Research to Bring Just Transition to Bond Market

A new research project plans to explore the how bonds can support a just transition, amid survey evidence that many investors are either unfamiliar with the concept or uncertain it can be achieved. The Grantham Research Institute at the London School of Economics and Climate Bonds Initiative are partnering to assess how bond instruments could support a just and inclusive transition to a net zero economy across the globe. The project, which will consider applications across multiple geographies and issuer types, will report at COP 28. It aims to produce an overview of the instruments and strategies that could be used to achieve the greatest just transition impact and explore ways to promote issuance in key regions. Green bonds, for example, might need to include a range of KPIs focused on impacts on employees, consumers and communities to meet just transition objectives. “Green bonds have proven to be a powerful tool to drive private investments towards meeting climate goals. With the advent of transition bonds and sustainability-linked bonds, the breadth of projects and activities funded has expanded to include transition of hard-to-abate sectors,” said Lily Burge, Senior Policy Research Analyst, Climate Bonds Initiative. A survey of 120 institutional and intermediary investors by Fidelity found that 42% were familiar with the concept, defined as “achieving the transition from a high carbon to a low carbon economy in a manner in which is fair for everyone”, falling to 30% among Asian investors. A total of 43% said achieving a just transition was unlikely, while 52% believe it will be an ongoing process. But the survey suggested that most investors regard the just transition as in investment opportunity, with 91% saying it would have a positive impact on risk / return profiles. “In reality, ‘a just transition’ encompasses a tangle of issues as it has many ramifications linked to climate, communities, labour markets and divergences between developed and developing countries,” said Emilie Goodall, Head of Stewardship, Europe, Fidelity International. “But the societal impact of transitioning to a sustainable economy has to be a central consideration.”

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