New Playbook offers a practical guide to transition investing

Today, the Institute for Sustainable Finance (ISF), in collaboration with Accounting for Sustainability (A4S), is proud to launch the “Transition Finance Playbook”, an indispensable guide for financial institutions to support transition finance strategies.

Download the Playbook here.

As climate change and nature loss fundamentally alter the risks and opportunities in our markets, many financial institutions see long-term value in transitioning their asset holdings and expanding their investable universe to align with changing realities. These actions will also help bridge the transition financing gap and accelerate the global transition to a net-zero economy.

The challenge of transition finance

While much progress has been made in green investing, barriers remain to financing decarbonization in certain sectors of the economy, particularly high greenhouse gas emitters such as emission-intensive manufacturing and conventional energy. Neglecting these sectors means losing an opportunity to address a large portion of real-world emissions.

Challenges investors face in developing transition finance include:

• There is often a temporary increase in financed emissions from investing in heavy emitters, even with the expectation of reducing emissions over time.
• The lack of a single, global definition for transition finance has contributed to challenges in scaling up investments and difficulty in measuring and comparing impact.
• The lack of available high-quality data and verifiable and consistent metrics has meant that financial institutions struggle to to assess transition plans and track progress.
• There is a shortage of suitable opportunities. Most high emitters lack robust, Paris-aligned transition plans — a key factor in enhancing the credibility of transition finance. In addition, climate enablers are often early-stage, speculative technologies and do not match the risk profiles required by some financial institutions.

How the Playbook can guide your transition finance strategy

The “Transition Finance Playbook: A practical guide for financial institutions,” provides insights from organizations at the leading edge of sustainable investing in Canada. It presents its findings in an accessible format of 14 Top Tips supported by practical, real-world examples and additional resources. The Playbook takes users through key steps from securing senior executive support for your organization’s transition strategy to strengthening capacity and accountability, to managing engagement and stewardship with investee companies and clients to drive meaningful emissions reductions.

“Supporting credible transitions in high-emitting sectors allows financial institutions to facilitate economy-wide emissions reductions while capturing long-term value creation,” said Yingzhi Tang, Senior Research Associate of the Institute for Sustainable Finance. “But this can be very challenging. Our Transition Finance Playbook is a vital resource for institutions just beginning or well along their transition finance journey.”

The Playbook is part of a project initiated by the Canadian Chapter of the CFO Leadership Network, convened by A4S, to share learnings and create clear and specific actions to support the deployment of transition finance to influence real-world emissions reductions and help Canada meet its national targets. It details the challenges financial institutions face in their transition finance strategies and offers practical advice to scale up transition finance based on the expertise of market leaders.

Canadian market leaders directly participated in developing the "Transition Finance Playbook". Caisse de dépôt et placement du Québec (CDPQ), Ontario Municipal Employees Retirement System (OMERS), the Co-operators Group (Co-operators) and numerous others contributed their expertise.

The Playbook is intended to complement and help inform other civil society and investor led transition-focused initiatives such as Business Future Pathways (BFP), which ISF supports as a member of its technical advisory committee. BFP has a focus on transition planning while the Playbook helps investors navigate current realities, including limited corporate transition planning, and challenges to engagement with high-emitting entities.

The Institute for Sustainable Finance was launched in 2019 as the first-ever cross-cutting and collaborative hub in Canada that fuses academia, the private sector, and government with the singular focus of increasing Canada’s sustainable finance capacity. The institute's mission is to align mainstream financial markets with Canada’s transition to a prosperous sustainable economy.