Reforming climate finance: Asia leads in transition finance

The document explores transition finance as a tool for emerging and developing economies, particularly in Asia, to decarbonise high-emitting sectors that struggle to meet strict green finance criteria. It analyses the taxonomies of Japan, Singapore, Hong Kong, and ASEAN, while highlighting risks of 'transition-washing' and the need for science-based targets and independent verification to ensure alignment with 1.5°C pathways.

• Transition finance is specifically targeted at high-emitting sectors that are difficult to decarbonise, filling a gap for emerging and developing economies (EMDEs) that cannot meet the strict criteria of existing sustainable finance regulations, such as the EU's Sustainable Finance Disclosure Regulation (SFDR).
• EMDEs face significant capital barriers; by 2030, private finance must cover 80% of climate mitigation investment needs in EMDEs (rising to 90% excluding China), yet only 60% of emerging markets and 8% of developing economies hold investment-grade sovereign credit ratings.
• Asia is a critical region for transition finance as it contributed approximately half of global carbon dioxide emissions in 2023 and requires at least USD 1.1 trillion in annual investments for climate mitigation and adaptation, leaving an annual funding gap of around USD 800 billion.
• Transition finance in Asia can be applied to heavy industry, such as steel—where Asia produced 73% of the world's supply in 2022—and to the early retirement of coal plants to meet IPCC phase-out targets of 2030 for OECD and 2040 for non-OECD countries.
• Several Asian jurisdictions have developed transition frameworks: Japan uses 'Basic Guidelines' and a JPY 20 trillion GX Economy Transition Bond plan; Singapore employs a 'traffic light system' (green, amber, red) with a 2030 sunset date for amber activities; Hong Kong released a taxonomy in May 2024 covering four sectors; and the ASEAN taxonomy allows new coal plants under specific conditions until 2028.
• There is a significant risk of 'transition-washing,' where finance supports companies without credible plans to align with 1.5°C goals. To mitigate this, the document suggests guardrails including quantitative emissions reduction trajectories, independent external verification of transition plans, and the exclusion of certain activities like natural gas.

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} }