Transition-focused fund managers overwhelmingly prioritise issuer‑level credibility over instrument labels. They focus on science‑aligned pathways, feasibility, governance strength and demonstrable action. Issuers must show that transition planning is integrated into corporate strategy, supported by interim targets, robust CapEx alignment, and clear oversight.

Notably, transition funds do not rely solely on green taxonomies or labels. They assess the company as a whole – its strategy, emissions reduction pathway, capital allocation and ability to drive real‑world decarbonisation. This reflects a shift away from narrow definitions towards a focus on ambition, action and accountability. Some of the assessments incorporate adaptation into the assessments, providing a more holistic view of the strategic plan and potential credit risk.

• Issuer credibility matters more than the instrument: investors evaluate transition plans, governance, sector‑specific feasibility and progress indicators before considering any issuance or debt labels. Clear long‑term and interim targets, CapEx alignment, and transparent reporting are essential.
• Engagement is continuous and strategic: transition funds and their portfolio managers, supported by their ESG and/or stewardship teams, maintain structured engagement processes with clear escalation pathways. Poor performance can trigger additional scrutiny, requests for remediation, or ultimately divestment.
• Frameworks are emerging, but convergence is unlikely: while ICMA’s Climate Transition Bond Guidelines and the UK Transition Finance Guidelines provide helpful direction, investors do not expect a single global definition of transition, and these guidelines are linked to the instruments. Issuers should instead align to core principles such as credible ambition, action into progress, transparent accountability, and addressing dependencies.   

Transition investors prioritise clarity of ambition, science‑aligned pathways and feasibility. They expect issuers to publish transparent, forward‑looking plans that include interim targets, CapEx commitments and strong governance signals such as board oversight and remuneration linkage.

Data availability is critical. Where data gaps exist, issuers should provide additional explanations, short‑term targets and detail on capital allocation over the next two to three years. Transition funds draw on third‑party datasets (e.g., CDP, TPI, SBTi) but perform independent assessments using proprietary frameworks and scorecards using company reports and external data sources.

Transition funds maintain regular, structured engagement with issuers, documenting discussions and tracking progress. They expect transparent dialogue, timely updates and evidence that issuers can respond to challenges or missed targets.

Escalation frameworks are well‑defined: if an issuer falls behind, investors expect a remediation plan, additional oversight or revised targets which are communicated. Persistent failure may lead to divestment, particularly where transition shortcomings translate into financial risk.   

The ICMA Climate Transition Bond Guidelines and UK Transition Finance Guidelines are helping clarify expectations and increasing transparency. These frameworks emphasise scientific credibility, feasibility of low‑carbon alternatives, financial viability and governance oversight; however, tend to focus on the activities and instruments.

Despite helpful frameworks, investors do not anticipate a single universal definition of ‘transition’. Issuers should therefore focus on core principles: credible ambition aligned to Paris pathways, action supported by

• Make transition planning part of their core strategy: publish a transparent plan with interim targets, CapEx alignment and governance oversight. Investors want clarity on long‑term resilience and how the transition supports business strategy.
• Identify and report the metrics that show real progress: provide both quantitative and qualitative disclosures, including emissions intensity, CapEx allocation, implementation milestones and governance mechanisms.
• Treat engagement as strategic, not transactional: engage openly, anticipating investor questions and create clear pathways for ongoing dialogue. This builds trust and supports better outcomes.
• Use labels where they add value, but don’t rely on them: while investors are instrument‑agnostic, labelled bonds can support credibility when aligned with the issuer’s broader transition strategy and provide structure to disclosures. 

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