The key implication of transition finance for the financial sector is that those borrowers with credible transition plans should increasingly be able to access new products and services at a lower cost. In contrast, those that do not have credible transition plans will face higher costs and/or restricted access to financial products and services (e.g., higher costs of capital) depending on the underwriting process of their finance provider.
Well-executed, credible transition plans should allow those finance providers that embrace the concept to enjoy a competitive advantage. In consequence, they will be able to expand their portfolios to businesses that otherwise would not have aligned with the expectations of their supervisors and financial institutions' own transition plans. In short, their financed emissions will remain aligned to the net-zero target.
Similar to the development of green and sustainability-linked bonds and loans, we expect industry-wide frameworks to be developed for transition finance, and finance providers and borrowers should actively monitor this space.
For the full detail and analysis please read our briefing on Transition Finance click here.