Transition bonds can be issued by firms that aspire to reduce their Green House Gas emissions effectively. Analyse (200 Words)
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IAS Parliament 3 years
KEY POINTS
· Transition bond is a class of debt instruments that maintain the transparency and rigour that characterise green bonds but are designed to be more inclusive in their standards.
· Unlike green bonds that are earmarked to raise money for climate and environmental projects, transition bonds can be issued by firms aspiring to reduce their GHG emissions.
· The money can be used for activities that reduce the environmental impact of the business, such as carbon capture and storage, decommissioning coal plants, waste-to-energy, or exclusively financing new and/or existing eligible transition projects.
· For instance, a thermal power utility issuing transition bond seeks to achieve emissions rate of 90 gCO2/kWh.
· Transition bonds can play a significant role in mobilising capital at scale for accelerated industrial decarbonization. S
· The use of proceeds was outlined for retrofit of gas transmission and distribution networks, renewable energy, clean transportation and energy efficient buildings.
· Though still in early stages, the issuance of transition bonds is following the International Capital Market Association (ICMA) guidelines on climate transition finance.
· These guidelines provide common expectations to capital markets participants on the practices, actions, and disclosures to be made available when raising funds in debt markets for climate transition-related purposes.
