Should transition bonds have a place in the path towards carbon neutrality?

“The European Union’s target of achieving net-zero emissions by 2050 is a costly one. An annual investment of €260 billion is estimated as needed to advance EU transition to a low-carbon economy. To allocate funds in the best way, both public financial institutions and private investors need a clear framework to properly identify sustainable investment opportunities. The European system, the EU Taxonomy, only considers already sustainable activities, thus rewarding companies currently doing a good job. Nonetheless, several industrial activities, whether due to the nature of their business or to lack of finance, are in a worse position, despite their potential emission reduction. The introduction of a Transition Taxonomy may help address this gap, while, at the same time, avoid abrupt changes that might carry high societal costs.”

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