When Moody's downgraded Poland on 18 Sep (its ratings are now in line with ratings by S&P and Fitch), deteriorating fiscal strength was cited as a primary reason, with the general government deficit expected to remain near 7% of GDP in both 2026 and 2027. Moody’s also pointed to political constraints, including the standoff between the government and the President.[i] For fixed income investors, this standoff has implications for Poland’s energy transition, the success of which could in turn impact the country’s fiscal position.
President Karol Nawrocki, who campaigned against the EU Green Deal, vetoed a bill last year meant to ease rules for building onshore wind farms, and has recently obstructed a windfall tax on fuel firms’ excess profits. This is amidst Poland’s high dependence on fossil fuels: coal generated just over half of Poland's electricity in 2025, and its energy import dependency has risen from 15% to 46% in two decades. When oil prices spiked in March following the start of the Iran conflict, Poland’s 10-year yields rose more than regional peers amid higher inflation,[ii] highlighting the country’s vulnerability to geopolitical energy shocks. Notably, Poland’s increase in 10-year government bond yields is among the highest in the EU this year. A successful transition away from fossil fuels could lower Poland’s sensitivity to global energy shocks and contain inflationary spillovers. That is, if social factors are considered.[iii]
The lesson is broader than Poland. A transition that loses social approval is not simply delayed, but quickly becomes relevant to fixed income investors.
Our approach to just transition
At AFII, we have tested that thinking. Our approach to just transition has three steps. First, is the transition credit relevant for the issuer? Second, do social factors present an execution risk to that transition? Third, what are bonds actually pricing in and are these risks being considered yet?
Take American Electric Power (AEP), one of the largest US utilities. Coal accounts for 50-73% of generating capacity at its Kentucky, Ohio and Appalachian subsidiaries, and rating agencies flag fossil fuel exposure as a credit negative. At the time of our analysis, coal-heavy Ohio Power and Appalachian Power traded with steeper curves than Public Service Company of Oklahoma, where coal is 8% of generating capacity, despite identical ratings. But shorter-dated spreads have moved similarly, suggesting the market is not distinguishing yet between issuers on how well they manage the transition for workers and communities. AEP's own disclosure on just transition has also diminished - it redeployed or retired nearly 90% of workers at its Pirkey plant in Texas from 2021-2023, yet its 2025 Sustainability Report gives just transition a single paragraph.[iv]
Rio Tinto shows the risk on the other side of the transition. The company’s lithium mine in the Jadar Valley in Serbia, estimated to meet around 90% of EU lithium demand, was mothballed in November 2025 after nationwide protests, because it had failed to secure a social licence to operate. This came after the company had already seen its ability to mine the site revoked once by the Serbian government. Due to the social issues at Jadar, Rio Tinto missed the 2023 lithium bull cycle and suffered significant reputational damage. The company’s bond spreads widened after both suspensions, but in line with the broader market. Why did the market shrug off these events? One reason may be that lithium constitutes only 2% of Rio Tinto’s revenue. The cancellation of such projects may become more financially material to bondholders as critical minerals move to the centre of mining business models.[v] The example of Rio Tinto in Jadar highlights how failure to consider social factors can derail significant transition-related projects.
Just transition integration is growing in bond markets
This thinking is beginning to become more widely adopted. In commentary published on 22 Sep, the Just Transition Finance Lab describes ‘social execution risk’ as the risk that projects fail because they lose the trust and acceptance needed to secure a social licence to operate. The authors apply the idea to infrastructure, above all data centres, where 75 projects worth USD130bn were blocked or delayed in Q1 2026 alone.[vi] Social acceptance is a constraint on project delivery but is rarely discussed in company reporting as a genuine risk.
What should investors do? From feedback we’ve gathered this year, more labels do not appear to be the solution. Existing green and social bonds may already fund just transition co-benefits that are rarely being reported. The priority is better, standardised, outcome-based data, such as reporting on the workers reskilled and redeployed, the effects on household bills and the community agreements reached.
Just transition integration in bond issuance is starting to take place - Thailand's framework for its second sovereign sustainability-linked bond recognises the just transition and draws on a dedicated assessment model.[vii] Meanwhile, Bpifrance has issued a social bond, under its existing Social Financing Framework, with at least half its proceeds earmarked for just transition projects.[viii]
Bondholders have a key advantage that equity owners lack – issuers must return to the market to refinance. Every new transaction is a chance to assess how a transition plan will affect people’s lives, and whether these social risks are being addressed. Investors who price the transition without considering its social execution risk are essentially assuming that everyone is on board. The evidence says this is often not the case.
If you would like to watch the recording of our recent research briefing, “Just Transition in fixed income markets”, please contact [email protected].
[i] “Moody's Ratings downgrades Poland's ratings to A3, changes outlook to stable”, Moody’s Ratings, 18 Sep 2026.
[ii] “Fuel prices push Polish inflation higher as energy outlook deteriorates”, ING, 15 Sep 2026.
[iii] “Poland: a just transition case study”, AFII, 1 May 2026.
[iv] “American Electric Power: a just transition case study”, AFII, 30 Jan 2026.
[v] “Rio Tinto: a just transition case study”, AFII, 8 Jun 2026.
[vi] “Social execution risks: a new frontier for infrastructure finance”, Just Transition Finance Lab, 22 Sep 2026.
[vii] “Thailand prepares new SLB issuance”, AFII, 27 Aug 2026.
[viii]“Bpifrance launches 'just transition' social bond”, Environmental Finance, 4 Sep 2026.
