London Stock Exchange has successfully been putting sustainability at the heart of its offering across all asset classes, an ethos aligned with the way sustainability is increasingly being viewed by both issuers and investors alike. London’s position as the go-to venue of choice for raising green bonds has been underscored by a suite of new initiatives to continually address market participants’ needs as the sustainable finance market evolves. To open a pathway to financing decarbonisation beyond traditionally ‘green’ industry sectors, we're proud to be the first exchange globally to launch a dedicated Transition Bond Segment. The new segment joins Green, Social, Sustainability and Issuer-Level (comprising both sustainability linked and green revenues eligibility) segments to form London Stock Exchange’s Sustainable Bond Market (SBM). Its development is part of a coordinated approach across LSEG, incorporating the innovative TPI Climate Transition Index and a group wide commitment to net zero emissions targets. We support the transition to a low carbon economy both through our own commitments and ability to facilitate capital movement for our clients.
Transition – a holistic approach
London Stock Exchange’s prominent role in industry discussions and efforts to foster its Sustainable Bond Market were commended by participants of ICMA’s Climate Transition Finance Working Group and its own Advisory Group for Sustainable Bond Market. The message came back from both issuers and investors that London Stock Exchange has a considerable influence that can be exercised to create a better environment for transition financing. It was clear that companies need to provide more information on their carbon footprint to facilitate this shift in capital flows - through following global standards such as the Task Force on Climate-related Financial Disclosures [TCFD] and being aligned to the Paris Agreement or commit to being net-zero within a specific timeframe.
Benefits of London Stock Exchange's Transition Bond Segment
- Crucial financial tool
Meeting ambitious global carbon emission reduction targets requires whole economy participation in the transition to a low carbon economy. Higher emitting sectors require significant financing in order to move towards less carbon intensive operating models.
- Follows ICMA’s Climate Transition Finance Handbook
London Stock Exchange welcomes the publication of ICMA’s Climate Transition Finance Handbook, setting out robust guidelines around disclosure best practise for transition finance instruments, and supports this development by requiring transition bonds admitted to its Sustainable Bond Market to be aligned with handbook guidelines.
- Distinct transition label and application of globally recognised standards
The Transition Bond Segment offers a distinct transition label and application of globally recognised standards, enhancing visibility and providing assurance to issuers and investors.
Transition Bond Segment eligibility criteria
Transition bonds are a subset of sustainable debt finance instruments whereby the issuer is raising funds in debt markets for climate and/or just transition-related purposes. They can take the following forms:
- Use of Proceeds instruments, defined as those aligned to the Green and Social Bond Principles or Sustainability Bond Guidelines; or
- General Corporate Purpose instruments aligned to the Sustainability-Linked Bond Principles.
Issuers displaying transition bonds on the segment will need to meet the following criteria:
- Publish a transition framework prepared in accordance with the ICMA Climate Transition Finance Handbook;
- Disclose in line with the principles outlined by the Task Force on Climate-related Financial Disclosures or another global recognised standard, or commit to do so within a reasonable timeframe;
- Confirm its commitment to the goals of the Paris Agreement, including approved targets to achieve net-zero emissions by 2050; and
- Commit to report annually on its transition performance.
The additional criteria for Use of Proceeds type instruments and Sustainability-Linked instruments, as outlined in the SBM factsheet, will also continue to apply.
Detailed eligibility criteria can be found here.