Transition Finance Strategies for Net-Zero Targets Unveiled
Mokshita P.
10x Industry

Transition Finance Strategies for Net-Zero Targets Unveiled

CFA Institute Research identifies challenges in transition finance for decarbonisation across sectors. Recommendations urge standardisation, disclosure improvements, and policy support for net-zero goals.

The CFA Institute Research and Policy Center released its latest research focusing on the complexities of transition finance as a crucial mechanism in the decarbonisation journey of carbon-intensive sectors such as aviation, shipping, trucking, steel, cement, aluminium, and petrochemicals production.

Titled "Navigating Transition Finance: An Action List," the report examines the readiness and adoption stages of transition finance across various industries and markets. Moreover, it furnishes recommendations aimed at improving the landscape for transition finance investors, corporations, and policymakers.

Paul Andrews, the Managing Director for Research, Advocacy, and Standards at CFA Institute, stated the important role of transition finance in aligning investment strategies with net-zero targets. He highlighted the multifaceted challenges inherent in financing emission reductions amidst a complex interplay of economic, regulatory, environmental, and technological factors.

Andrews emphasised the urgency for enhanced comparability and standardisation of disclosures at national, regional, and global levels, stressing that reliance solely on market forces might fall short of achieving decarbonisation targets. Collaboration among stakeholders, Andrews emphasised, is paramount to navigate the intricacies of transition finance successfully.

The report describes key challenges blocking the scaling of transition finance, including the lack of investor awareness, credible transition plans, standardised taxonomies, and adequate government support. To address these challenges, the report offers a set of recommendations made for institutional investors, corporations, governments, and regulators.

For institutional investors, the report suggests establishing portfolio decarbonisation targets and adopting metrics dashboards to monitor progress effectively. Corporations are urged to disclose credible transition plans aligned with the Paris Agreement and integrate decarbonisation performance into executive remuneration frameworks.

Governments and regulators are encouraged to collaborate with industry stakeholders to develop transition taxonomies, allocate additional public and blended finance to prepare private sector investment, and utilize labelling to guide individual investors towards sustainable finance options.

The publication of this research marks an important step towards promoting a conducive environment for transition finance, enhancing the collective effort required to realise ambitious decarbonisation goals in the real economy.