1. OECD Guidance on Transition Finance
Ensuring Credibility of Corporate Climate Transition Plans
1st Focus Group Discussion on Transition Finance in Indonesia
21 March 2023
To limit the average global temperature increase to 1.5°C, global GHG emissions need to reach
net zero by 2050 and peak before 2025, with rapid emissions reductions across all sectors of
the economy, especially in energy-intensive and hard-to-abate sectors.
In 2019, more than 50% of net GHG emissions
came from energy production and industry.
If emissions from electricity and heat production are
attributed to the sectors that use the final energy,
90% of these indirect emissions are allocated to the
industry and buildings sectors (increasing relative
GHG emission shares from 24% to 34%, and from
6% to 16%, respectively).
Source: Adapted from IPCC (2022), Climate Change 2022: Mitigation
of Climate Change (Figure 2.12)
Total net anthropogenic GHG emissions by sector (2019)
Note: AFOLU = Agriculture, Forestry and Other Land Use
3. OECD Guidance on Transition Finance
Main elements and target audience
• Landscape analysis
• Key challenges in transition finance (industry survey)
• 10 elements of credible corporate transition plans
• Financial market participants
• Policymakers and regulators
Source: OECD (2022) Guidance on Transition Finance:
Ensuring Credibility of Corporate Climate Transition
4. • Finance raised or deployed by corporates to implement their net-zero
transition, in line with temperature goal of Paris Agreement, based on
credible corporate climate transition plans
OECD Guidance on Transition Finance
• Green/sustainable finance = already green, point-in-time assessment
• transition finance = becoming green, moving towards net zero
• Despite no universally-agreed definition of transition finance or common criteria for transition
activities, there is increasing convergence among different actors on core concepts.
• Transition finance is generally understood as being intended to decarbonise entities or economic
activities that are emissions-intensive, and currently have no viable green substitute but that are
on their way to becoming sustainable or reaching net zero.
5. Transition-related financial instruments
• In 2021, the utilities and industry sectors issued
the second largest share of SLBs by volume.
• Most SLBs target GHG or carbon emission
reduction objectives (of which, 77% were verified
by the Science Based Targets initiative).
• Concerns have been raised on the use of
composite ESG ratings as Key Performance
Indicators to link the financing with.
• Transition finance is currently extended mainly through fixed-income instruments, namely
sustainability-linked bonds (SLBs) and loans (SLLs) and transition bonds.
• Fast growth of sustainability-linked debt, led by utilities and industry sectors in Europe and North
America. Transition bond market still new but growing, led by hard-to abate sectors in Asia.
Source: OECD (2022), based on Bloomberg data
620 bn (38%)
linked loans, 428
190 bn (12%)
109 bn (7%)
Note: bn = USD billion
6. OECD Guidance on Transition Finance
Focus on corporate transition plans
Why focus on corporate transition plans?
• Credible corporate transition plans can reduce or avoid risks
related to greenwashing, lock-in and delayed action
• Increasing evidence that despite investor expectations, only a
minority of companies are developing transition plans
• Existing transition plan disclosure is limited and inadequate
Do you have
Source: CDP (2022)
A transition plan is a time-bound, cross-cutting action plan that clearly sets out how a company
intends to achieve its transition strategy and reach its goals/targets to transform its business model,
operations, assets and relationships towards low-emission, climate resilient pathways aligned with the
goals of the Paris Agreement (CBI, 2021; CDP, 2021; CPI, 2022).
7. OECD Guidance on Transition Finance
Mushrooming of initiatives on transition plans
• Standards and
• Validation of
• Transition plan
for companies to
• Guidance and
• Data collection
and analysis on
8. OECD Guidance on Transition Finance
Key challenges in transition finance
draft to SFWG
Financial market participants’ obstacles to identifying companies or projects committed to a transition along low-
emission pathways and the Paris Agreement goals (% of responses)
Note: Responses by financial market participants. The number of responses for this survey question was 156.
Source: 2022 OECD Industry Survey on Transition Finance
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Lack of commercially viable projects and companies
Lack of consensus/guidance on how to address the risk of emission lock-in
from near-term investments
Difficulty to assess ambition/relevance of corporates’ net-zero targets
Lack of definition of transition activities and methodological inconsistencies
Lack of consensus/ guidance on what constitutes a Paris-aligned country-
level sectoral transition pathway
Lack of detailed information from corporates on content/format of their
Lack of comparability in corporate disclosures regarding climate-related data
and transition plans
Very relevant Relevant Moderately relevant Slightly relevant Not at all relevant
10. OECD Guidance on Transition Finance
Elements of credible corporate transition plans (I)
Setting temperature goals, net-zero, and interim targets
Net-zero and interim targets are science-based, consistent with an IPCC 1.5°C reference
scenario, and cover all relevant GHG emissions. Interim targets reflect the need for global
GHG emissions to peak by 2025. In limited and well-justified circumstances, companies may
choose reference scenarios consistent with limiting warming to below 2°C.
Using sectoral pathways, technology roadmaps, and taxonomies
Net-zero and interim targets as based on available sectoral pathways, technology roadmaps,
and, where possible, taxonomies. The plan clarifies how and for which technologies future
operating and capital expenditures will be used to achieve targets.
Measuring performance and progress through metrics and KPIs
Climate change mitigation-related metrics and KPIs cover lifecycle GHG emissions, are
measurable and externally verifiable. Targets and reporting include scope 3 emissions, and
omissions are limited and clearly justified and explained.
11. OECD Guidance on Transition Finance
Elements of credible corporate transition plans (II)
Setting out a strategy, actions, and implementation, incl. on preventing emission-
The plan includes concrete actions to achieve the company’s targets and an assessment of
the likelihood that targets will be achieved.
The risk of emission-intensive lock-in is assessed, a plan for responsible retirement of high-
emitting assets provided where relevant, and mechanisms put in place to prevent lock-in for
any existing or future assets and infrastructures at risk.
Providing clarity on use of carbon credits and offsets
Given the risk that carbon credits and offsets can pose to the credibility of transition plans,
their use is limited and carefully explained.
12. OECD Guidance on Transition Finance
Elements of credible corporate transition plans (III)
Integrating with financial plans and internal coherence
The transition plan is integrated into the corporate business plan, makes direct reference to
the company’s financial plan and is done concurrently with financial reporting.
Supporting a just transition
Measures are taken to mitigate negative impacts on workers, suppliers, local communities,
and consumers. Credible transition plans are developed through a process that ensures
regular, continuous, and inclusive stakeholder engagement and social dialogue.
Addressing adverse impacts through the Do-No-Significant-Harm (DNSH) Principle
and due diligence for Responsible Business Conduct (RBC)
The plan should consider not only mitigation goals but also other environmental and social
objectives, including by ensuring no harm is done to them. Risk-based due diligence should
be conducted based on OECD Due Diligence Guidance for RBC.
13. OECD Guidance on Transition Finance
Elements of credible corporate transition plans (IV)
Ensuring sound governance and accountability
A whole-of-entity approach ensures that the design and implementation of the transition plan
is subject to regular monitoring and reporting, subject to senior management approval and
oversight, and involves all relevant stakeholders.
Transparency and verification, labelling and certification
Progress on targets is regularly disclosed and third-party verification of the plan and its
For more information, please contact:
Elia Trippel: firstname.lastname@example.org
Valentina Bellesi: email@example.com
Notes de l'éditeur
sector-specific trajectories for reduction emissions and consider specific technological advances and hurdles of different sectors;
often based on underlying scenarios, e.g. the IEA model scenario.
Esp important for hard-to-abate sectors where net-zero options are not always feasible or available.
However, broad sectoral scope and emissions coverage for economy-wide sectoral pathways is still lacking and several countries have unclear sectoral scopes for emissions.
Sectoral pathways can inform technology roadmaps for specific sectors
Can provide indication of which technologies could be used to achieve emissions reduction targets along a sectoral decarbonisation pathway
Can be used by fmps to assess credibility of planned capex and rdi expenditures
Can be used by companies to set targets and provide confidence to investors
Issue of lack of comparability
Standards can provide global baseline (e.g. ISSB) to provide company information on sustainability risks and opportunities
National standards too
Provide for metrics and targets to assess and compare information and manage company performance (e.g. absolute GHG emissions or GHG intensity); reporting against emission scopes with consensus moving towards 3 (net zero tracker analysis shows only 36% of largest MNEs have scope 3 targets)
2 degrees means 2070 (e.g. India 2070, China 2060)
Global 1.5, i.e. for some sectors or countries this may mean before 2050 (e.g. Sweden 2045, Finland 2035)
- Explanation of how it compares with national target + analysis of any discrepancies and how risks are addressed
mechanisms to prevent lock-in will explicitly identify infrastructures at risk and specify safeguards to minimise this risk (e.g., a combination of futureproofing of assets, use of sunset clauses and gradually more stringent emissions criteria, as well as investment in RDI and plans for early retirement)
to reach net zero by 2050, no additional fossil fuel exploration
Existing and planned FF infra, without additional abatement, exceeds 1.5 (consistent with 2 degrees)
Continuing to install unabated ff infra will lead to emissions lock-in (abatement means interventions that substantially reduce GHG, e.g., capturing 90% or more from power plants)
Transition plans that rely on investments in ff exploration, sale, distribution likely not compatible with PA temp goal and lead to lock-in
Lifecycle emissions, absolute and intensity-based, incl for subsidiaries
GHG Protocol Corporate Accounting Reporting Standard provides methodologies for different sectors
Scope 3, growing consensus to include; on average 5.5 times the amount of combined scope 1 and 2
Avoid using terms like significant, relevant, material (EFRAG uses “significant”) – leads to lack of clarity
But clear that for some companies scope 3 not very relevant or very difficult to obtain data (e.g. some SMEs)
Targets should include scope 3 emissions
Corporate to provide explanation of which scope 3 emissions were included and detailed explanation of any exclusions
Basis for measurement of value chain info should be explained (can employ supply chain mapping from OECD dd guidance for RBC)
Omission only in limited cases where careful justification is included, incl assumption to determine omission
Offsets can deliver finance for emission reductions where it is needed the most and can achieve equivalent environmental outcomes in cost-effective ways
But should not disincentivise companies from decarbonising
Carbon markets, which from the basis of transactions, are heterogenous and follow different quality standards
Consider that use decreases credibility of plan
Not as alternative to cutting emissions or a reason for delayed action
Explicitly describe any intended use and basis for their carbon removal (e.g. nature or technology-based), applicable verification scheme, quality criteria to assess credibility
Ideally not included in GHG inventory and as a contribution to targets (as in EFRAG draft)
Explain their additionality and permanence, extent to which they are used as last resort, and clearly state share of emissions mitigated using offsets (which should decline over time) and their explicit role in the company’s mitigation strategy
Articulate transition risks and opportunities, limitations, constraints and uncertainties
Assess likelihood of achieving the plan’s targets using multiple climate-related scenarios
Identify levers and corrective actions to address or correct underperformance against a target
Concrete actions to meet targets, capital investments needed, using tools like roadmaps and taxonomies
Lock-in prevention and describe strategy and process for responsible retirement of high-emitting assets, e.g. phase-out plan, just transition considerations, key milestones and phaseout timing, governance mechanisms, financing plans, key assumptions and uncertainties (GFANZ)