International investors have become more climate-focused, making sectors such as heavy industry and transport less attractive to traditional capital – yet so central to development that they cannot be abandoned. Transition finance, and potentially transition bonds, provide a way through that gap.
Banks in emerging markets are increasingly exploring transition finance to support decarbonization 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 the Commercial International Bank of Egypt (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 customers to upgrade existing infrastructure and align their operations with long-term decarbonization pathways.
“Instead of focusing on new greenfield projects, the Bank prioritizes upgrading existing assets, improving operational efficiency and engaging regional decarbonization pathways in industries critical to Africa’s growth path,” says Islam Zekri, the group’s chief finance and operations officer and member of the executive board.
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 the transition plan in several difficult sectors in Egypt., Which includes oil and gas, electricity, steel and cement.
Elsewhere on the continent, new facilities are emerging to support similar strategies. In late 2025, British International Investment (BII) agreed a $150 million partnership with South Africa's FirstRand to support the development of transition finance frameworks and loan programs aimed at helping high-emission businesses reduce their operations.
building credibility
In capital markets, frameworks such as the International Capital Markets Association (ICMA) Climate Transition Bond Guidelines, published in November 2025, have emerged to support genuine decarbonization and help avoid greenwashing. Investors want assurances that transition-labeled equipment represents real progress in reducing emissions, rather than minor improvements that simply extend the life of high-emitting assets.
Sustainable Fitch says alignment with recognized frameworks has become an important signal for investors assessing transition instruments. “Alignment with ICMA's Climate Transition Bond Guidelines is more than a disclosure exercise and it materially shapes how we assess credibility and risk,” says Daniela Sedlakova, Associate Director of Sustainability at Fitch.
In its second opinion, Sustainable Fitch assesses the specific projects financed by a bond and the issuer's broader transition strategy. This involves examining whether investments are aligned with credible pathways and whether low-carbon options are realistically available within a given sector or geography.
A key concern is the possibility of financing to strengthen rather than phase out high-emission infrastructure. “The difference depends on whether the financing clearly supports a timely decarbonization pathway, or whether it risks extending the life of high emissions activity without a credible pathway,” Sedlakova says.
Emerging markets face additional obstacles in developing credible transition financing strategies. In many cases, issuers are operating with less developed policy frameworks, more limited resources and less access to low-carbon technologies than their counterparts in advanced economies. These obstacles could make it difficult to demonstrate the kind of detailed transition plans that investors are increasingly expecting.
At the same time, the policy infrastructure to support sustainable and transformative finance is gradually developing across Africa. In 2025, the African Development Bank announced the validation of a continent-wide African Sustainable Finance Taxonomy, which aims 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 certain transitional activities where no economically viable low-carbon option yet exists – reflecting the practical realities of decarbonizing heavy industry and energy systems.
The lack of coherent definitions and standards remains one of the biggest obstacles to scaling up transition finance in emerging markets, highlighting the importance of solid frameworks for establishing new finance instruments.
a signaling exercise
While transition-labeled instruments have gained visibility in recent years, their impact on capital allocation has been limited. Advocates argue that they can help channel financing into sectors that cannot immediately shift to low-carbon operations, particularly where economies remain dependent 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 for decarbonizing. “Every market needs green, dynamic and resilient investments,” says Kidney.
Yet the market for transition bonds is relatively early stage, and for Kidney they are still largely a signaling and disclosure tool. “But we are seeing asset managers starting to introduce climate change investment frameworks that are changing that,” he says, pointing to Japanese insurer Nippon Life’s roll-out of its Transition Finance Framework in 2024.
The expansion of transition-labeled instruments into African capital markets will depend on overcoming several structural barriers. Markets remain fragmented and many countries lack a classification and disclosure framework that helps investors compare climate-aligned investments across different jurisdictions.
“The main barriers to scaling transition-labeled instruments in African capital markets include the absence of regional classification, persistent data gaps, challenges posed by macroeconomic instability, and high capital environment costs,” says Zekri.
At the moment, transition finance in Africa is emerging more through bank structures, hybrid finance structures and development finance partnerships than through a pipeline of labeled transition bonds.
Stronger common standards, deeper investor confidence and more developed domestic capital markets will all help transition-labelled instruments play an important role in mobilizing capital for African decarbonisation. But the obstacles remain substantial, meaning that the transitional bond market in Africa still looks some way off.