Bond Markets Are Building Climate Tools While COP Just Talks

Last month’s COP meeting may have disappointed. Then again, the real climate progress we saw in November happened in bond markets and around market frameworks anyway, not negotiating rooms.

COP30 ended without a fossil fuel phase-out roadmap, even though absolute world emissions are at an all-time high. But recent weeks also delivered two significant developments in transition finance that could unlock capital where it's most needed: the International Capital Market Association (ICMA) released guidance recognising climate transition bonds as standalone instruments, and the EU Commission scrapped its Article 8 and 9 sustainability regime, introducing a new transition product category.

Both moves address the same problem: greenwashing fears have paralysed capital from flowing to high emitters. Reaching net zero requires an estimated US$6.5 trillion in annual investment but green bonds have only raised US$3 trillion. Climate change isn’t going away so investors are looking at pragmatic ways to invest in decarbonisation and adaptation. We need different instruments to finance high emitter transformation which can have a greater climate impact than financing already-green companies.

Transition bonds graduate

The size of the public bond market overshadows listed equity and private markets, yet there is little recognition that bondholders have effective tools to influence issuers through frequent refinancing and use-of-proceeds structures. When Japan issued its first sovereign transition bond in February 2024, the absence of a green label contributed to lower-than-expected take-up. Concerns centred on whether early-stage technologies harboured financial risk and whether activities like co-firing ammonia and hydrogen in coal plants would extend the life of high-carbon assets.

Figure 1. Japan leads the way in transition bond issuance

Source: Man Group calculations based on Bloomberg data, as at 30 November 2025.

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ICMA's guidance addresses this directly, defining what counts as transitional: carbon capture and storage, early retirement of high emission assets, fossil fuel switching, and low carbon fuels among them. We welcome this new standalone label that will increase accountability for both issuers and investors, and reduce greenwashing risks. Whilst Japan has championed transition finance as industrial policy, this voluntary framework should encourage issuers from other countries to follow suit.

Meet the EU's new transition product

Transition finance is also getting a makeover in Europe. The EU Commission's proposed changes to financial disclosures regulation would scrap the Article 8 and 9 regime and introduce a new Article 7 transition product category. The European Central Bank has recently confirmed  what many suspected: ESG funds in their current form play a limited role in financing the low-carbon transition. Transition funds have struggled to demonstrate impact in the current regime and most Article 9 funds have focused on green finance. The new transition product category may be just what investors need to mainstream alternative approaches to traditional low-carbon portfolios. It will also create more room for market participants across asset classes to direct capital towards issuers that are credibly transitioning. Committed credit investors are also considering adaptation bonds as another strand of transition finance that can help build resilience against increasing weather extremes.

Transition finance at an inflection point

Transition finance has gone from shunning high emitters to realising they can't be ignored. Encouraging transition leaders through financing may help fill the gap towards net zero.

All data sourced from Bloomberg unless otherwise stated.

Author: Christina Bastin, a portfolio manager at Man Group, focused on global credit impact and Asia, and Pauline Vaskou, a Responsible Investment Specialist at Man Group.

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