Fund Solutions

New Guidelines Launched for Bonds Financing Climate Transition

New ICMA handbook recommends best practices and disclosures to investors.

The International Capital Market Association (ICMA) has released updated guidelines for firms issuing green, social and sustainability-linked bonds to support climate transition strategies, setting out expectations on best practice and disclosures to investors.

The ‘Climate Transition Finance Handbook’ covers guidance to issuers raising funds for transition-related purposes, either via ‘use of proceeds’ bonds aligned with the Green and Social Bond Principles, or general corporate-purpose bonds issued in line with the Sustainability-Linked Bond Principles.

Recommendations in the handbook are based on four key elements. First, any issuer should provide details on climate transition strategy and governance, including plans to adapt its business model to support transition to a low-carbon economy. The handbook also recommends disclosure alignment with globally recognised reporting frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD).

Second, the issuer’s climate transition trajectory should incorporate material climate risks into its core business model, taking into account future scenarios with different levels of risk materiality. The report recommends disclosures guided by accounting standards bodies.

Third, the issuer’s transition strategy should be based on science-based targets and pathways, such as goals laid out by the Paris Agreement or the Science-Based Targets initiative (SBTi). The report recommends the planned trajectory to be quantitatively measurable over time, publicly disclosed and supported by independent verification.

Finally, the handbook advocates issuers provide transparency to investors on the investment implications of strategy implementation, including allocation of capital and operational expenditure decisions. It recommends such disclosures be made through the company’s annual report, website or sustainability report.

“With only a decade left to meet the goal of halving greenhouse gas emissions globally, the Climate Transition Finance Handbook is a timely document,” said Denise Odaro, Chair of the ICMA’s Green and Social Bond Principles Executive Committee.

“The Handbook comprises disclosure recommendations to facilitate the necessary flow of capital to issuers required to decarbonise and implement a climate transition strategy on the basis of a science-based alignment with the Paris Agreement,” she said.

Recommended disclosures in the Handbook are based on the work of the Climate Transition Finance Working Group, comprising representatives from over 80 entities in the capital markets, with support from the Green and Social Bond Principles Executive Committee.

ICMA is a trade association for the international capital market with over 600 member firms from over 60 countries, representing banks, issuers, asset managers, infrastructure providers and law firms.

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