Good practices for climate-related and environmental risk management – Business strategy
Table 12
Non-exhaustive list of observed transition planning products
Description of product Main aspects Corporate/retail
Green bonds and
sustainability-linked
bonds
Some institutions apply the International Capital Market Association Green Bond
and Sustainability-Linked Bond Principles.
Green Bonds: The proceeds are used solely “to finance or re-finance, in part or
in full, new and/or existing eligible Green Projects and which are aligned with the
four core components of the Green Bonds Principles”. Eligible Green Projects
relate, among others, to renewable energy, energy efficiency, pollution,
biodiversity, clean transportation and climate change adaptation.*
Sustainability-Linked Bonds: The financial and/or structural characteristics of the
instrument change if the issuer meets predefined sustainability objectives within
a set timeline.**
Corporate
Green loans and
sustainability-linked
loans
Some institutions apply the Loan Market Association’s Green Loan and
Sustainability-Linked Loan Principles.
Green loans: “any type of loan instrument made available exclusively to finance
or re-finance, in whole or in part, new and/or existing eligible projects.” The Loan
Market Association foresees several components that such loans have to
comply with. Among others, the loan proceeds have to be used for eligible
projects only (e.g. renewable energy, zero emission vehicles, heat networks,
new buildings, building renovations, biodiversity conservation, waste
management, water treatment and climate change adaptation).***
Sustainability-linked loans: “any type of loan instruments and/or contingent
facilities (such as bond lines, guarantee lines or letters of credit) which
incentivise the borrower to achieve ambitious, predetermined sustainability
performance objectives.”****
Other institutions apply a similar concept through instruments to incentivise the
borrower to improve its external environmental, social and governance (ESG)
rating. Part of the profit margin on the loans might be donated to sustainable or
charity projects.
Corporate
Sustainability-linked
supply chain loans
These instruments are not targeted at the institution’s own clients, but at the
suppliers in the client’s value chain.
The institution cooperates with its clients to offer favourable financing conditions
to the client’s suppliers, provided the latter improve their businesses in terms of
environmental impact. Performance is monitored.
Corporate
House renovation loans Special-purpose loans for energy efficient house renovations, sometimes
supported by a government scheme.
Example: Clients buy real estate with a low-scoring EPC label. They use a loan
to increase the EPC label within a certain time period.
One institution reduces the interest rate applied to mortgages over the course of
its duration if the borrower upgrades the unit to an energy efficient EPC label
prior to the interest rate reset date.
Retail
Green mortgages Loans for the acquisition of real estate with elevated energy efficiency
standards, or elevated sustainability standards more broadly (e.g. using
recycled building materials or limiting the consumption of fresh water).
Institutions often apply preferential mortgage terms and interest rates, at times
also due to government support schemes.
Corporate and retail
Investment advice One institution verifies the extent to which the assets that its private clients
invest in contribute to achieving climate goals in order to stimulate portfolio
choices aligned with the Paris Agreement.
Private banking
Notes: * International Capital Market Association, “Green Bond Principles: Voluntary Process Guidelines for Issuing Green Bonds”,
June 2021. ** International Capital Market Association, “Sustainability-Linked Bond Principles: Voluntary Process Guidelines”, June
2020. *** Loan Market Association, “Green Loan Principles: Supporting environmentally sustainable economic activity”, December
2018. **** Loan Market Association, “Sustainability-Linked Loan Principles: Supporting environmentally and socially sustainable
economic activity”, March 2022.
3.2 Strategic steering tools
Institutions use client engagement as a steering tool to implement their strategic
approaches to managing transition risk. They enter into a structured dialogue with
clients subject to elevated transition risks to steer them towards a trajectory that is
aligned with the institution’s envisaged portfolio pathways. To this end, institutions
take clients’ transition plans into account.