Date: 27th November 2023

Transition investing refers to capital needed to improve economic activities, that are not environmentally friendly at present. Such capital supports the development of innovation and infrastructure, enabling current activities to eventually achieve climate neutrality.

The European Commission’s release of the transition finance ‘Recommendation’[1] emphasised the importance of such investments for Europe’s pursuit of environmentally conscious goals. Despite the efforts in bringing more clarity on how to use transition finance tools, (such as climate benchmarks, green loans, bonds and equity financing), the Recommendation is non-binding with voluntary nature. This creates inconsistencies for undertakings, financial intermediaries, Member States and investors alike.

With this thought leadership piece, BETTER FINANCE assesses the current transition investing framework in the EU and beyond; identifies key drivers for transition; compares the current decarbonisation pathways of Member States and sectors; and ultimately looks at the ways in which pension savers and individual (“retail”) investors, can participate in, and benefit from transition investing, while improving the current environmental narrative.

Design and disclosure of credible plans - outlining planned steps to achieve climate neutrality by 2050 - are of utmost importance. While cognisant of some data limitations for all pertinent stakeholders, further supplementary research is necessary to provide a thoroughly comprehensive assessment of the transition investing landscape across the European Union.