Navigating Transition Finance: An Action List
EXECUTIVE SUMMARY
Transition finance is any form of financial support that helps decarbonize highemitting activities or enables the decarbonization of other economic activities. The pivotal role played by transition finance in achieving net-zero goals, however, is not universally recognized. Currently, no standardized definition of eligible activities and entities exists, no international organization has endorsed transition finance instruments, and high-risk perceptions associated with the novel technologies involved in decarbonizing high-emitting sectors are common. Consequently, many investment strategies that incorporate net-zero considerations exclude or underweight high-emitting sectors for the creation of low-emission portfolios.
Navigating the complex landscape of economic, regulatory, environmental, and technological considerations, transition finance requires a collaborative effort for success. This report explores actions that investors, asset managers, corporations, and policymakers should consider to enhance awareness of the role of transition finance in achieving net zero, to improve the disclosure of credible transition plans, to provide clarity on transition activities and transition finance products, and to mitigate risks associated with transition finance.
Traditionally framed as green and clean, sustainability requires a significant paradigm shift to incorporate transition finance. All stakeholders in the transition finance system must cultivate new skills, establish fresh priorities, and, above all, embrace a new mindset. Collaboration synergy is crucial to achieving change and enabling transition finance to play a bigger part in supporting net-zero goals.
