Helping businesses in hard-to-abate sectors transition towards net zero emissions is vital to combat climate change, and transition finance has an important role to play.
The transition to net zero – in line with the Paris Agreement targets - is challenging. Decarbonisation could cost up to 0.5 per cent of global GDP and hard-to-abate sectors need to make the most significant changes. While supply in the green, social, and sustainability bond market is up 29 per cent year-to-date, businesses in high-carbon sectors are often ineligible for this type of financing support.
This HSBC whitepaper explains the challenges faced by high-carbon sectors as they attempt to transform their business models in alignment with the Paris Agreement targets, and the impact so-called ‘transition finance’ could have in facilitating – and accelerating – their progress.
The benefits of transition pathways could be significant in achieving net zero. For example, it is estimated that a transition pathway for heavy industries could reduce emissions by 40 per cent globally.
There is a clear gap in the market for sustainable investment in transition sectors – such as transport, steel, and chemicals. This paper explains the potential for transition financing to bridge this gap, and a number of policy levers to unlock its potential advantages.