Sovereigns may find themselves taking on transition debt, akin to going green.
In a move that has significantly altered the landscape of transition bond issuance, Japan has recently entered the fray with a landmark issuance of transition bonds worth $11bn. This development comes as transition bonds, a type of sustainability bond, were primarily issued by Asian corporates before Japan's groundbreaking issue in February.
Transition bonds are debt instruments designed to aid companies in carbon-intensive sectors, such as steel, aviation, and heavy industry, in financing their transition towards more sustainable, lower-carbon operations. These bonds are linked to Environmental, Social, and Governance (ESG) criteria and typically require issuers to commit to credible transition plans with enhanced disclosure on their environmental impact and progress.
Prior to Japan's issuance, transition bonds were not a significant part of global sustainability bond issuance. The global issuance of transition bonds accounted for a tiny percentage before Japan's landmark issue. Outside of Japan and China, key issuance frameworks were emerging in places like India at the GIFT International Financial Services Centre, promoting such bonds primarily for local large industrial firms.
Notable repeat issuers of transition bonds include the European Bank for Reconstruction and Development and Italian energy infrastructure company, Snam. Snam, an Italian energy infrastructure company, issued transition bonds, making it one of the early adopters outside of Asia.
The full article about transition bonds can be accessed here, providing a comprehensive overview of this innovative financial instrument and its role in facilitating a greener future for carbon-intensive industries. This development marks a significant step forward in the global fight against climate change, as more companies embrace the transition to sustainable operations.
Science has identified transition bonds as a crucial financial tool for supporting carbon-intensive industries in their journey towards environmentally sustainable operations, aligning with the broader agenda of tackling climate-change and promoting the growth of environmental-science. Despite their initial rare appearances on the global finance scene, transition bonds have gained momentum, with Japan's recent issuance of $11bn signifying their growing significance in business and finance.
