recommendation #3 above).
Yes
33%• Use credible science-based targets andpathways provided by Climate Bonds, SBTi,
ACT initiative.25• Tolerate some uncertainty where it is difficult
to know exactly how a target will be achieved.
Clearly linking financial instruments andbusiness plans to the delivery of these targets(as in SLBs or SLLs), can be a difficult exercise.
This may be because the cost and impact ofdifferent decarbonisation levers is not always
well understood at the start of the journey whensetting ambitious and stretching targets. The CFO
and their team will generally be very focused on
the calibration of those targets (especially whenthese are linked to a financial outcome) and try
to guide the business towards an acceptable,
achievable, yet credible target.
Respondents indicated that a workforce
confident in achieving a target is the mostimportant factor for successful target setting.
Hence internal communication is paramount (seerecommendation #3 above).
Best-in-class organisations in decarbonisation
generally opt for Paris-aligned, 1.5oC sciencebased targets. Climate Bonds has developedscience-based decarbonisation pathways andclimate-aligned activities for 19 sectors as partof its sector Criteria. Companies can use theseas the basis for Certification for thematic bonds
and loans as well as certifying the transition
plan of the entity.26 The SBTi also supports
companies in their targeting efforts by validatingcompanies’ pathways under 1.5oC or well-below
2oC As of end of July 2023, 4,918 companies
had their target validated of which 3,278 hadscience-based targets.27
Once targets have been established,decarbonisation levers should be chosen andareas of the business that need to be adaptedshould be identified. The level of detail needed
will differ for long-term targets, relative to shortand mid-term targets so having a clear visionof how to achieve and finance these changes
is crucial. The how (or the transition plan) is
increasingly a focus-point for the investmentcommunity. Importantly, the use of offsets inachieving short- to mid-term targets is not seenas credible or useful by Climate Bonds and otherorganisations, and increasingly investors. Climate
Bonds suggests that offsets should be reserved
exclusively for those residual emissions that can’t
be decreased or eliminated through changing
business practices, products, and energy mixes.

No67%

Source: Climate Bonds Initiative

When asked about whether they were clear about
how to reach the medium-term targets (2030)
at the time of setting a third of respondents
were confident. Two thirds admitted to sometrepidation because of uncertainty about the
future. This uncertainty could be internal such asa lack of reliable data, or external, like evolving
regulations, new technologies, or changes in
consumer preferences.

2. Financing the low-carbon transition
TCFD theme: Strategy
The transition plan, as with most businessplans, will incur costs. Such costs need to be
motivated by a business case. In some cases,
this is relatively simple as many of those projects
have relatively easily identifiable payback
periods. Research from McKinsey demonstrated
that among the required investments to reachnet zero in Europe, around half had a positive
investment case.28

Top tips• Embed transition in thecompany’s strategy and as part ofthe business plan.

Sources of capitalGiven the need for capital to fund transition,
CFOs need to be creative to attract funding
at a competitive price and in a way that it
does not compromise the company’s credit
quality. One obvious way is to tap into the fastgrowing sustainable bond or loan markets (seediscussion later). There are other creative ways
to source capital to optimise the company’s
cost of capital. Grants, tax credits, joint ventures,
partnerships, or co-funding with partners are
options to be explored. For example, creatinga special purpose vehicle (SPV) with a minority
shareholding belonging to a third party while
maintaining management control might be an
option to limit impact on leverage.
Government grants and tax incentives are also
important to make more decarbonisation
options economical. For example, the US
Inflation Reduction Act (IRA) and tax credits
are incentivising oil and gas companies andprivate equity funds, among others, to invest in
decarbonisation technologies. This is even more
relevant in capital-intensive businesses.
Finding synergies for increasing the circularity
of production between industries is anotherimportant opportunity. For example, before
green hydrogen can be deployed in an industrial
process (like steel making), it requires the
production of renewable energy and theinfrastructure to deliver it to the industrial plant
which could involve several companies. An
example of such a collaboration in the valuechain is Hydeal Espana, a consortium involved in
the production and transport of green hydrogenfor a series of industrial sectors.29 Here, thecreation of a business case that underpins thefinancing and bankability of a project requiresaligning multiple companies and stakeholders,and public policies can also be mobilised.
Anonymous quote.
“One of the challenges to achieve the longterm objectives of the low-carbon transition is
how we overcome short-term challenges”.

• Use the thematic debt market totap into dedicated green investors.
• Be creative in sourcing funding, from thematic
finance and grants, tax credits, joint ventures,
partnerships, or co-funding with partners.
The importance of scenario analysis as atool in making a business case has alreadybeen mentioned. However, weighing the costaffordability of the transition with other competing
shorter-term priorities is a balancing act that CFOs
need to manage carefully. This is especially true forsmaller companies with limited budgets.

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

13

Climate Bonds Green Bond Pricing in the PrimaryMarket semi-annual research series has monitored
green bond pricing since 2016. Findings confirm
that the green bond market is an opportunity forcompanies to signal their intentions, get visibility
and in cases (see below) improve their costof capital.30 Green bonds also give companies
access to a dedicated institutional investor base,and among the H1 2023 sample, Climate Bonds
found that on average, 66% of green bonds wereallocated to investors describing themselves as
green or socially responsible.31 This was reiterated
by survey respondents who noted that green
bonds gave them access to a broader range ofinvestors and introduced new ones. Respondents
also noted that the activity of issuing a thematicbond tends to strengthen internal integration,
collaboration, and commitment to sustainability
and presents the issuing entity with anopportunity to audit their decarbonisation needs.

Cumulative aligned GSS+ volume reached USD4.2tn in H1 2023
1200
1000
800
600

Pricing advantages of labelled bonds
Climate Bonds developed and uses the termgreenium which describes a green bond that has
priced inside its own secondary market yield curvein the primary market (new issue discount), andhas been monitoring its presence since 2017. The
existence of a greenium implies that the issuer
has obtained cheaper funding for its new bondcompared to prevailing rates. The percentage ofissues exhibiting a greenium can vary. According
to data from Climate Bonds, and based on data
samples, the percentage of green bonds exhibitinga greenium can vary from 20% (H1 2019) to 61%(H2 2020) and on average, is around 30%.32
However, respondents reiterated the findingsof Climate Bonds 2020 Green Bond Treasurer
Survey, emphasising that the potential savingfrom greenium was not the main benefit of issuingthematic debt.33. Respondents mentioned thata thematic debt instrument could bring benefits
beyond pricing including the potential to:

SocialSLB

Sustainability
Transition

200
0
2019

2020

2021

2022

H12023
Source: Climate Bonds Initiative

Opportunities and challenges identified by respondents
Green bonds

Opportunities

Challenges• Well established instrument
type with strong demand fromdedicated investors• Requires critical mass ofqualifying green projects• Well established format andframeworks, including alignment
to ESG regulation

Maher Al-Haffar
CFO, Cemex.
“We like KPI-linked financing
as its mechanics forcescompanies to continuously
work on their sustainability strategy”.

Green

400
USD Billions

The CFO perspective on the labelleddebt market
The labelled debt market includes green, social,sustainability, transition, and sustainability-linked
bonds (collectively GSS+). The segment has grown
rapidly in recent years and by the end of the first halfof 2023, Climate Bonds had recorded cumulativealigned volume of USD4.2tn. In H1 2023, Climate
Bonds captured USD448bn of new aligned GSS+
volumes. Green was the dominant theme withvolumes of USD278.8bn during the same period.

• Excellent reputational benefits• Enhanced dialogue with investor base

• May require long leadtime to prepare frameworkand structure.
• Restricted Use of Proceeds• Additional costs
and disclosures• Potential for pricing benefit (greenium)
Sustainabilitylinked bonds• Strong investor appetite forclimate investments and holistic
approaches linking the issuing entity
to financing conditions and forward
looking benchmarks• Credibility of the climate
benefits of the instrument
currently being challenged
while the market remains
at an early stage• As a general-purpose financeinstrument, relatively easy to issue
once a framework has been defined• Requires significant internal
work to align all parts ofthe business• Enhances dialogue withinvestor base

• Fear of missing a target might
prevent a company fromissuing an SLB• Potential for increased sector
diversification (investors)• Broaden the investor base and introduce newengagement opportunities.
• Facilitate deeper dialogue with investors.
• Enhance reputation and visibility.
• Strengthen internal integration.
• Contribute to transition, risk management, andfuture proofing the business.

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

Bank finance
Global banks have committed to provide climate
financing via the structuring of capital market
instruments as well as via their own balance
sheet. According to a study from Autonomous
published in late 2021, the 47 leading global banks
have pledged approximately USD8.3tn in green
financing.34 Some banks are indeed soliciting theirclients to raise climate-aligned financing. However,
respondents lamented the lack of stronger pricing
incentives from the sustainable loan market.

14

3. Tackling scope 3 emissions
TCFD theme: Strategy and risk management
The challenges of quantifying and planning to
reduce scope 3 emissions were highlighted by
25% of respondents as some of the greatest
hurdles to tackling decarbonisation.

Top tips

SLB Database Methodology

purpose of the product produced. Reducing theseemissions requires a pivot from the current
business model towards one focused on lowcarbon energy production and electrification.

Climate Bonds had recorded cumulative
volume of USD252bn in sustainability-linked
bonds (SLBs) at the end of H1 2023. This
underscores the rapid growth in this label
since the first deal was priced in 2017.

Some of the main challenges highlighted byrespondents from companies with a highscope 3 footprint:

Historically, Climate Bonds has recorded, but
not screened, SLB deals but in June 2023,
published its SLB Database Methodology
which will enable screening going forwards.37• Business models are predicated on inbuilt
obsolescence and a linear economy.

• Assess the main sources ofemissions across the supply
chain and end user.
• Keep a tight and hand-in-hand collaboration
with the supply chain manager.
• Assess where you have most leverage with yoursuppliers, for example, where several suppliers
are supplying one product.
• Include net zero as a KPI with significant weight(suggestion of minimum 10-15% weighting) in
the evaluation of the supplier.
• Consider working with collaborative platforms
or, for example, CDP supply chains.35
Scope 3 emissions can be daunting to tackle asusually originate outside the direct control of acompany in the supply chain. As mentioned above,it is common practice in several industries thatcountry CFOs are either leading or heavily involvedin supply chain operations, thus have a critical roleto play in decarbonising scope 3 emissions.
For several respondents, decarbonising scope 3
emissions could require a fundamental rethink of
a company’s product lines and business plans. For
example, oil and gas company scope 3 downstream
emissions are a direct result of the intended• Emissions are a result of the intended use of
the product.

The methodology organises SLBs into
four categories:• No direct control over product use, disposal,
or suppliers.

1. Fully aligned: SLB targets cover allmaterial sources of emissions and arealigned with the relevant pathway.

• The geographic dispersion and large numberof suppliers and consumers.

2. Strongly aligned: SLB targets cover allmaterial sources of emissions and will bealigned with the relevant pathway by 2030.

• Lack of accurate emissions data from suppliersand end use/end of life.
For some sectors, including financial services or oil
and gas, where scope 3 emissions contribute mostof the footprint, there is a sense of urgency (investor
pressure for example) for scope 3 emissions to be
tackled. The consequence of not complying is thosebusinesses might lose their licence to operate.

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.

For other sectors, respondents, and the latest
research highlights that the reduction of scope
3 emissions is the next frontier for corporates,
driven by investor pressure.36 Anecdotally,
Climate Bonds has observed that some issuers
coming to market with SLBs with scope 1 and 2
GHG targets had to incorporate some reference
to scope 3 emissions (even if not part of the SLB
target) under investor pressure.

It is hoped that proliferation of the new
Methodology will encourage investors to
scrutinise SLB targets more closely, andby highlighting deals adhering to bestpractice, enable issuers to model the mostambitious structures.

Scopes of emissions related to different sectors, source: CDP
Scope 1

Scope 2

Scope 3

Agricultural commodities
Capital goods
CementChemicals
CoalConstruction
Electric utilities
Financial services
Food, beverage & tobacco
GeneralMetals & mining
Oil & gas
Paper & forestry
Real estate
Steel
Transport OEMS
Transport services
0%

20%

40%

60%

80%

100%
Source: CDP

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative15

Policy makers could incentivise
companies to transition
A pricing differentiation between leading andlagging transitioning entities could trigger the rightincentives and behaviours. As noted above, green
UoP bonds offer several advantages, including
the potential for greenium. However, if the whole
entity were labelled green, pricing benefits could
extend across the whole capital structure.
Firstly, it would incentivise companies to developtransition plans and invest in change. Secondly,
it would help the whole financial ecosystem todifferentiate between companies from a transition
risk perspective. Thirdly and most importantly,
it would likely accelerate the urgently needed
decarbonisation of our economies.

Marius Stefan
CFO/CEO Autonom“Before anything there needs
to be a sustainability strategy”

CFO insight: Cap Gemini on supply chain emissions reductions
Cap Gemini is a multinational information
technology (IT) services and consulting
company, headquartered in Paris. In its 2022
annual report, the company disclosed that its
scope 3 emissions represented 86% of its total.
In order to reduce its scope 3 emissions, thecompany published the following action planfor its supply chain.
Steps to Cap Gemini supply chain emissions
engagement plan:38
1. June 2021: a letter was sent to all suppliers
from the CEO explaining the net-zero agenda.

4. From July 2022, in requests for
proposals, suppliers needed to commit todecarbonisation in line with a 1.5°C pathway.
5. Training deployed for buyers, educatingthem on Cap Gemini’s sustainableprocurement methodology and on
defining specific action plans for individual
procurement categories as well as the net-zerocontract strategy.
The strategy is active and includes shortterm actions, including binding supplier
agreements and engagement with suppliers aswell as the internal teams.

2. Supplier engagement programme: supplierdays, roundtables, and workshops on collecting
information on emissions, targets, etc.
3. July 2022: data collection from top emitting
suppliers. Request commitment to:a. Set science-based targets,
b. Report annually on emissions,c. Share annual update of theirdecarbonisation plans,

Respondents highlighted the role of central
banks in incentivising commercial banks via
differentiated capital requirement for green andnon-green companies and assets. Additionally,
the role of rating agencies in factoring transition
risks (and opportunities) more decisively intheir rating assessments was often highlighted
as a key driver. Rating agencies are developing
assessment methodologies for net-zero plans as
a separate service from ratings and these could
influence institutional investors to differentiate.
The activity of issuing a thematic debt instrument
can be a catalyst for the development of acompany-wide sustainability strategy. It is an
opportunity that leading CFOs are embracing
alongside the development of credible transition
plans to help investors differentiate, while
making their company more sustainable bothfinancially and otherwise.

d. Provide a forward-looking view of how
they are reducing emissions from theirproducts and services.

Climate Bonds in its
role as a third party andindependent, noncommercial organisation
launched a new certification
scheme for entities in April
2023. This is attracting interest from both
corporate issuers and investors. Corporates

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

are keen to align to an internationallyrecognised standard that can certify thegreenness of their transition plan. Equally,
investors need guidance on what good
looks like. Aligning investors and corporates
through a credible climate-aligned standard
should help differentiate corporate transition
risk profiles.

166. Outlook: An opportunity for Chief Financial Officers
The decarbonisation journey is an extraordinary
opportunity for CFOs to demonstrate leadershipand steer their company into a net-zero future.
While respondents highlighted challenges, theyagreed that solutions were available, and that theexperience of contributing to the decarbonisation
planning and implementation had helped themto gain a stronger sense of strategic direction.
Identify risks andopportunities.
A thorough audit of risks andopportunities associatedwith the transition to net
zero assists CFOs to capture
opportunities such as government subsidies
and support. Knowledge of transition risks canhelp CFOs to prepare appropriate mitigation

strategies to future-proof revenues and thecompany’s business model. Thorough transition
planning presents an opportunity to becomea green or transition leading company. This
could lead to a more sustainable (financial andnon-financial) business and in turn to a lower
cost of capital.
The CFO is the catalyst.
The CFO can integratesustainability across theentire business ensuringthat value is created for all
stakeholders (employees,
supply chain and others). CFOs must be
equipped with a broader, long-term integrated
vision of what are the deployable strategies forall stakeholders.

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

Alignment of company
and societal objectives.
The transition to net zerois a new frontier requiring
courage and leadership. CFOs
will undoubtedly encountermultiple challenges along the way and thosein the role must develop a stronger tolerance
for uncertainty. Those who have started thejourney reported good progress, and it must be
remembered that an entity that is well prepared
for the transition to net zero is aligned with thesustainable development of society creating thebest possible chance for it to thrive.

17

Annex 1: Participating companies
Climate Bonds wishes to thank the following
organisations for their participation in the survey
on which this report was based.
A2A

Buzzi Unicem

GerdauTata Steel

Anheuser-Busch InBev

Cap Gemini

HeidelbergCement

Terna

Astrazeneca

Cemex

KlabinTesco

Asyad Group

DanonePetronas

The Warehouse Group

Autonom

EBRD

Schneider Electric

VerizonAutostrade Per L’Italia

EDP

Smurfitkappa

Workiva

Beontag

ENEL

Snam

Braskem

FCC Construccion

SuzanoAnnex 2: Interview Questions
Overall

Leadership

Scope 3

1. Who is leading (who spearheaded) the climate
strategy/transition plan?

1. What has been your role in setting thebusiness strategy?

2. Do you know precisely how to get to the short
to mid-term climate target?

2. How are the KPIs defined/agreed and whatis the governance around the monitoring andmeasurement of those?

1. How do you deal with scope 3 emissions?
Are you encouraging your suppliers to reduce
their emissions?

3. Do you have clarity on how you can reach thetargets, from a technological point of view (nexttwo years/up to 2030/ beyond)?
4. Do you have clarity on how you can financethe transition (next two years/2030/beyond)?

About the financial instruments
1. Are you using sustainability-linked
instruments. If yes, which ones? If no, why?
2. If yes, how did arrive at issuing those
instruments? What was the process(internally/externally)?

3. What are the difficult conversations?

Costs/benefits
1. Do you know the exact cost of the transition?
2. What are the implications of using these
instruments in relation to the cost of capital?
3. How do you measure the monetary benefitsof the transition plan, either from greenium or
operations? => What is the bottom-line?

Other
1. What are your top three pieces of advice for a
CFO who would like to lead a transition plan anduse some of these financing instruments?
2. What are the three main challenges and how
to overcome them?
3. What is the relationship with investors in
relation to the use of these instruments?
4. What are your interactions with policymakers?

4. What are the internal difficult discussions andthe possible trade-offs?

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative18

Endnotes
1. United Nations, Statistics Division, Taking stock of SDG progress at
the midpoint — SDG Indicators (un.org)
2. This guidance is published and updated by independent bodies
including Climate Bonds Initiative, Transition Pathway Initiative, SBTi,and the ACT Initiative
3. Climate Bonds Initiative https://www.climatebonds.net/transitionfinance-transforming-companies
4. Sector neutral transition plan guidance can be found from Climate
Bonds Initiative, GFANZ, IIGCC, ACT Initiative, Transition Plan
Taskforce, and SBTi
5. Climate Bonds Initiative https://www.climatebonds.net/climatebonds-standard-v4
6. Including green, sustainable, social bonds and loans, sustainabilitylinked instruments or other finance instruments such as sustainablesupply chain financing.
7. Taskforce on Climate Related Financial Disclosures (2017) https://
assets.bbhub.io/company/sites/60/2021/10/FINAL-2017-TCFD-Report.pdf
8. https://actuaries.org.uk/media/qeydewmk/the-emperor-s-newclimate-scenarios.pdf
9. Moody’s (2022) https://www.sgvoice.net/standards/16759/moodysproposes-framework-to-assess-net-zero-readiness/
10. Source: Moody’s Investors Service: Environmental Risks – Global
Sectors with heightened credit risk account for twice as much debt
as in 2015
11. LSE (2023) Global trends in climate change litigation https://www.
lse.ac.uk/granthaminstitute/wp-content/uploads/2023/06/Global_
trends_in_climate_change_litigation_2023_snapshot.pdf
12. The Guardian (2023) Shell directors personally sued over flawed
climate strategy https://www.theguardian.com/environment/2023/
feb/09/shell-directors-personally-sued-over-flawed-climate-strategy
13. Climate Bonds Initiative (2023) Green bond pricing in the primarymarket https://www.climatebonds.net/resources/reports/greenbond-pricing-primary-market-h2-2022

14. Setting corporate net-zero targets aligned with meeting societal
climate goals means: (a) reducing scope 1, 2 and 3 emissions to zeroor a residual level consistent with reaching net-zero emissions at the
global or sector level in eligible 1.5°C scenarios or sector pathwaysand (b) neutralizing any residual emissions at the net-zero target date
– and any GHG emissions released into the atmosphere thereafter.
Source: https://sciencebasedtargets.org/resources/files/Net-ZeroStandard.pdf
15. IFRS (2022) G7 welcomes ISSB’s work to deliver global baselineof sustainability disclosures https://www.ifrs.org/news-and-events/
news/2022/05/issb-chair-emmanuel-faber-responds-to-g7communique/16. https://www.nytimes.com/2021/06/09/business/exxon-mobilengine-no1-activist.html
17. PWC CFOs and ESG: a growing role https://www.pwc.com.au/
assurance/esg-reporting/cfos-and-esg-a-growing-role.html
18. Climate Bonds Initiative (2022) Sustainable Debt: Global
state of the market https://www.climatebonds.net/files/reports/
cbi_sotm_2022_03e.pdf
19. Autostrade sustainability linked finance framework https://www.autostrade.it/documents/10279/49049770/ASPI_
Sustainability_linked_financing.pdf/c271264e-7fb2-a123-1130198b93c5c668?t=1671204433536
20. Source: EBRD. Methodology to determine the Paris agreementalignment of EBRD investments. https://www.ebrd.com/ebrdactivities-paris-alignment
21. Romanello M. et al. The report of the Lancet Countdown on healthand climate change: health at the mercy of fossil fuels. Published
online October 25, 2022. https://www.thelancet.com/article/S01406736(22)01540-9/fulltext
22. SMI: https://www.sustainable-markets.org/
23. https://a.storyblok.com/f/109506/x/5388424c6e/joint-ceo-letter_
final_200723.pdf?cv=1689688147120

24. Climate Bonds Initiative, Transition Pathway Initiative, SBTi, ACT
Initiative, Transition Plan Taskforce
25. Pathways are available from Climate Bonds Initiative, Transition
Pathway Initiative, SBTi, UTS, ACT Initiative, International Energy Agency
26. Climate Bonds Initiative Standard version 4 https://www.
climatebonds.net/climate-bonds-standard-v4
27. Science based targets Initiative https://sciencebasedtargets.org/
companies-taking-action#dashboard
28. How the European Union could achieve net-zero emissions at
net-zero cost. December 2020, McKinsey.
29. Hydeal Espana https://www.hydeal.com/copie-de-hydealambition
30. https://www.climatebonds.net/files/reports/cbi_pricing_h2_2022_01c.pdf
31. https://www.climatebonds.net/files/reports/cbi_pricing_h2_2022_01c.pdf
32. Source: https://www.climatebonds.net/files/reports/cbi_pricing_h2_2022_01c.pdf
33. Climate Bonds Initiative, Green Bond Treasurer Survey 2020, Green
Bond Treasurer Survey 2020 | Climate Bonds Initiative
34. Climate Risk: The Green Growth Opportunity, 2 September 2021
35. CDP Supply-chain: https://www.cdp.net/en/supply-chain
36. Analysis shows that investors strongly support the SEC’s proposed
climate disclosure rule | Ceres
37. Climate Bonds Initiative, Sustainability-Linked Bond Database
Methodology, June 2023 Sustainability-Linked Bonds Database |Climate Bonds Initiative
38. Source: Extract from Capgemini 2022 annual financial report.
https://investors.capgemini.com/en/publication/fy-2022results/#:~:text=The%20Group%20reported%20revenues%20
of,of%20the%20half%2Dyear%20results.

Prepared by the Climate Bonds Initiative

Authors from Climate Bonds: Fabrizio Palmucci,
Rachel Hemingway, Sabine Laurent.
Reviewers: Aaron Cantrell, Nicolo Ciocci,
Chandra Gopinathan, Daniel Kricheff, Jerome Lavigne,
Angela Paulk, Michel Pinto, Simon C.Y. Wong
Editorial support: Stephanie Edghill, Caroline Harrison
Design: Godfrey Design, Joel Milsted© Published by Climate Bonds Initiative, September 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 the 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 useof proceeds of a designated debt instrument. It does not reflect the credit worthiness of the selected 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.

The role of the Chief Financial Officer in driving low-carbon transition: Climate Bonds Initiative

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