Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013

51225

Transition Finance hindered by knowledge gaps and lack of global alignment: CFA Institute

RELATED TOPICS​

New research published today by the CFA Institute Research and Policy Centre analyses the many challenges implicit in transition finance as a mechanism for the decarbonisation of carbon-intensive sectors such as aviation, shipping, trucking, steel, cement, aluminium, and petrochemicals production.

The research, Navigating Transition Finance: An Action List, discusses the different stages of readiness and adoption of transition finance across a selection of industries and markets, and offers recommendations for corporations, investors, and policymakers to improve the environment for transition finance investors.

The report also discusses the inadequacy of existing fiscal policies, such as green public procurement, where authorities direct spending on goods, services, and works with a reduced environmental impact, and the role of blended finance facilities and other policy interventions.

Paul Andrews, Managing Director for Research, Advocacy and Standards, CFA Institute says: “Transition finance can play a key role for investors who intentionally seek to incorporate net zero into their strategies. However, financing for the reduction of emissions requires navigating a complex landscape of economic, regulatory, environmental, and technological factors. This is particularly challenging given the absence of standardised definitions, appropriate metrics, and transition finance instruments that are endorsed by international organisations.”

“Enhanced comparability and standardisation of disclosures at national, regional, and global levels will be important to facilitate progress in the transition finance sector. Relying solely on market forces is unlikely to deliver on decarbonisation targets, and collaboration among stakeholders will be essential. Put simply, policy frameworks must support the financing of decarbonisation strategies in the real economy.”

“All stakeholders within the transition finance system will need to cultivate new skills, establish clear priorities, and work together if transition finance is to play a meaningful role in supporting net-zero targets.”

Key challenges remaining for scaling transition finance include:

Closing knowledge gaps among the investor community concerning transition finance. The lack of awareness and attention to transition finance hinders mainstream adoption and creates challenges in effectively communicating and implementing transition strategies.

The lack of credible transition plans and fit-for-purpose disclosures.

The absence of clear taxonomies and labelling standards complicates risk evaluation and limits international capital flows.

An unfavourable risk-return profile due to inadequate government support for improving the commercial viability of transition projects.

Key Recommendations for net-zero investors, corporations, and policymakers include:

Institutional Investors

Establish portfolio decarbonisation targets and report on progress

Develop metrics dashboards and use attribution analysis to report how investment strategies promote lower emissions or emissions reduction, focusing on year over year change in the weighted average carbon intensity (WACI) of portfolios, adjusting for currency and inflation effects

Corporations

Disclose credible transition plans that align with the Paris Agreement and demonstrate the economic feasibility of meeting decarbonisation targets

Include decarbonisation performance as part of a balanced scorecard for executive remuneration to incentivise accountability and intentionality

Governments and Regulators

·       Collaborate with industry stakeholders to create transition taxonomies, harmonise transition plan disclosures, and economic feasibility assessments

·       Allocate additional public and blended finance to mobilise more private sector investment in transition projects, especially in developing markets

·       Use labelling to help individual investors navigate the investment product landscape, thereby creating a more informed and sustainable finance ecosystem

To access the report Navigating Transition Finance: An Action List, visit: https://rpc.cfainstitute.org/en/research/reports/2024/navigating-transition-finance

Latest News

New research from Carne Group reveals fund managers expect alternative asset classes to see the..
Brown Brothers Harriman Co has expanded its relationship with AllianceBernstein AB by adding to its..
The trading and investment platform eToro has extended its proxy voting feature to all stocks..

Related Articles

UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes LGPS are leading the charge on investment in private markets issuing tenders set to be..
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Pension funds
UK defined benefit (DB) pension plan sponsors could have access to GBP 1.2 trillion in surplus assets over the next decade, industry research reveals...
UK defined benefit DB pension plan sponsors could have access to GBP 1 2 trillion in surplus assets over the..
Tim Crawmer, Payden & Rygel
Tim Crawmer and Frasat Shah of Payden & Rygel write that higher yields are attracting more demand from investors. Also, given that equities had a strong year last year, big funds have taken some chips off the table in equities and put them into fixed income...
Tim Crawmer and Frasat Shah of Payden Rygel write that higher yields are attracting more demand from investors Also given..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by