Transition Finance: The Emerging Baseline for Bank Disclosure

Introduction to Transition Finance

While there is no single definition of transition finance, the concept addresses the complexity of wholesale 'greening' of entire sectors and industries. While green finance focuses on investment in areas that are already environmentally friendly, transition finance shifts the focus of investment toward those essential carbon-intensive industries required to originate low-carbon technologies to decarbonise the global economy.

GREEN FINANCE

• A bond to a wind farm
• A loan for constructing a LEED certified building

TRANSITION FINANCE

• Investment to replace fossil-fuel cement kilns with electrical lines
• Financing a gas plant with a time-bound phase-out plan

Alongside green finance, transition finance creates additional avenues for directing sustainable capital allocation from investors to issuers, and transition finance approaches and policy instruments are evolving to mobilize this capital toward such activities. As capital is redirected, regulators are increasingly requiring transparency around how organizations plan, measure, and finance decarbonization, and the regulatory landscape is starting to take a clearer shape.