Reforming climate finance: Asia leads in transition finance

This briefing by Zero Carbon Analytics examines the role of transition finance in decarbonising high-emitting sectors, with a particular focus on Asia. It discusses the challenges emerging and developing economies face in accessing climate finance, the various transition taxonomies being developed in Asian markets, and the risks of 'transition-washing'. The document advocates for more robust guardrails, such as science-based targets and independent verification of corporate transition plans, to ensure financial flows align with the 1.5°C goal of the Paris Agreement.

• Transition finance is specifically defined in this briefing as finance intended for high-emitting sectors to decarbonise, distinguishing it from broader 'economy-wide' or 'climate transition' definitions. The document notes that the term 'hard-to-abate' is often confusing for investors because there is no universal agreement on which sectors it covers, though cement, chemicals, shipping, and aviation are common examples.
• Emerging and developing economies (EMDEs) face significant barriers to attracting private climate finance. Many struggle with strict international regulations, such as the EU's Sustainable Finance Disclosure Regulation (SFDR), due to a lack of necessary data; for example, only 39% of companies in a key emerging markets index disclose Scope 1 and 2 emissions. Additionally, only 60% of emerging markets and 8% of developing economies possess an investment-grade sovereign credit rating, increasing borrowing costs and risk.
• Asia is a critical region for transition finance as it contributed approximately half of global carbon dioxide emissions in 2023. The region faces a significant funding gap, requiring at least USD 1.1 trillion in annual investments for climate mitigation and adaptation, while current investment lags by about USD 800 billion per year.
• Several Asian jurisdictions have developed transition finance frameworks to guide investors and prevent 'transition-washing'—the practice of financing high-emission activities while claiming to transition. These include: - Hong Kong: Released a taxonomy in May 2024 covering 12 activities across four sectors. - Japan: Issued Basic Guidelines on Climate Transition Finance in May 2021 and plans to issue JPY 20 trillion (USD 144 billion) in GX Economy Transition Bonds over 10 years. - Singapore: Launched the Singapore-Asia Taxonomy at COP28 using a 'traffic light system' (green, amber, red) with a sunset date of around 2030 for amber activities. - ASEAN: Released a regional taxonomy in November 2021 (updated April 2024) using a similar traffic light system, though critics note it may allow new coal plants until 2028.
• To ensure transition finance aligns with the 1.5°C pathway and avoids 'carbon lock-in', the document suggests implementing guardrails. These include establishing clear definitions and boundaries for eligible activities, using robust classification standards with required emissions reduction trajectories, and requiring companies to disclose science-based targets and detailed transition plans.
• The global transition bond market remains small and volatile. Total issuance for transition bonds in 2022 and 2023 was only USD 3 billion, representing less than 1% of annual sustainable bond issuance, with total global issuance standing at approximately USD 33 billion.

APA

Team, Z. (2024). Reforming climate finance: Asia leads in transition finance. Zero Carbon Analytics. https://zerocarbon-analytics.org/finance/reforming-climate-finance-asia-leads-in-transition-finance/

Chicago

Team, ZCA. Reforming climate finance: Asia leads in transition finance. Zero Carbon Analytics, 2024. https://zerocarbon-analytics.org/finance/reforming-climate-finance-asia-leads-in-transition-finance/.

Wikipedia

{{cite report |last1=Team |first1=ZCA |title=Reforming climate finance: Asia leads in transition finance |publisher=Zero Carbon Analytics |date=9 October 2024 |url=https://zerocarbon-analytics.org/finance/reforming-climate-finance-asia-leads-in-transition-finance/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{team2024reforming, author = {Team, ZCA}, title = {{Reforming climate finance: Asia leads in transition finance}}, institution = {Zero Carbon Analytics}, year = {2024}, month = oct, url = {https://zerocarbon-analytics.org/finance/reforming-climate-finance-asia-leads-in-transition-finance/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }