OECD Guidance on Transition Finance

Abstract

To transition the global economy to a 1.5-degree world, more investments in zero-emission solutions are urgently needed, while investments in high-emission assets and infrastructures need to be phased out.Green and sustainable finance has had a tremendous impact on shifting the focus of financial institutions and investors towards clean technologies like renewable energy.However, to achieve the goals of the Paris Agreement, financial markets must also help high-carbon, energy-intensive, and hard-to-abate companies transition to net-zero emission trajectories.In response to the perceived limitations of sustainable and green finance to support greening entire sectors and industries, the concept of transition finance has rapidly gained traction.Transition finance provides a promising avenue to be inclusive of all sectors, while also bringing companies in emerging markets and developing economies, which may not have previously had access to sustainable and green finance, into the conversation.This has led to the proliferation of diverse transition finance initiatives, both by governments and industry.The OECD Guidance on Transition Finance provides a comprehensive analysis and mapping of existing initiatives and identifies key challenges to scaling up transition finance currently faced by market actors and policymakers.Importantly, it argues that for transition finance approaches and related financial instruments to be robust, they must be based on credible transition plans.To this end, the Guidance presents ten elements of credible corporate transition plans and highlights areas where more transparency is needed.In doing so, it can support: market actors in conducting transition finance transactions with environmental integrity; corporates in developing their transition plans; and, policymakers in developing robust policy frameworks for transition plans.Developed by the OECD Secretariat for the Working Party on Climate Investment and Development of the Environmental Policy Committee, the Guidance builds on the OECD's extensive body of work on the subject of sustainable and green finance, as well as transition finance.It connects the dots between transition finance and sustainable finance, including climate alignment approaches, and points towards existing OECD instruments in the area of Responsible Business Conduct to successfully support corporates in their net-zero transition planning.The Guidance aims to lay the groundwork for further OECD work on scaling up transition finance.Future OECD research could provide new insights on tailoring just transitions for high-emission sectors, and on how to incorporate climate change adaptation and resilience in corporate transition planning.

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