Financing the Corporate Climate Transition with Bonds
Introduction
The document provides a comprehensive step-by-step guide for corporate issuers aiming to prepare and issue a bond to finance their climate transition. This initiative aligns with the goals of the Paris Agreement and the transition towards a green economy. The guide emphasizes the importance of climate transition finance in supporting sectors that are challenging to decarbonize, and it highlights the role of standards and guidelines in ensuring the credibility and effectiveness of such financing.
Key Steps in Issuing a Transition-Linked Bond
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Building Your Transition Plan and Disclosing It
- Establish a baseline of current emissions.
- Link the transition plan directly to the bond issuance to ensure transparency and credibility.
- Focus on Scope 3 emissions, including indirect emissions from suppliers and customers.
- Close the loop through external verification processes.
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Selecting a Thematic Label
- Choose between green, sustainability, or sustainability-linked bonds based on the nature of the transition plan.
- Each label offers different ways to structure the bond, including use of proceeds, sustainability-linked features, or both.
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The Sustainable Financing Framework
- Define a framework for allocating bond proceeds towards decarbonization efforts.
- Utilize use of proceeds bonds to finance specific green projects.
- Implement sustainability-linked bonds to incentivize progress against predefined sustainability performance targets.
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Bond Issuance
- Follow a structured process that includes organizing internally, selecting external reviewers, underwriters, and investors, and adhering to timelines.
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Post-Issuance Reporting
- Regularly report on the performance of key performance indicators (KPIs) related to the transition plan.
- Provide transparent tracking of the bond proceeds and their impact on decarbonization efforts.
Best Practices and Examples
- Case Study: Tokyu Fudosan Holdings, a Japanese real estate company, issued a JPY10bn (USD73m) sustainability-linked bond in 2021. The bond was linked to two sustainability performance targets (SPTs) aimed at reducing GHG emissions by 46.2% by 2030 and achieving carbon-negative status by 2025.
Conclusion
The guide serves as a valuable resource for corporations seeking to integrate climate transition finance into their business strategies. By following these steps and adhering to best practices, companies can effectively leverage bond issuance to support their decarbonization goals while contributing to broader environmental objectives.
