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The recent publication of the ICMA1 Climate Transition Finance Handbook – toward which NatWest contributed as a working group member – is expected to mark another seminal moment in the evolution of the sustainable debt space. Its guidelines (see Chart 1 below) provide an overlay to the existing sustainable debt instruments such as green bonds and sustainability-linked bonds.
What are the main implications for companies?
Proven ICMA “brand power”
ICMA has a proven ability to set the tone and direction of travel for the sustainable finance market, as seen in 2020 with its Sustainability-Linked Bond Principles. Therefore expect 2021 to be the year transition finance finally “matures” to a widely respected investment proposition. It’s likely that we’ll see the first issuers start to embed and actively reference the Handbook over the coming months with wording such as “this framework is aligned with ICMA’s Green Bond Principles and Climate Transition Finance Handbook”.
Make sustainable debt more representative
The corporate sustainable bond market has historically been skewed towards firms and sectors that are already quite advanced in their decarbonisation journey. The Climate Transition Finance Handbook should help attract a “broader church”: it lowers the (perceived) barriers to entry for companies from harder to abate sectors by giving them clear disclosure guidelines that reduce the risk of greenwashing accusations. Such sector diversification should help the corporate sustainable debt space become more representative of the real economy.
Focus on company-wide analysis
It’s been argued that existing ICMA standards are relatively narrow in scope, particularly the focus on “use of proceeds debt” on a specific subset of projects. Many market participants are moving away from this “siloed approach” by also assessing the sustainability credentials of the overall company. The rollout of this handbook continues this trend: the focus is more on firm-wide transition strategies rather than individual transition projects or metrics.
“Tell me where you’re going”
With the growing sense of urgency surrounding the implementation of the Paris Agreement commitments, there’s more openness towards financing firms that can have a meaningful marginal impact on the economy’s overall carbon footprint instead of consistently excluding more “hairy” industries and backing “green angels” that are already in a good place. The Climate Transition Finance Handbook supports this trend, moving attention away from a firm’s steady state and towards its future plans.
CHART 1: Recommendations of ICMA’s Climate Transition Finance Handbook

Source: ICMA
1 ICMA International Capital Market Association