Transition Finance Could Be A Path To Carbon Neutrality For The Largest Carbon-Emitting Industries, Report Says

Rhea-AI Summary

S&P Global Ratings reports that transition finance could generate up to $1 trillion annually, facilitating capital for hard-to-abate sectors previously absent from sustainable debt markets. The report highlights the growing investor interest in financing climate initiatives to achieve net-zero goals. It emphasizes the need for significant investments in innovative technologies and processes to decarbonize high-carbon industries. Transition finance is expected to expand across various financial products, supporting companies that demonstrate effective climate strategies.

Positive

• Transition finance could contribute $1 trillion yearly to the economy.
• Growing issuer and investor interest in financing climate initiatives.
• Potential for financial product expansion in sustainability-linked instruments.

Negative

• Challenges remain in quickly capitalizing transition finance without risks like green-washing.

NEW YORK, March 9, 2021 /PRNewswire/ -- S&P Global Ratings believes transition finance, including issuance, could contribute up to $1 trillion per year to the economy as companies in hard-to-abate sectors, which were previously absent from the sustainable debt market, raise capital and use the proceeds for activities that help them reduce their carbon footprint.

According to our new report "Transition Finance: Finding A Path To Carbon Neutrality Via The Capital Markets," published today, as the transition to a net-zero economy gains traction we believe new sectors and issuers will enter the market, expanding the pool of investable sustainable financing and allowing investors to diversify their contribution to sustainability objectives.

"It has become clear that issuer and investor appetite for financing climate response and other environmental objectives is strong and accelerating, but achieving the objectives of the Paris Climate Agreement and 2050 climate-neutrality goals will require significant capital investment in new processes and technologies that enable the decarbonization of high-carbon industries," said sustainable finance analyst Lori Shapiro.

Transition finance provides a potential solution by enabling the largest carbon-emitting industries and companies to raise capital and use the proceeds for activities that help them reduce their carbon footprint.

"We expect transition finance will extend beyond the use-of-proceeds bond model to include sustainability-linked and other financial products, helping companies and countries scale up capital allocation to meet their net-zero emissions commitments," Ms. Shapiro said.

We expect to see the transition label taking on a much wider scope and being used across various sectors and activities, ranging from entities making efficiency improvements to potential overhauls of entire business models. Ultimately, we believe the transition label will expand across a range of financial products that help scale up capital allocation for companies and countries able to demonstrate rigorous and achievable climate transition strategies. The challenge remains how this can be done quickly and efficiently while avoiding key downside risks, including green- or transition-washing.

This report does not constitute a rating action.

The report is available to subscribers of RatingsDirect at www.capitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box located in the left column at www.standardandpoors.com. Members of the media may request a copy of this report by contacting the media representative provided.

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SOURCE S&P Global Ratings

FAQ

What is transition finance according to S&P Global Ratings?

Transition finance refers to funding solutions designed to help high-carbon industries reduce their carbon emissions, potentially contributing up to $1 trillion annually.

How much could transition finance contribute to the economy?

S&P Global Ratings estimates that transition finance could generate up to $1 trillion per year.

What does S&P Global Ratings' report say about achieving net-zero goals?

The report emphasizes that significant capital investment is necessary in new technologies and processes to achieve the objectives of the Paris Climate Agreement and reach net-zero by 2050.

What are potential risks associated with transition finance?

The report indicates risks such as green-washing may hinder the effective deployment of transition finance.

When was the S&P Global Ratings report on transition finance published?

The report was published on March 9, 2021.