Mobilising Global Debt Markets for a Just Transition

February 6, 2024Published by LSE Grantham Research Institute and Climate Bonds Initiative

Green, sustainability and social bond markets can be adapted to finance a just transition at scale and pace, says this joint paper by the Climate Bonds Initiative (CBI) and the Grantham Research Institute.

A just transition is “crucial to the efficiency, effectiveness and speed” of decarbonisation. The paper’s authors – Nick Robins, Brendan Curran, Oleksandra Plyska, Lily Burge and Magali Van Coppenolle – say improving disclosures and planning around the socially just elements of the net-zero transition are key to mobilising the necessary financing.

The report marks the start of a two-year partnership between the CBI and Grantham which aims to further “understanding of the key barriers to issuance of GSS+ bonds to finance a just transition”. GSS+ bonds are designed to finance renewable energy development and at least one of the following: employment, education or efforts to reduce inequality.

Globally, climate change is exacerbating social inequalities. The net-zero transition could either add to these inequitable impacts or, by applying just transition principles, ameliorate them, say the authors.

According to the International Labour Organisation, “a just transition means greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities and leaving no one behind”.

A just transition is a strategic imperative, states the report, as it will mitigate the systemic financial risks of a disorderly transition by increasing social and political support for ambitious climate action.

It can also reduce legal and reputational risks by applying established social, labour and human rights standards, as well as helping to build resilient net-zero economies by developing essential skills and social institutions.

Present regulatory efforts to encourage or mandate transition planning provide avenues for embedding just transition finance within regulatory regimes and corporate governance strategies. The Grantham Research Institute published separate guidance in 2022 for financial supervisors and banks to incorporate socially just elements into transition planning.

According to the report, bonds are particularly suitable instruments as they enable a targeted approach, engage a diverse range of issuers, can have a broad market signalling effect, and can increase access to affordable capital for emerging economies with volatile interest rates.

A potential barrier to the issuance of just energy transition-related bonds is the lack of a clear label. To address this, GSS+ issuances could include a label to indicate alignment with the just transition. Alternatively, bond issuances could be made under existing labels to avoid market fragmentation.

To ensure transparency, progress should be tracked using recognised metrics as part of annual impact reporting after bond issuance. Referencing relevant Sustainable Development Goals in stated use-of-proceeds categories can also help investors with their reporting commitments.

The authors analyse trends in GSS+ bonds using data from the CBI’s social and sustainable bond database. Their findings show that socially just energy transition bonds stand at US$548bn as of July 2023, representing 13% of the wider GSS+ market, and that development banks are responsible for the largest share at 48%.

The project’s future research will focus on extending analysis of barriers and developing universal just transition specific metrics.

This page was last updated February 7, 2024

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