Publications

Transitioning into a lower carbon economy has never been more urgent, as the global community witnessed Indonesia set more ambitious energy transition goals. Under Indonesia’s Long-Term Strategy for Low Carbon and Climate Resilience (LTS-LCCR) announced in 2021, Indonesia is attempting to achieve net zero in all sectors by 2060. Funding this transition will be no easy feat, as the annual investment required to transition the global energy sector to achieve net zero by 2050 is estimated to be around USD5 trillion by 2030 and USD4.5 trillion by 2050 (IEA, 2021). Sustainable financing has been considered as one option in pushing finance providers and businesses to operate in line with the decarbonization effort. Through a considerably short time, the capital market has witnessed substantial growth with a variety of sustainable finance instruments ranging from green, social, sustainability, transition and sustainability-linked finance that corporates can opt to issue. The issuance of these instruments is usually based on the requirements from bond standards, such as those issued by the International Capital Market Association (ICMA), ASEAN Capital Markets Forum (ACMF), and Climate Bonds Initiative (CBI). These standards help set the reference for procedures in the issuance, monitoring, and reporting of sustainable bonds. Disclosures required in frameworks (known as core components) include the selection of Key Performance Indicators (KPIs) and calibration of sustainability performance targets (SPTs) for sustainability-linked bonds, the list of eligible projects for project-based sustainable financing instruments, and transition strategy for transition bonds. With a variety of sustainable instruments and their corresponding standards, corporations need to identify the required components to issue these instruments. This paper aims to explore global trends for transition financing, i.e., transition bonds and sustainability-linked bonds (SLBs), by oil and gas companies and how the needed core components have been developed. Through desktop review and trend analysis of the current SLB and transition bond market data, this paper elaborates on the current trends of the core components which have been developed by the oil and gas sector, including the selection of KPIs, calibration of SPTs, disclosure of transition strategies, and use of proceeds within transition finance bonds. The result of this paper is expected to become a reference for corporate decision-makers to identify potential long-term corporate financing for decarbonization.