Capital markets can lead the way in transition finance

DESPITE decades of research and discussion, we are still looking for a single, established and broadly recognised definition of sustainability. Its meaning varies for different people in different cultures, and global events have shown how interpretations can and will alter over time.

This range of understanding and malleability raises many questions on how we should proceed with transitioning to a more sustainable world. What is a sustainable transition pathway? How should we view transitional businesses that still make money from carbon-intensive industries but invest in renewables? What should the goal of transition finance be? Who makes the decision?

Unlike sustainable or green finance, which raises financing for “green” projects, transition finance seeks to raise capital to transition “brown” industries. Not all sectors can go “green” overnight, but as a critical enabler of climate action, transition finance should be used to help carbon-intensive businesses decarbonise. And although carbon emissions receive much of the attention, deforestation, water shortages and soil erosion are also serious environmental problems that should not be overlooked.