Baker McKenzie's newest sustainability briefing focuses on the hot topic of transition finance, which is relevant to lenders and borrowers in commercial and syndicated lending.
As background, green and sustainability-linked bonds and loans have been the pioneer products in this space. Following their evolution over a number of recent years, they are now well-established financing products commonly used to finance the energy transition. However, transition finance is emerging as the requirements for green and sustainability-linked financing products are often not met in the context of high-emitting, hard-to-abate sectors looking to reduce emissions. The essential foundation to transition finance is the development and agreement between the parties of a detailed, credible and testable long-view transition plan to engender confidence that the activities being financed are meaningfully contributing to the net-zero target. The underlying nature of transition finance inevitably brings with it greater legal, regulatory and reputational risks around which we can provide advice and guidance.
In the context of publications by industry and standard setting bodies such as the Glasgow Financial Alliance for net zero and our own experience in the market, the briefing discusses:
- What is transition finance?
- What makes a credible transition plan?
- Risks and challenges
- What progress the market is making
In the EU, the European Commission has now published by way of practical guidance, recommendations to both businesses and the financial sector to support the adoption of transition finance. We have therefore created a briefing update which discusses this EU publication and the most salient points for financial institutions as they support their customers transition to net-zero emissions.
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