At a Glance:
- With $4 trillion needed annually by 2030 for decarbonisation and climate risks still underestimated by markets, traditional financing falls short of meeting Paris Agreement goals.
- Transition finance fills the critical gap between high-carbon industries and low-carbon futures, particularly for emerging markets struggling to access climate finance.
- Companies can leverage transition finance through credible decarbonisation strategies and robust ESG frameworks, especially where immediate green solutions aren’t viable.
Under current policies, global warming could exceed 3°C, potentially leading to macroeconomic losses of at least 18% of global GDP by 2050. Achieving the Paris Agreement’s objective of limiting global temperature rise to 1.5°C requires rapid and widespread decarbonisation across all sectors. The financial challenge is staggering: a 2025 Cambridge Judge Business School report underscores that annual clean-energy and industrial decarbonisation investments must reach USD 4 trillion by 2030 are required to achieve net-zero goals.
Decarbonising the global economy is a critical enabler for the low-carbon transition, but it requires significant investment and concerted international action. Despite increasing awareness among investors, central banks, and financial regulators regarding climate risk, climate-related financial risks remain greatly underestimated by financial institutions and markets, thus limiting the capital reallocation needed.
This situation highlights the urgent need for financial mechanisms that can bridge the gap between traditional high-carbon industries and the necessary low-carbon future, especially in emerging markets and developing economies (EMDEs), which face significant challenges in accessing climate finance.
This is where transition finance becomes indispensable.
What is Transition Finance?
Transition finance is broadly defined as financial support deployed to help high-emitting industries and economies evolve towards sustainable business models, production, and consumption methods that align with long-term climate goals. It is not about assessing which activities are already sustainable. Instead, it supports the ongoing journey of becoming sustainable. It provides financing solutions to help the entire economy decarbonise, with a particular focus on high-emission, hard-to-abate industries.
Green Finance vs Transition Finance?
Green finance usually invests in established sustainability initiatives. In contrast, transition finance focuses on facilitating the shift towards sustainability, especially in high-emitting sectors such as steel, cement, chemicals, aviation, and shipping. It does this by financing the transition to decarbonisation, not just existing green initiatives. It also incorporates social considerations through the Just Transition principle, ensuring workers, communities and vulnerable groups are not left behind during the decarbonisation process.
Key Principles of Transition Finance in Business Decisions
| Principle | What It Means | How Renoir ESG Supports |
| Driving decarbonisation | Finance directed towards reducing greenhouse gas emissions in line with Paris Agreement goals. | We help organisations embed decarbonisation pathways into actionable strategies. |
| Credible transition plans | Requires clear, robust transition plans to avoid greenwashing and deliver measurable impact. | Our experts design end-to-end strategies to reduce emissions across the value chain, by setting interim and net zero targets, use metrics and Key Performance Indicators (KPIs), and demonstrate internal coherence with the company’s business plan |
| Aligning reporting with global disclosure frameworks | Harmonised and transparent reporting is crucial for building market confidence and enabling effective capital reallocation. | Ensure alignment with the right reporting frameworks and taxonomies. Our experts guide organisations in selecting and implementing the most relevant standards to demonstrate credibility and compliance while driving measurable impact. |
| Environmental & social balance | Incorporates both environmental outcomes and social equity, ensuring a “Just Transition”. | We guide businesses in aligning climate goals with social responsibility commitments. |
| Bridging the investment gap | Unlocks capital for emerging markets and hard-to-abate sectors vital to global climate targets. | We build investment-ready strategies that attract credible sustainable finance. |
 What is Just Transition?
A framework for ensuring the global shift to a low-carbon, climate-resilient economy must achieve both environmental sustainability and social fairness.
At RenoirESG, we offer advisory services to support companies in developing transition plans with clear metrics and targets and ensure eligibility to obtain transition financing. Some of our expertise encompasses:
- Developing the GHG emissions inventory
- Setting science-based emissions reduction targets
- Developing a net-zero plan, inclusive of a decarbonisation pathway and MACC
- Supporting them in becoming eligible to obtain transition finance by developing their required transition plan with clear metrics and targets.
Align your business with Paris Agreement goals through transition finance.
