ICMA to embed Just Transition across ESG-labelled bond principles

Changes to include mentions of Just Transition in impact reporting handbook, while climate transition finance handbook will get an overhaul.

The International Capital Markets Association (ICMA) is set to incorporate the Just Transition across its voluntary market standards for ESG-labelled bond issuers as part of a wider set of updates next month.

ICMA asked its sustainable finance working groups to consider guidance on Just Transition earlier this year.

Valérie Guillaumin, director of sustainable finance at ICMA, told Responsible Investor this was in response to demand from members and observers of the organisation’s widely used principles for ESG-labelled bonds that the executive committee “say some words about Just Transition”.

As a result of their work, there will be “an incorporation of the notion of Just Transition across the principles”, according to Agnès Gourc, head of sustainable capital markets at BNP Paribas and deputy chair of the executive committee of the principles.

Guillaumin said the guidance will be “very light touch” and that ICMA will not look to define Just Transition. “The objective is not to define Just Transition, but it is a feature of the market now,” she said.

Updates will include references in documents relating to social bonds and “some touches” of the Just Transition in ICMA’s impact reporting handbook.

RI understands that there was debate over whether the Just Transition had already been sufficiently embedded in the Green Bond Principles, which ask issuers to mitigate social risks.

Guillaumin said the updates were “mainly to encourage disclosure by issuers”. “The objective is to update the template for green bond issuers to open new questions about the Just Transition.”

The Sustainability-linked Bond Principles will also see updates. The principles themselves will be adjusted to ensure that sovereign issuers are explicitly covered, while ICMA’s registry of KPIs will be expanded to include sovereign-specific and more social metrics.

Transition spotlight

ICMA’s climate transition finance handbook, first published in 2020, is also in line for an overhaul to bring it up to date with current developments. This may include additional annexes with examples of the application of its key elements.

Nicholas Pfaff, deputy CEO and head of sustainable finance at ICMA, said there had been “substantive discussions” on the handbook’s content, with more than 100 people involved in the working group.

Transition finance is the key topic from the perspective of the market, Pfaff said. He flagged a particular need to “find a way towards greater consensus around what we can finance under the transition umbrella, whether that’s project- or trajectory-based”.

“[The options are] either a trajectory-type approach – for example, saying that you have X number of years to align – or an activity-based approach, whereby you say these [activities] are clearly enabling activities for the transition.”

The handbook was created as an alternative to a dedicated set of transition bond principles. Pfaff still believes there is no need for a dedicated label under the broader principles.

In practice in the market, he said, there are two situations. One is sustainability-linked bonds or green bonds, which have transition themes and are aligned with the handbook.

“Alternatively, there are situations which are more complicated, where you have a use-of-proceeds bond, where all market stakeholders may not agree that it’s a green bond because of the nature of the underlying projects.”

Pfaff added: “We should try to go towards greater consensus on what transition is, what a transition project is and then integrate that consensus in our definition of green. I think the preferred path in the market is to stretch our view on what is green to better incorporate transition.”