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Company & Organisation News - Sustainability Focus - 01/10/2020

Navigating Transition Finance

Transition Finance represents the need for brown sectors to shift towards a more sustainable business model and to make long-term changes. It embraces a wide range of environmental and social goals typically embodied by the United Nations Sustainable Development Goals.

Transition Finance is a necessary tool to ensure sustainability and prosperity for all. Green finance alone will not be enough to move the world toward a 1.5-degree trajectory. But, by allowing higher carbon emitters to secure financing to support their decarbonisation efforts, we can mobilise capital markets to accelerate the economy-wide changes needed for a sustainable, resilient future. So far, there is no globally agreed upon framework enabling investors to clearly identify which entities or activities can be labelled as “transition compatible appropriate”. The recently released white paper Financing Credible Transitions Project from the Climate Bonds Initiative (CBI) highlights the pressing need for Transition Finance solutions. The CBI’s proposed framework aims to help market participants to identify credible transitions aligned with the Paris Agreement.

Vigeo Eiris has provided independent assessments for different types of transition finance instruments since 2017, either in the form of Green Loans/Bonds, or through Sustainability-Linked operations. For Use of Proceeds models, we have delivered over 10 Second Party Opinions (SPOs) for issuers from the energy (Repsol, Gas Natural Fenosa), agriculture (Marfrig), aviation (ATR/Avation, Schiphol Group) and shipping (Quantum Pacific Shipping, MOL, Nippon Yusen Kaisha (NYK), H-Line Shipping, Hyundai Heavy Industries (HHI), etc),  industries, all of which have different sector sustainability priorities and transition pathways. Sustainability-Linked instruments represent an emerging segment of transition finance. These instruments focuson entity-level strategies and targets. In 2020, we conducted a mission with JetBlue, that resulted in the airline industry’s first-ever Sustainability-Linked Loan (SLL). Such instruments represent another financing model for entities with a credible corporate-level transition strategy that is in line with the Paris Agreement. They complement the activity-based model and combined, they provide a comprehensive approach to transition finance.

Building on our track record, through our active involvement in industry working groups and via consultations on climate transition, we have further fine-tuned our approach to transition finance to accommodate transition criteria emerging from international standards (ICMA, EU Taxonomy, OECD, CBI) and global sector strategies. As highlighted in the CBI’s White Paper, there is no one-size-fits-all approach to transition. Different entities in different parts of the world will have different technology pathways towards decarbonisation.

We have always used the same approach for all sectors, meaning that we assess the alignment of these transactions with all relevant standards and guidelines when delivering Second Party Opinions to players in energy, agriculture, aviation, shipping, etc. Leveraging our enhanced SPO services, Vigeo Eiris is well positioned to  support you in navigating the complex and evolving transition finance landscape and to provide comprehensive and science-based assessments.

Vigeo Eiris has produced more than 260 second-party opinions on sustainable financing operations in Europe, Africa, Americas and Asia. We are a Climate Bonds Standard Approved Verifier.

For more information, please contact our – Sustainable Finance Team – VEsustainablefinance@vigeo-eiris.com

To watch V.E’s Head of Sustainable Finance Services, Benjamin Cliquet, discuss Transition Finance in our new Ask an Expert video series, click HERE.

Keywords : Ask an Expert, BecauseESGmatters, ESG, Transition Finance