Transition Bond Frameworks: Goals, Issues, and Guiding Principles

Abstract

In the context of reaching our climate targets—for example, the 2°C target set at Paris—the role of transition finance, and therefore transition bonds, is going to be key. This article provides a discussion of the goals, issues, and guiding principles for transition bonds. It first argues that a comprehensive transition bonds framework needs to align with appropriate climate transitions, allow for flexibility in getting to climate goals, and minimize greenwashing. The article then offers a simple transition bond rating framework based on the stringencies of climate targets as well as transition pathways. In this process, the crucial roles of sector-based approaches, offsets, regulations, and data quality are also discussed. In addition, the article sets out a research agenda, including identifying potential transition pathways, developing methodologies for additionality of proposed interventions, and creating regulation to ensure transparency.