Transition finance seen as a crucial tool in the fight against climate change in Asia
- The world faces a US$4 trillion funding gap a year to fund emission reduction projects and achieve the global climate goal of containing global warming at 1.5 degrees
- There is a need to build an ecosystem to enable banks to get into the transition field and credibly allocate resources to decarbonisation activities: green finance expert
Transition finance, instruments that fund emission reduction projects by companies in carbon-intensive industries, will grow in importance because of massive funding gap and regulatory support in Asia, even as issuers face reputational risks, according to experts.
“The region’s [decarbonisation] funding gap will remain large given the scale of investment required, but we expect transition finance channelled through the sustainable debt markets to gain momentum, bolstered by governments’ efforts,” Moody’s Ratings said in a report late last month.
“This will enable companies in hard-to-abate sectors to access sustainable debt markets and help attract investor interest to fund established and emerging green technologies.”
There is a US$4 trillion funding gap compared with the US$5 trillion annual investment the world needs to make by 2030 to reach the Paris Agreement’s ambition to contain global warming at 1.5 degrees Celsius by achieving net zero carbon emissions by 2050, the International Renewable Energy Agency estimated last year.
04:44
Cop28 climate summit closes with agreement to ‘transition’ from fossil fuels
While the global sustainable finance market has grown at least tenfold in the past decade, most of the green investments have been channelled into renewable energy and electric vehicles, according to Ma Jun, chairman of Hong Kong Green Finance Association. Transition finance in China that met international standards amounted to just 1 per cent of green finance transactions in 2023, he said.
