As part of our work in helping finance teams in hard-to-abate sectors attract climate investors, we regularly engage with a wide range of stakeholders – CFOs, treasurers, CSOs, IROs, institutional investors, and service providers – on the evolving topic of transition finance. The last three months were no exception.
Here are some of the key questions and themes that have emerged in these conversations:
Is climate or sustainable finance still good value in today’s macroeconomic environment?
One question we keep hearing from treasurers and CFOs is: “Is climate finance worth it in today’s macro environment?”
In short: on its own, no, I don’t think climate finance is “value for money”, particularly in the recent macro or geopolitical headwinds.
We know the much-discussed “greenium” (or green premium) is minimal, if it exists at all. So, very often the direct financial upside from issuing green or sustainable debt doesn’t usually justify the cost of frameworks, ratings, or enhanced disclosure.
That said, the thematic bond market now exceeds $5tn, so clearly, there’s some value here. The real question is: how do we unlock it?
In our work with more than 50 CFOs and treasurers globally, we've seen climate finance work best when it supports a clear strategic objective tied to climate risks or opportunities. The financial materiality of climate risks varies by sector, but where it’s real, companies that proactively address those risks can both protect their business and position themselves more favourably relative to peers.
Given similar returns, investors often prefer the greener perceived option – or will hold onto it longer, even if it seems overvalued in the short term
In the last few months, we’ve dug deep into this idea of “green perception” as many of the stakeholders we interact with see it as a key value. There’s a wealth of academic literature linking good ESG credentials to financial performance, but frankly, it’s often unhelpful when a CFO wants a practical business case for adopting climate finance tools.
What seems clear from experience and my conversations is this:
Publicly, most institutional investors still endorse the 1.5°C target. Privately, many acknowledge it may be too ambitious for hard-to-abate sectors – at least in the short to medium term. A very recent piece of research from Moody’s Investor Service backs that up.
In fact, we’re working with companies that have well-thought-out transition plans aligned with a 2°C pathway, and these are gaining respect from investors. The reality is that companies must navigate multiple dependencies, and investors are increasingly recognising that nuance.
Treasurers have a growing toolbox – green bonds, transition bonds, sustainability-linked loans, investor engagement, transition frameworks, and more. But they can’t drive this alone.
In fact, these tools really work if they’re grounded in a credible business strategy with achievable and realistic climate objectives. These objectives don’t need to be heroic – they need to be achievable and aligned with the company’s strategic direction.
Treasurers transition finance as a way to position their companies competitively. When grounded in a credible business strategy, they will help change investor perception of the company towards a greener, more sustainable investment, therefore opening up to a broader and stable investor base.
This way climate finance can provide most value for money.
Fabrizio Palmucci is the founding partner of Impactivise, a boutique advisory firm helping finance teams in hard-to-abate sectors access transition finance. He is also a member of the UK Transition Finance Council’s working group.