Asia Transition Finance Guidelines

The Paris Agreement and the COP26 climate summit have triggered ambitious decarbonisation commitments globally, with accompanying public initiatives to craft frameworks for determining the activities that will help meet those commitments. These frameworks, which include pathways to climate (carbon) neutral/net zero, roadmaps, and taxonomies, are essential to attracting investments and financial flows into sustainable projects.

The need for a just and orderly transition has a particular importance in Asia, where decarbonisation trajectories will have to weigh Asia’s continued industrialization and growing demand for energy. They will also have to consider some Asian nations’ current high dependency on fossil fuels, their limited ability to generate renewable energy because of weather conditions or geography, and the intermittent nature of various renewable energies. Just and orderly captures the idea that sustainability can be pursued without jeopardizing the reliability or affordability of energy supplies, and avoiding dislocations and social instability.

Recognising financial Institutions’ (FIs) key role on financing transition activities, there is a need for frameworks that help FIs to assess whether proposed transition activities will allow fundraising entities to meet the targets in the Paris Agreement and fulfill their own countries’ decarbonisation commitments. The Asia Transition Finance (ATF) Study Group was formed as a private-led initiative with participations from banks that operate in Asia, development banks, export credit agencies, and finance associations, to create practical recommendations to supplement existing frameworks when FIs consider and assess transition finance in the face of Asian region decarbonisation challenges.

This ATF Guidelines is the end product of the Study Group and aimed primarily for FIs and other organisations working with FIs on transition finance. It is designed to complement recommendations for labelling debt instruments as a “transition” introduced in the Climate Transition Finance Handbook published by the International Capital Market Association (ICMA) and stretch the recommendations to other financing solutions. This voluntary guidelines outlines practical steps that can be taken to assess whether financing might be suitable as transitional finance in Asia. The ATF Study Group will continue to work with broader stakeholders to further update and enhance the Guidelines based on FIs’ experience and collaborate with other stakeholders to increase understanding of transition finance, promote interoperability, and encourage implementation of support measures.