International investors are ever more climate-focused, making sectors such as heavy industry and transport less attractive to conventional capital — yet too central to development to abandon. Transition finance, and potentially transition bonds, offer a way through that gap.
Banks across emerging markets are increasingly exploring transition finance as a way to support decarbonisation in sectors that cannot rapidly shift to low-carbon alternatives. Rather than focusing exclusively on new renewable projects, the emphasis is on helping industries reduce emissions through incremental technological and operational improvements.
At Egypt’s Commercial International Bank (CIB), transition finance has become a central part of how the lender approaches sectors such as energy, heavy industry and real estate. The bank is working with clients to upgrade existing infrastructure and align their operations with longer-term decarbonisation pathways.
“Rather than focusing on new greenfield projects, the bank prioritises upgrading existing assets, improving operational efficiency, and embedding sectoral decarbonisation pathways into industries critical to Africa’s growth trajectory,” says Islam Zekry, Group Chief Finance and Operation Officer and Executive Board Member.
Partnerships with development finance institutions (DFIs) are also beginning to shape how transition finance develops in African markets. In early 2025, CIB announced a collaboration with the International Finance Corporation (IFC) to support transition planning across several hard-to-abate sectors in Egypt, including oil and gas, power, steel and cement.
Elsewhere on the continent, new facilities are emerging to support similar strategies. In late 2025, British International Investment (BII) agreed a $150m partnership with South Africa’s FirstRand to support the development of transition finance frameworks and lending programmes aimed at helping high-emitting businesses decarbonise their operations.
Building Credibility
In capital markets, frameworks such as the International Capital Market Association’s (ICMA) Climate Transition Bond Guidelines, published in November 2025, have emerged to help support genuine decarbonisation and avoid greenwashing. Investors want assurance that transition-labelled instruments represent real progress in lowering emissions, rather than marginal improvements that extend the life of high-emitting assets.
Sustainable Fitch says alignment with recognised frameworks has become an increasingly important signal for investors assessing transition instruments. “Alignment with ICMA’s Climate Transition Bond Guidelines is more than a disclosure exercise and does materially shape how we assess credibility and risk,” says Daniela Sedlakova, associate director at Sustainable Fitch.
In its second-party opinions, Sustainable Fitch assesses the specific projects financed by a bond and the issuer’s broader transition strategy. This includes examining whether investments align with credible pathways and whether low-carbon alternatives are realistically available within a given sector or geography.
A key concern is the potential for financing to entrench high-emissions infrastructure rather than accelerate its phase-out. “The distinction comes down to whether the financing clearly supports a time-bound decarbonisation pathway, or whether it risks extending the life of high-emissions activity without a credible route forward,” Sedlakova says.
Emerging markets face additional hurdles in developing credible transition financing strategies. In many cases, issuers are working with less developed policy frameworks, more limited resources and less access to low-carbon technologies than their counterparts in advanced economies. These constraints can make it harder to demonstrate the type of detailed transition plans that investors increasingly expect.
At the same time, policy infrastructure across Africa is gradually evolving to support sustainable and transition finance. In 2025, the African Development Bank announced the validation of a continent-wide African Sustainable Finance Taxonomy intended to provide common definitions for climate-aligned investments and improve comparability across markets.
National frameworks are also emerging. South Africa has developed a green finance taxonomy that explicitly allows for certain transitional activities where no economically viable low-carbon alternative yet exists — reflecting the practical realities of decarbonising heavy industry and energy systems.
The lack of consistent definitions and standards remains one of the biggest obstacles to scaling transition finance in emerging markets, highlighting the importance of sound frameworks on which to anchor new finance instruments.
A Signalling Exercise
While transition-labelled instruments have gained visibility in recent years, their influence on capital allocation remains limited. Advocates argue that they can help channel financing into sectors that cannot immediately shift to low-carbon operations, particularly where economies remain reliant on energy-intensive industries.
Sean Kidney, CEO of the Climate Bonds Initiative, says there is no market in the world that can rely exclusively on green financing to decarbonise. “Every market needs green, transition and resilience investments,” says Kidney.
Yet the market for transition bonds remains relatively early stage, and for Kidney they are still largely a signalling and disclosure tool. “But we are seeing asset managers start to roll out climate transition investment frameworks that are changing this,” he adds, pointing to Japanese insurer Nippon Life’s roll-out of its Transition Finance Framework in 2024.
Scaling transition-labelled instruments in African capital markets will depend on addressing a range of structural barriers. Markets remain fragmented and many countries lack the taxonomies and disclosure frameworks that help investors compare climate-aligned investments across jurisdictions.
“The main barriers to scaling transition-labelled instruments in African capital markets include the absence of regional taxonomies, persistent data gaps, the challenges posed by macroeconomic volatility, and higher capital environment costs,” says Zekry.
For now, transition finance in Africa is emerging more through bank frameworks, blended finance structures and development finance partnerships, than through a pipeline of labelled transition bonds.
Stronger common standards, deeper investor confidence and more developed domestic capital markets would all help transition-labelled instruments play an important role in mobilising capital for African decarbonisation. But the hurdles remain substantial, meaning a transition bond market in Africa still looks some way off.
