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Asia Transition Finance(ATF) Activity Report
September 2022 (1st Edition)

Table of Contents
1 INTRODUCTION

3

1.1

Call to action

4

1.2

Importance of transition finance in Asia

4

2 OVERVIEW OF STUDY GROUP ACTIVITY

5

2.1

Study Group set-up, members of Study Group6

2.2

Study Group Activity

6

2.3

Challenges identified

7

2.4

Outcomes

7

3 SUGGESTED SUPPORT MEASURES FROM GOVERNMENTS AND STAKEHOLDERS

8

3.1

Create sector-level or country-level pathways and technology roadmaps for Asia

9

3.2

Consideration of a just and orderly transition in accelerating decarbonization

9

3.3

Financing or stakeholder support for transition finance /pilot cases in Asia

9

3.4

Promote the interoperability of regional and country taxonomies

10

3.5

Create guidelines on the role of carbon credits in transition finance

10

3.6

Development of transition support for SMEs:

10

3.7

Promote acquisition and development of relevant skills to transition technologies

10

4 CONCLUDING REMARKS

11

2

INTRODUCTION
Governments, regional bodies and business organizations are alltaking measures to tackle climate change. They are building
frameworks for designing strategies and pathways to lower theircarbon emissions. Countries all over the world are now required
under the Paris Agreement to act.
Most frameworks focus on green, zero-emission activities.
However, transition activities are also important globally andparticularly in Asia, where the demand for energy is growing, fossil
fuels are currently heavily used, and the potential for renewables
varies by country. As such, frameworks should accommodate
transition activities, which allow for a more gradual progression
toward climate (carbon) neutral/net zero.
For financial institutions (FIs), the unique circumstances of Asian
countries create a challenge. FIs should determine whether the
proposed transition activities will allow fundraising entities to meet
the targets in the Paris Agreement and fulfill their own countries’
decarbonization commitments. Only then can transition financing
start to flow in Asia and contribute to decarbonization objectives.

3

1.1 CALL TO ACTION
The Paris Agreement and the COP26 climate
summit have triggered ambitious decarbonizationcommitments globally, with accompanying public
initiatives to craft frameworks for determining theactivities that will help meet those commitments.
These frameworks, which include pathways toclimate (carbon) neutral/net zero, roadmaps, andtaxonomies, are essential to attracting investments
and financial flows into sustainable projects.
For example, China, Indonesia, Malaysia andSingapore are among the Asian countries that havedeveloped or are developing taxonomies as of
September 2022. ASEAN is also developing one.
The taxonomies use different classification
systems, but they all cover green, zero-emission
activities as well as transition activities.

FIs are also playing a key role. For example, theNetwork for Greening the Financial System(NGFS), a body of central banks and supervisors,
has developed six emission scenarios (four ofwhich are climate (carbon) neutral/net zero
scenarios) that help analyze the possible impact ofclimate change on the economy and financial
system. And in April 2022, the UN Special Envoy
for Climate Action and Finance, Mark Carney, andthe COP26 Presidency launched the Glasgow
Financial Alliance for Net Zero (GFANZ). Its stated
aim is to publish recommendations and guidelines
to help FIs develop and implement credible, highambition climate (carbon) neutral/net zerostrategies. Its Recommendations and Guidance,
Financial Institution Net-zero Transition Plans(June 2022 edition), for example, describes how
FIs can operationalize their climate (carbon)
neutral/net zero commitments and support the realeconomy transition.

1.2 IMPORTANCE OF TRANSITIONFINANCE IN ASIA

The need for a just and orderly transition explains
the particular importance of transition activities in
Asia, where decarbonization trajectories will haveto weigh Asia’s continued industrialization andgrowing demand for energy to support it. 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. Though theInternational Energy Agency estimates that the
supply of renewable energy in Asia-Pacificcountries will increase by 42 exajoules or 11
percent by 2040, it will still only account for some
20 percent of the region’s total supply, given strong
rising demand. That same year, renewable energy
will account for 35 percent of Europe’s total
supply.2
Despite this, most frameworks and guidelines that
can help financiers assess decarbonization
activities have focused on green activities, nottransitional ones. Some organizations are
beginning to address this gap. For example, in
2020 the International Capital Market Association(ICMA) published its Climate Transition FinanceHandbook (the ICMA Handbook), recommending
the fundraisers to credibly position their debt astransition finance via suggested disclosures.
Private and public institutions are beginning to form
coalitions as well. For instance, the Asia Energy
Transition Initiative, a government-led international
collaboration in Asia, was created to accelerateenergy transition in May 2021, where transition
finance is one of the main focuses. Under suchcircumstances, the Asia Transition Finance (ATF)
Study Group, a private-led initiative whose core
participants are Asian and global banks, was set up
to identify challenges in accelerating transition
finance and help address them, contributing to theglobal initiatives underway. Nevertheless,obstacles remain (to be explained in Chapter 2.3).

There is a growing recognition of the importance ofjust and orderly climate transitions. Just andorderly captures the idea that sustainability can be
pursued without jeopardizing the reliability oraffordability of energy supplies. Avoiding
dislocations and social instability is also part of thejust and orderly concept. Recent energy supply
disruptions in Europe and globally havedemonstrated how quickly and deeply fossil fuelshortages—often unanticipated—can hurt
economies in the absence of sufficient renewablesupplies to replace them 1
1.

2.

In Europe starting in 2021, gas demand threatened to exceed supply, and this reinforced the importance of alternative energy sources. The
diminished supply also prompted European policymakers to secure their traditional sources of fossil fuel energy, to avoid a situation in which
their citizens would pay excessively high prices for energy—or not have access to it at all (see details in the ATF Guidelines Chapter 1).
Based on IEA data from IEA (2021) World Energy Outlook, www.iea.org/statistics, All rights reserved; as modified by The Asia Transition
Finance Study Group.

4

OVERVIEW OF
STUDY GROUPACTIVITY5

2.1 STUDY GROUP SET-UP, MEMBERS OF STUDY GROUP
The ATF Study Group was set up in recognition of the important role that transition finance will play inhelping Asian economies move toward climate (carbon) neutral/net zero emissions and the challenges FIs
can face in assessing the suitability of corporate plans and projects for transition finance. The ATF Study
Group is designed as a cross-border initiative across the region, recognizing that transition activities
sometimes need to be financed beyond national boundaries. The core members of the ATF Study Groupare Asian and global banks. Development banks, export credit agencies, public agencies and financeassociations also participate.
The current participants represent a starting point. The ATF Study Group expects to expand, and newparticipants will be welcomed.

Exhibit 1:​Category​Coremembers of
Study Group​Participants​Commercial
banks (19)






​Observersof StudyGroup​Developmentbanks, ECAs,
and others (6)MUFG Bank
Mizuho Financial Group
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui TrustBank​(Multilateral) International FinanceCorporation​Public agencies and financeassociations (13) 

ASEAN Taxonomy Board
Sustainable FinanceInstitute Asia
The International CapitalMarket Association








​(State-affiliated) Development Bank ofJapan Japan Bank forInternational Cooperation







​Knowledge
Contributor
(4)






Bank Mandiri
Bank Danamon
Maybank
BDO Unibank
Security Bank
United Overseas Bank

Australian Government
Ministry of Energy andMineral Resources,
Indonesia
Ministry of Finance,
Indonesia
Ministry of Finance, JapanBank of Ayudhya
Kasikornbank
VietinBankExport-Import Bank ofThailandNippon Export andInvestment Insurance














Macquarie
Barclays Bank
Standard Chartered BankHSBC
UBS
Citibank​(Commercial) DBS Bank

Financial Services Agency, Japan
Ministry of Economy,
Trade and Industry, Japan 
Economic Planning Unit,
MalaysiaDepartment of Energy,
Republic of thePhilippines
Ministry of Energy,
ThailandJapanese Bankers
Association

DNV
ERIA
JCR
Moody’s

2.2 STUDY GROUP ACTIVITY
To date, the ATF Study Group has held fourlearning sessions to help deepen members’
knowledge of topics related to transition finance.
Topics explored include: Individual countries’ decarbonizationcommitments/pledges in Asia
 Relevant guidelines and frameworks, such as
those issued by the ICMA Reference documents/information on
decarbonization—for example, decarbonization
pathways, taxonomies, and technology
roadmaps Other transition initiatives—for example, climaterelated activities
 Types of transition technologies and their role inearly decarbonization efforts that are alignedwith the Paris Agreement

Also, the ATF Study Group conducted nine Study
Group sessions (SG) to discuss and understandthe challenges that are relevant to transition
finance in Asia and to develop guidelines that
supplement existing frameworks, including global
ones. Topics explored include: Approaches of green and transition finance taken
across Asia and other markets
 Challenges FIs face in assessing transition
finance in Asia (detailed in Chapter 2.3)
 Practical guidelines for transition financeassessment in the context of Asia
 Case studies of transition finance across Asia
Based on these discussions, the ATF Study Group
presented an interim report summarizing its
activities and progress in April 2022 at the Asia
Green Growth Partnership Ministerial Meeting.

6

2.3 CHALLENGES IDENTIFIEDThe ATF Study Group identified a range ofchallenges to transition finance in Asia. It drew on
hypothetical case studies to help understand theseobstacles, while also examining real-world
situations. Challenges identified include:

I. Differing standards. Practitioners should
navigate several different standards andtaxonomies, each with its own requirements. the
ICMA Handbook, which provides recommendations
for transition bonds, is recognized by many
practitioners as the foundation of what should beconsidered transition finance, even for instruments
other than bonds. However, it is unclear how
certification under one standard can be transferredto certification under other taxonomies; that is,there is uncertainty regarding the interoperability of
the ICMA Handbook, ASEAN taxonomy, and othertaxonomies developed or under development by
individual countries.
II. Assessment complexity and referencematerial. A limited number of globally recognizedpractical approaches describe how to assess anactivity’s suitability for transition finance.

2.4 OUTCOMES
Various real transition finance cases were shared
among the ATF Study Group members to deepen
the group’s understanding of actual practices. The
ATF Study Group also developed hypotheticalcases to identify challenges and potential
approaches.
That work has led to The ATF Guidelines, apractitioner’s manual (attached to this report) thatFIs can use to assess transition finance. The ATF
Study Group has also made recommendations togovernments and other stakeholders about themeasures they might take to support transition
finance.
In its interim report in April 2022, the ATF Study
Group recognized a need for a technology
roadmap, or something similar, that FIs could use
in transition finance. In response, the Economic
Research Institute for ASEAN and East Asia
(ERIA) published the Technology List andPerspectives for Transition Finance in Asia (not as
part of the ATF Study Group’s activities)

III. Localized references. Transition solutions arecontext-specific, making localized references
critical for evaluation. However, Asia doesn’t yet
have many official national and sectoral pathways
to climate (carbon) neutral/net zero that are alignedwith the Paris Agreement. Because of thislimitation, necessary support, particularly frompublic entities, should be listed and proposed togovernments.
IV. Limited track record. FIs have limited caseexamples to use as reference points when trying toassess or develop transition finance, especially theones aligned with the ICMA Handbook.

7

SUGGESTEDSUPPORT
MEASURES FROMGOVERNMENTS ANDSTAKEHOLDERS

8

Based on discussion through the 4 Learning
Sessions and 9 Study Group sessions, the ATF
Study Group identified various ways in whichgovernments and other stakeholders canaccelerate efforts to overcome the challenges thatFIs face in assessing the suitability of corporate
plans and projects for transition finance. Whatfollows are the ATF Study Group’s suggestions forgovernmental and intergovernmental agencies andinternational organizations involved indecarbonization pathways and taxonomies:

3.1 CREATE SECTOR-LEVEL OR
COUNTRY-LEVEL PATHWAYS ANDTECHNOLOGY ROADMAPS FOR ASIA
FIs require tools to assess whether corporate
strategies and project plans are credible andcompliant with the Paris Agreement and therefore
suitable for transition finance. To help FIs fill thiscritical void, the Study Group strongly encourages
government agencies in charge of energy (orothers) to create sector- and country-level
decarbonization pathways and technology
roadmaps, which are equipped with the following
characteristics:

 Globally recognized. They should be linked to
the Paris-aligned climate (carbon) neutral/net
zero scenarios with science-based targets andendorsed by international organizations. This will
also facilitate their interoperability with otherstandards and taxonomies.

 Granular. Considerable detail should be
provided if pathways and roadmaps are todemonstrate alignment with the Paris
Agreement. Such detail is also required forfinanciers to assess the risk of lock-in with noncompliant assets. It’s necessary to know, forexample, when transitional technologies will be
replaced with green ones to ensure climate(carbon) neutral/net zero emissions by anagreed year.

 Feasible. The pathways and roadmaps shouldhave clear targets that reflect national economic
and development policies. This will facilitate cofinancing of activities by FIs and local
governments. The roadmaps also need to beflexible, with the ability to incorporate
technological change and policy updates.

3.2 CONSIDERATION OF A JUSTAND ORDERLY TRANSITION IN
ACCELERATINGDECARBONIZATION
A just and orderly transition will depend on thefinancing of transition activities in addition to green
finance, particularly in Asian countries that are
currently highly dependent on fossil fuels to meet afast-growing energy demand. In developing rightly
balanced policies on transition finance to secure ajust and orderly transition, relevant governmental
agencies are to consider how to ensure thereliability of energy supplies and their affordability
for governments and their citizens, maintaining
social stability (see details in the ATF Guidelines
Chapter 1).

3.3 FINANCING ORSTAKEHOLDER SUPPORT FOR
TRANSITION FINANCE/PILOTCASES IN ASIA
Success stories can be used as a reference forsubsequent projects and to accelerate transition
finance. It is important for governmental andintergovernmental agencies, as well asinternational organizations, to work together tocreate reference material, by providing: Support or incentives for corporations to create
decarbonization strategies (for instance,
subsidizing the cost of getting assessed bySecond Party Opinion providers) Proof-of-concept transition projects supported by
the government or led by government entities(for instance, showcasing examples of effective
corporate transition finance efforts on
governments websites) Alignment between development financial
institutions’ strategies

 Public financing support such as concessional
finance, equity injection, ECA finance, financial
incentives and broader risk-sharing (blended
finance) Incentives for corporations and FIs (such as
warranty periods and de-risking for FIs, carbon
credits for corporation)

 A database or digital platform for successful
decarbonization projects

9

3.4 PROMOTE THE
INTEROPERABILITY OF REGIONALAND COUNTRY TAXONOMIESAs mentioned, several taxonomies are being
developed by countries in Asia. In addition,
ASEAN, an intergovernmental organization, is also
developing a regional taxonomy and has set up the
ASEAN Taxonomy Board (ATB) to help it in thiswork. The ATF Study Group encourages anongoing dialogue between intergovernmentalorganizations such as ATB and the governments of
ASEAN countries to ensure the interoperability of
their taxonomies.

3.5 CREATE GUIDELINES ON THE
ROLE OF CARBON CREDITS IN
TRANSITION FINANCE
Carbon credits could be included in corporate or
project decarbonization plans, and if they are, they
may be part of the transition finance assessment.
However, some global climate finance standards
and taxonomies do not support carbon credits fortransition finance. Other global standards, on theother hand, do not mention the use of carbon
credits in the guidelines or taxonomy. Although the
ATF Study Group recognizes the challenges ofdoing so, given divergent views among
stakeholders, creation of practical guidelines for theuse of carbon credits in assessing transition
finance suitability may be needed.

3.6 DEVELOPMENT OF
TRANSITION SUPPORT FOR
SMES
The current guidelines for those wishing to raisetransitional funds are challenging for small- andmedium-sized enterprises (SMEs). SMEs seldom
have the resources to create the necessary
decarbonization strategy or comply with otherdisclosure requirements, making it hard for FIs toassess their progress toward climate (carbon)
neutral/net zero. Therefore, tailored approaches
are needed to promote and support efforts by
SMEs to decarbonize their activities. These
approaches could include the development of new
frameworks by credible international organizations,and governmental support for SMEs’ transitions
with clear guidance (such as creation of
decarbonization roadmaps/guidelines for SMEs).
One foreseeable challenge revolves around thedefinition of an SME, which could vary acrosscountries. Relevant stakeholders in any SME
initiative should keep this in mind as theycollaborate to come up with unified clear guidanceacross countries.

3.7 PROMOTE ACQUISITION AND
DEVELOPMENT OF RELEVANT
SKILLS TO TRANSITIONTECHNOLOGIESIn order to implement transition technologies,
talents with relevant cutting-edge skills
indispensable. Moreover, said technologies
possess nature of fast innovating, and hence it isrequired for such talents to keep renewing theirskillsets. There is a strong need for governmental
and intergovernmental agencies to set standards ofskills required to utilize top-notch technologies andpromote trainings of these skills to cultivate talents
which meet the standards. In such efforts, technicalcooperation between countries is an effective way
to accelerate technology and knowledge spillovers.

10

CONCLUDINGREMARKS11

CONCLUDING REMARKSThe ATF Study Group would like to thank all those who have assisted its work so far. The job continues,
and the suggestions and guidelines made in this and other documents will evolve in line with continuing
discussions and growing experience in transition finance.

The ATF Study Group will continue to collaborate with broader stakeholders and meet regularly, workingto: Update and enhance the ATF Guidelines. The ATF Study Group will update its Guidelines based on
the experience of FIs that use them, on their feedback and on their suggestions for improvement. Othersuggestions relevant to transition finance will also be reflected.

 Collaborate further with stakeholders. The ATF Study Group will continue to try to collaborate withgovernments and other bodies such as intergovernmental organizations to ensure that the ATF
Guidelines are interoperable with other frameworks. It will work with FIs beyond those in the ATF Study
Group to increase its understanding of transition finance and promote use of its Guidelines.

 Encourage implementation of support measures. The ATF Study Group will encourage governments
and other relevant stakeholders to implement the support measures described in Chapter 3, such as
stipulating relevant pathways in each sector and each Asian country and introducing incentives that willencourage businesses to engage in transition activities.

12

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ASIA TRANSITIONFINANCE GUIDELINES
1st Edition
September, 2022

CONTENTS
FOREWORD AND ACKNOWLEDGEMENT

4

Chapter 1
Introduction to Asia Transition Finance Guidelines

6

1.1

Introduction

7

1.2

Structure of ATF Guidelines

12

Chapter 2
WHAT ATF GUIDELINES ADDRESSES

13

Chapter 3
OVERVIEW OF RELEVANT FRAMEWORKS (KNOWLEDGE REPOSITORY)

15

3.1

Role of different guidelines and frameworks in supporting transition finance

16

3.2

Guidelines: ICMA Handbook

17

3.3

Decarbonization pathways

19

3.4

Taxonomies, technology roadmaps, technology lists

20

3.5

Carbon credit

22

Chapter 4
PRACTITIONER’S GUIDELINES

24

4.1

Intended audience

25

4.2

How to use ATF Guidelines

25

4.3

Step 1. Communicate with fundraisers

27

4.4

Step 2. Assess transition finance suitability

29

Chapter 5
ASSESSING CORPORATE STRATEGY

33

5.1

Step 2-A. Basic approach for assessing corporate strategy

34

5.2

Step 2-B. Interim approach for assessing corporate strategy

36

5.3

Introduction to case studies

39

Chapter 6
ASSESSING USE-OF-PROCEEDS

43

6.1

Step 2-A. Basic approach for assessing UoP

44

6.2

Step 2–B. Interim approach for assessing UoP

47

6.3

Introduction to case studies

49

Appendix55
2

LIST OF ABBREVIATIONS
ACT
AFOLU
APAC
APLMA
ASEAN
ATB
ATF
BAU
CAPEX
CCGT
CCS
CCUS
CN
CO2
CO2 e
DNSH
ERIA
ESG
EU
FI
FY
GDP
GFIT
GHG
IATA
ICMA
IEA
IFC
ITMO
JPY
KPI
LMA
LSTA
METI
MLITT
NDCs
NGFS
NGO
OCGT
OECD
OPEX
R&D
SBTi
SDS
SPO
SPS
TCFD
UoP
USAID
VCMI
WWF

Assessing low carbon transition
Agriculture, forestry, and other land use
Asia PacificAsia Pacific Loan Market Association
Association of Southeast Asian Nations
ASEAN Taxonomy Board
Asia Transition FinanceBusiness-as-usual
Capital expenditure
Combined-cycle gas turbine
Carbon capture and storage
Carbon capture, utilization and storage
Carbon neutral
Carbon dioxide
Carbon dioxide equivalent
Do No Significant Harm
Economic Research Institute for ASEAN and East Asia
Environment, social, and corporate governanceEuropean Union
Financial institution
Fiscal year
Gross Domestic ProductGreen Finance Industry Taskforce
Greenhouse gases
International Air Transport Association
International Capital Market Association
International Energy Agency
International Finance Corporation
Internationally transferred mitigation outcome
Japanese Yen
Key performance indicator
Loan Market Association
Loan Syndications & Trading Association
Ministry of Economy, Trade and Industry
Ministry of Land, Infrastructure, Transport and Tourism
Nationally Determined Contributions
Network for Greening the Financial System
Non-governmental organization
Open cycle gas turbine
Organization for Economic Co-operation and Development
Operating expense
Research & Development
Science Based Targets initiatives
Sustainable development scenario
Second party opinion
Stated policies scenario
Task Force on Climate-related Finical Disclosure
Use-of-proceeds
United States Agency for International Development
Voluntary Carbon Markets Integrity Initiative
World Wildlife Fund for Nature
3

FOREWORD AND
ACKNOWLEDGEMENT
The Asia Transition Finance (ATF) Study Group is a private initiative led by Asian and global
banks. It was set up in recognition of (i) the important role that transition finance will play inhelping Asian economies move toward climate (carbon) neutral/net zero emissions and (ii) the
challenges financial institutions (FIs) can face assessing the suitability of corporate plans andprojects for transition finance.
The ATF Study Group has held nine Study Group sessions that aim to understand thechallenges that are particularly relevant to transition finance in Asia and to develop guidelinesthat will supplement existing frameworks, including global ones, to address those challenges.
The Study Group presented an interim report at the Asia Green Growth Partnership Ministerial
Meeting in April that compiled the discussions from the learning and working sessions.
The Asia Transition Finance Guidelines (ATF Guidelines) is the end product of the Study Groupsessions. This document is principally for FIs that are starting to provide transition finance andthat need support making the necessary assessments. It is also useful to companies and otherorganizations working with FIs on transition finance. The guide 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. The ATF Guidelines outlines
practical steps that can be taken to assess whether financing might be suitable as transitional
finance in Asia1. As its name suggests, the ATF Guidelines provides references regardingtransition finance, case by case judgement is subject to each FI’s responsibility such as how tofollow the outlined steps. There is no guarantee that in doing so, the financing will be labeled astransition finance. On a side note, the case examples listed in the ATF Guidelines are selectedfrom the cases discussed and studied in the Study Group sessions.
We would like to thank all those who have assisted in the work of the ATF Study Group andcontributed to this report. The core members of the ATF Study Group are currently Asian andglobal banks, and observers from development banks, export credit agencies, public
associations and other finance associations also participated. We also thank the knowledge
contributors who have provided expertise and helped us to bring together the ATF Guidelines(Exhibit 1).

1 Transition labels are certified through further assessment which could include the one by a second party opinion (SPO)
provider. The ATF Guidelines intends to focus on assessing process for FIs. It should be noted that the ATF Guidelines
does not intend to imply whether projects without transition labels should be financed or not at all.

4

Exhibit 1​Category​Coremembers of
Study Group​Participants​Commercial
banks (19)






​Observersof StudyGroup​Developmentbanks, ECAs,
and others (6)MUFG Bank
Mizuho Financial Group
Sumitomo Mitsui Banking
Corporation
Sumitomo Mitsui TrustBank​(Multilateral) International FinanceCorporation​Public agencies and financeassociations (13) 

ASEAN Taxonomy Board
Sustainable FinanceInstitute Asia
The International CapitalMarket Association








​(State-affiliated) Development Bank ofJapan Japan Bank forInternational Cooperation







​Knowledge
Contributor
(4)






Bank Mandiri
Bank Danamon
Maybank
BDO Unibank
Security Bank
United Overseas Bank

Australian Government
Ministry of Energy andMineral Resources,
Indonesia
Ministry of Finance,
Indonesia
Ministry of Finance, JapanBank of Ayudhya
Kasikornbank
VietinBankExport-Import Bank ofThailandNippon Export andInvestment Insurance














Macquarie
Barclays Bank
Standard Chartered BankHSBC
UBS
Citibank​(Commercial) DBS Bank

Financial Services Agency, Japan
Ministry of Economy,
Trade and Industry, Japan 
Economic Planning Unit,
MalaysiaDepartment of Energy,
Republic of thePhilippines
Ministry of Energy,
ThailandJapanese Bankers
Association

DNV
ERIA
JCR
Moody’s

5

CHAPTER 1
INTRODUCTION TO
ASIA TRANSITIONFINANCE GUIDELINES

6

1.1 INTRODUCTION

The urgent need for decarbonization is globally recognized, though it remains unclear exactly how
countries will transition to climate (carbon) neutral/net zero emissions within the time frames set out in the
Paris Agreement. What is clear, however, is that FIs will play an important role in financing the activities
that will support the transition. Under the Net Zero scenario from the International Energy Agency (IEA), theglobal average annual energy investment in electricity, infrastructure and end-use needs to increasesignificantly to $1,097, $1,025 and $2,266 billion USD, respectively, by 2050 (Exhibit 2). An increasing
number of FIs are now taking business sustainability and climate transition into consideration when making
investment decisions, which highlights the importance of the degree of a business entity’s decarbonization
efforts.

Exhibit 2

Global Average Annual Energy Investment Requirements by Sector and
Net Zero Emissions Technology by 2050 Scenario (Billion USD)
​Electricity​Infrastructure​End-use​2,266​Fossil fuels
without CCUS

​Fossil fuels​Fossil fuels withCCUS

​EV chargers​Renewables​Electricity grids​Hydrogen​Efficiency​Hydrogeninfrastructure​Nuclear​Renewables​Electrification​CCUS​Direct air capture​Battery storage​Fossil fuels​CO₂ transportand storage​1,097​Others​1,025​752​498​2016-20​498​2041-50​2016-20​2041-50​2016-20​2041-50

Source: Based on data from International Energy Agency (2021) Net Zero by 2050: Net Zero by 2050 Scenario - Data product – IEA, https://www.iea.org/data-and-statistics/dataproduct/net-zero-by-2050-scenario, as modified by The Asia Transition Finance Study Group

It is also clear that different countries will need to take different decarbonization pathways (see Chapter 3
for details). There are myriad decarbonization opportunities in Asia, but these will need to weigh Asia’scontinued industrialization, which is accompanied by a growing demand for energy. Many Asian nations
also have a high dependency on fossil fuels. The IEA estimates that the supply of renewable energy in
Asia-Pacific countries will increase by 42 exajoules or 11 percent by 2040, but that it will still only accountfor some 20 percent of the region’s total supply, given strong rising energy demand. That same year,
renewable energy will account for 35 percent of Europe’s total supply (Exhibit 3).

7

Exhibit 3

Total Energy Supply Breakdown (exajoules)​Renewable energy supply​Other energy supply​APAC​Europe​USA

Rest of the World

​329

​259
​26 (10%)​68 (21%)
​+42
​228

​+27

​41 (18%)​164​18 (11%)

234

​2020

1. Share in parenthesis

261

​2040
(stated policies2)​77​14 (18%)

​+11

63

​-16

​2020

​71
​25 (35%)47​2040(stated policies2)​ 88​10 (11%)
78
​2020

​+10

​86
​20 (23%)

​-11

​+23
​+43
188

145

67
​2040
(stated policies2)

​2020

​2040
(stated policies2)

2. Forecast based on existing policy frameworks and those under development of each country​Source: Based on IEA data from IEA (2021) World Energy Outlook, www.iea.org/statistics, All rights reserved; as modified by The Asia Transition Finance Study Group.

It is also necessary to be mindful of the regional challenges of generating renewable energy in the Asian
region. Considering the Association of Southeast Asian Nations (ASEAN) region, the ratio of renewableenergy in the total energy supply varies across the region, while many of these countries are dependent
on fossil fuels for energy supply (Exhibit 4 shows total energy supply by source in ASEAN countries,
China and Japan). Also, diverse environmental conditions across the region need to be evaluated inunderstanding how much of each country’s traditional energy supply could be replaced with renewableenergy sources in the future. While countries like Vietnam may have relatively higher potential for solar
and wind power generation due to its high solar radiation intensity and long coastline, some othercountries face significant challenges in expanding renewable energy with similar efforts. Island countries
like Indonesia and the Philippines have fragmented electricity grids due to their geography, an
infrastructure obstacle that hinders renewable energy efforts. Many of these countries also lack land-use
policies to measure the environmental impact of development, another concern for large scale renewableenergy projects.

8

Exhibit 4

Total energy supply by source (2019, exajoules)
​0.2

​0.3

​142.0
​3%
​3%
7%

​4%
45%

19%

​10.1
10%

​16.7
​3%
​4%
​2%

13%
​1%

37%

31%

​1.4
​2%

​5.7
​1%

​1.0

​2.6

27%
43%

46%

​1%

11%

28%

70%

​China

51%
29%
12%

1%

3%
​Indonesia​Japan

24%

40%

30%
6%

3%

​3.8
​1%
9%
6%
9%

31%

15%

24%

14%

27%

​Others

​4%
29%

29%

20%

18%
6%

61%

34%

​Cambodia

​Coal

15%

45%

​Brunei​Oil​Natural gas

22%

​4%

36%

​3.8

​2% ​1%​Hydro​Biofuels and waste

21%

24%

16%

66%

​0.3

​W ind, solar, etc.

​Laos

​Malaysia​Myanmar​Philippines​Singapore​Thailand​VietnamSource: Based on IEA data from IEA (2019) World Energy Balance, https://www.iea.org/data-and-statistics/data-product/world-energy-statistics-and-balances, All rights reserved; as modified by
The Asia Transition Finance Study Group.

Given this regional context, while investments in green or zero-emission activities will contribute to thedecarbonization of Asian economies, investments in so-called transition activities—that is, those that focus
on eliminating or significantly reducing emissions from existing sources or against a baseline over a set
time period, will also be crucial. Only a combination of both will enable a just and orderly transition—one
that promotes climate sustainability by reducing emissions but also ensures the reliability of energy
supplies and their affordability for governments and their citizens, maintaining social stability. Exhibit 5 isconceptual illustration of a just and orderly transition —social stability is placed on top of sustainability,
reliability, and affordability as absence of a subtle balance among them may challenge stability.

Exhibit 5​Important factors for a just and orderly transition​Sustainability

Challenges
 Not only promote climate sustainability but
also ensure the reliability of energy supplies
and their affordability for governments andtheir citizens, maintaining social stability
 Striking a subtle balance among
sustainability, reliability and affordability tomaintain social stability

Social stability
Reliability

Affordability​Source: ATF Study Group

Energy disruptions in China and Europe have demonstrated just how quickly and deeply fossil fuelshortages—often unanticipated—can disrupt economies in the absence of sufficient renewable energy
supplies to replace them, illustrating the challenge of an orderly transition to low-carbon economies and theimportance of transition finance to secure resilience in the energy system.

9Box: Recent energy disruptions in Europe and China demonstrate thechallenge of a just and orderly transition
1. China

2. Europe

In China, tightened coal demand-supply due toregulations on coal mines and energy dual-control
targets has resulted in a sudden decrease in totalenergy production and consequently someblackouts and rationing among businesses andresidents.
Domestic coal supply tightened in 2021 due to anincrease in coal mine closures after stricter
environmental and safety checks, among otherreasons. With the significant mismatch of
demand-supply, thermal coal price in China
significantly increased in 2021 from the same
period in 2019. Simultaneously, a number ofprovinces in China didn’t meet energy dual-control
targets in 2021 H1 – the reduction target set by
the Chinese government in terms of total energy
consumption and energy intensity (energy
consumption per unit GDP) –and thus faced morepressure in H22.
The coal situation had an impact on electricity
supply as 60 percent of China’s power was
generated from coal as of 2020, and many power
plants reduced production to meet the restriction
target3. As a result, together with other underlying
drivers such as lower than normal hydro power
generation because of the dry season, a numberof provinces published strict policies in September
to limit the usage of electricity by restricting theindustrial production activities. The ripple effects
have also been felt in the global economy, as
plummeting Chinese factory production in sectors
such as textiles and steel disrupted supply chains.

In Europe, decreasing gas imports from Russia
have accelerated the need for energy sourcereconsideration. This issue emerged in 2021
when gas demand threatened to exceed supply,
highlighting the need for policies to promote a
medium- and long-term strategic transition to
renewable energy. At the same time, the energy
supply challenge faced in Europe over the past
two years suggests the critical importance ofensuring security of supply for traditional energy
sources while aiming for a more sustainableenergy mix on the path to a just and orderlytransition to zero emissions.
2021 was the year in which a significant change
in energy supply trends was witnessed acrossEurope. A post-Covid-19 economic rebound led
to an increase in electricity consumption from
2020, with fossil fuels overtaking renewables as
the leading source. Electricity supply jumped by
4.2 percent from 2020, the use of petroleum
products increased by 5 percent (though still
below pandemic levels), and sold fossil fuels
increased by 13.7 percent, with hard coal use
up by 14.7 percent year-over-year, and brown
coal up by 12.8 percent4. Investment in LNG
facilities also intensified with the European
Commission approving a €166.7 million terminalin Alexandroupolis5, and Offshore Energies UK,
British trade association, stimulating investment
in North Sea oil and gas production6. Whiledependency on coal increased, the European
Commission proposed classifying gas andnuclear energy within its sustainable financetaxonomy, saying the plan would help movetoward a more low-carbon energy mix7.

2 National Development and Reform Commission, 通知公告[Notice Announcement], 关于印发《2021年上半年各地区能耗双控目标完成情况晴雨表》的通知[Notice on Issuing the Barometer on the Completion of Dual Control Targets for Energy
Consumption in All Regions in the First Half of 2021], August 17, 2021,
https://www.ndrc.gov.cn/xwdt/tzgg/202108/t20210817_1293836.html?code=&state=123
3 International Energy Agency, World Energy Statistics and Balances, 2019, https://www.iea.org/data-and-statistics/dataproduct/world-energy-statistics-and-balances
4 European Commission, Eurostat, Fossil fuels led in electricity generation in 2021, June 30, 2022,
https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20220630-1.
5 European Commission, Press Corner, State aid: Commission approves €166.7 million Greek public support for constructionof LNG terminal in Alexandroupolis, June 17, 2021, https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3045.
6 Offshore Energies UK, Business Outlook 2021, 2021, https://oeuk.org.uk/wp-content/uploads/2021/01/OGUK-BusinessOutlook-2021.pdf.
7 European Commission, Press Corner, EU Taxonomy: Commission begins expert consultations on Complementary
10
Delegated Act covering certain nuclear and gas activities, January 1, 2022,
https://ec.europa.eu/commission/presscorner/detail/en/ip_22_2.

In 2021, gas imports from Russia accounted for almost ~35 percent (158 billion cubic meters perannum) of natural gas demand and supply of European Union and UK8. Russia-Ukraine War 2022
changed that dynamic. With EU-imposed sanctions, and the prospect of Russia cutting or stopping
supplies to some countries, the expected imports from Russia declined significantly. Despite
renewable energy’s growing role in Europe, fossil fuels still accounted for the majority of its energy
mix. Thus, the decline in Russian imports had non-negligible impacts on European and internationalenergy security, amidst an already tight supply in 2021 prior to Russia-Ukraine War 2022. The threatof reduced gas imports was particularly destabilizing, with LNG prices increasing more than fivefold
from their five-year average9. Those countries most dependent on Russian gas imports could
potentially face government-mandated rationing of gas supplies. In response, the EU has proposed
not only accelerating its development of renewable energy, but diversifying energy supplies—a
proposal that could include gas imports from other countries and, temporarily, coal imports as well10.
The ripple effects have also been felt in the global economy, as prices for LNG imported to Asia
soared, causing transition disruptions and market/policy responses such as increased coal and oil use.

The importance of a just and orderly transition tozero emissions is becoming broadly recognized
today. Nevertheless, most frameworks andguidelines that can help financiers assess
whether decarbonization activities might qualify
for transition finance have largely focused onenergy sources that are natively zero/low
carbon—in other words, green technologies.
Activities that support a just and orderly transition
to low-carbon economies by lowering rather thaneliminating emissions – so called transition
activities – have been less often considered.
Some organizations are beginning to address
this. For example, in 2020 the International
Capital Market Association (ICMA) published its
Climate Transition Finance Handbook (The ICMA
Handbook, see Chapter 3.2 for details),
recommending the disclosures that fundraisers ofbonds might need to credibly position their debt
as transition finance. But challenges remain. As
there is still no single accepted approach toassessing a company’s decarbonization activities
and their suitability for transition finance, FIs needto navigate a plethora of international, regionaland country-level decarbonization frameworks
drawn up to align with the Paris Agreement—each with its own requirements – that might berelevant to transition finance. With no globallyunified definition of transition activities, they aremuch harder to evaluate than green ones with asingle target—zero emissions (see Chapter 2 fordetails). And there is a shortage of referencematerial—whether it’s national decarbonization
pathways that companies can use to compare
plans, or real transition finance case examples.

This document seeks to help FIs overcome suchchallenges. It supplements the guidelines andframeworks already available in ways that will
help further mobilize transition finance. The
primary regional scope of this document is Asia
given its regional decarbonization challenges. Asa starting point, many of the guidelines are formed
based on analyses and reflection of the ASEAN
region. While private and public funds will be
critical to the transition, this document’s focus isprivate capital, given that the ATF Study Group isa private initiative led by Asian and global banks
and its guidance is applicable for assessing
whether to extend transition funding to all types offinance such as loans and bonds. The ATF
Guidelines suggests the relevant steps for FIs toassess transition finance suitability, and it also
provides alternatives for when the key information
for the assessment is not available due totechnical and other challenges.
To be clear, the document does not lay down
mandatory rules or procedures, and readers are
not obliged to adhere to its guidance but can refer
to it as needed. Neither will adherence to theguidelines guarantee that any funds extended will
be regarded as transitional finance by secondparty opinion (SPO) providers.

8 IEA, Share of Russia in European Union and United Kingdom gas demand, 2001-2021, IEA, Paris https://www.iea.org/dataand-statistics/charts/share-of-russia-in-european-union-and-united-kingdom-gas-demand-2001-2021
9 IEA, Press release, Global natural gas demand set to decline slightly in 2022 as Russia’s war disrupts markets andeconomies, April 15 2022, https://www.iea.org/news/global-natural-gas-demand-set-to-decline-slightly-in-2022-as-russia-swar-disrupts-markets-and-economies
10 European Commission, Press corner, REPowerEU: A plan to rapidly reduce dependence on Russian fossil fuels and fast
11
forward the green transition*, May 18, 2022, https://ec.europa.eu/commission/presscorner/detail/en/IP_22_3131

1.2 STRUCTURE OF ATF GUIDELINESThis document has six chapters (Exhibit 6).
Chapter 1 and Chapter 2 aim to provide context.
Chapter 1 introduces the background andobjectives of the ATF Guidelines, describing what
this document is, and what it is not. Chapter 2
outlines challenges in transition finance anddiscusses what the ATF Guidelines seeks toaddress.

Finally, Chapter 4 through Chapter 6 outline
guidelines on transition finance. Chapter 4 aims tolay out the scope and guiding principles for theguidelines, as well as the expected steps for
conducting a transition finance assessment.
Chapter 5 is a corporate-level deep dive, while
Chapter 6 is a use-of-proceeds-level in-depth
examination.

Chapter 3 is designed as a knowledge repository,
which addresses overviews, roles, andinterrelationships of existing guidelines andframeworks introduced in the report (further
details are available in Appendix). This chapter
may be able to help readers get a sufficient graspof key facts and the framework important fortransition finance.

Exhibit 6

Structure of ATF Guidelines​Chapter​Sub-chapter​Foreword and acknowledgement​—​1. Introduction to Asia Transition Finance Guidelines ​1.1 Introduction​1.2 Structure of ATF Guidelines​2 What ATF Guidelines addresses​—​3. Overview of relevant frameworks​3.1 Role of different guidelines and frameworks in supporting transition finance​3.2 Guidelines: ICMA Handbook(Knowledge Repository)​3.3 Decarbonization pathways​3.4 Taxonomies, technology roadmaps, technology lists​3.5 Carbon credit​4. Practitioner’s guidelines​4.1 Intended audience​4.2 How to use ATF Guidelines​4.3 Step 1. Communicate with fundraisers​4.4 Step 2. Assess transition finance suitability​5. Assessing corporate strategies​5.1 Step 2-A. Basic approach for assessing corporate strategy​5.2 Step 2-B. Interim approach for assessing corporate strategy​5.3 Introduction to case studies​6. Assessing use-of-proceeds​6.1 Step 2-A. Basic approach for assessing UoP​6.2 Step 2-b. Interim approach for assessing UoP​6.3 Introduction to case studies​Appendix​Glossary + other technical details (e.g., taxonomy overview)

12CHAPTER 2
WHAT ATF GUIDELINESADDRESSES

13

The ATF Study Group strongly adheres to theview that each country’s transition to climate(carbon) neutral/net zero emissions is just andorderly. Any assessment of the suitability offinancing instruments to be positioned astransitional finance are therefore guided by theextent to which the activities they support are bothsustainable, reliable and affordable.

Assessment complexity and referencematerial. There are a limited number of globally
recognized practical approaches to transition
finance that address the various challenges inassessing a project’s suitability for transition
finance. Transition activities can prove particularly
hard to evaluate for the following reasons (seeChapter 4 for details):

In addition to balancing out sustainability,
reliability, affordability and social stability for a justand orderly transition, the ATF Guidelines focuseson some of the practical challenges that FIs often
face, namely:•

Transition finance projects are more complex
to evaluate than green projects. In the case oftransition finance, targets or thresholds are inprinciple subject to a science-based
decarbonization trajectory, which is relative tothe starting point and life cycle of a projectacross countries and sectors. Green projects
have clearly defined targets.

•

Developing corporate level decarbonization
strategies are not yet standard for companies(both large corporations and small andmedium enterprises). It is impossible to assessa strategy that does not exist.

Differing standards. There are several different
standards and taxonomies11 for practitioners tonavigate, each with their own requirements. The
ICMA Handbook, which provides
recommendations for transition bonds, isrecognized by many practitioners as theconceptual foundation of what should beconsidered as transition finance, even for otherfinancial instruments. The ATF Guidelines isdesigned to complement recommendations forlabelling debt instruments as a “transition”
introduced in the ICMA Handbook and stretch therecommendations to other financing solutions. FIs
should also refer to other more-specialized
documents to determine which financial
instruments to issue and obtain an SPO asnecessary. Capital market issuers should consult
ICMA’s Green Bond Principles, Social Bond
Principles and Sustainability Bond Guidelines.
Those FIs that want to align their financing plan totheir climate transition strategy anddecarbonization trajectory can refer to theguidance in Sustainability-Linked Bond Principles.
For debts, lenders may follow recommendations
by Green Loan Principles, Social Loan Principles
and Sustainability Linked Loan Principles jointly
published by Loan Market Association (LMA),
Asia Pacific Loan Market Association (APLMA),
and Loan Syndications & Trading Association(LSTA).
However, it is unclear whether certification under
one standard can be transferred to certification
under other taxonomies, with uncertainty over theinteroperability of the ICMA Handbook, ASEAN
taxonomy, and other taxonomies developed orunder development by individual countries (seeChapter 3 for details).

Localized references. Transition solutions arecontext specific, meaning that localizedreferences are critical for evaluation. However,
Asia currently largely lacks the official nationaland sectoral pathways to climate (carbon)
neutral/net zero that are aligned with the Paris
Agreement. Based on such current constraints,
necessary support particularly from public entities
should be listed and proposed to governments(for example, creation of sector-level or countrylevel decarbonization pathways and technology
roadmaps for ASEAN).
Limited track record. There are limited caseexamples for FIs to use as reference points whentrying to assess or develop finance transition
activities, especially the ones aligned with the
ICMA Handbook.
Many of these challenges could take years to
overcome. It is therefore critical that someapproaches are developed and accepted bystakeholders to unlock transition finance andaccelerate progress toward climate (carbon)
neutral/net zero emissions.

11 A taxonomy is a classification system that provides businesses with a common language and the means to identify
whether a given economic activity is environmentally sustainable.

14

CHAPTER 3OVERVIW OF
RELEVANTFRAMEWORKS(KNOWLEDGEREPOSITORY)

15

3.1 ROLE OF DIFFERENT GUIDELINES
AND FRAMEWORKS IN SUPPORTING
TRANSITION FINANCE
It is critical to understand existing frameworks andguidelines as a basis to discuss theimplementation of transition finance. The different
types of existing frameworks and guidelines
consist of basic guidelines as laid out in the
ICMA’s Climate Transition Finance Handbook in
2020, plus various additional components that
contribute to a transition finance suitability
assessment. This chapter provides a brief
overview of these concepts, followed by a moredetailed explanation of the major pathways,
taxonomies, technology roadmaps, and otherrelevant framework (such as carbon credits). The
methodologies around which references FIs could
use are available in Chapter 4, Chapter 5, andChapter 6.

3.1.1 Basic transition financeguidelines
The ICMA’s Climate Transition FinanceHandbook in 2020, which this document refers toas the ICMA Handbook, offers essential guidance
to capital market participants on best practices
and disclosures for raising funds in debt markets
for climate transition-related purposes. Althoughtargeted at corporations seeking to raise financein carbon-intensive sectors that have committed
to reduce emissions in line with the Paris
Agreement, the general concept recommended by
the ICMA Handbook is relevant to companies
across sectors seeking to raise all types offinance such as loans, bonds, and equity12 thatcan be labeled as transitional finance (seeChapter 3.2 for details).

3.1.2 References for transition
finance assessment
While the focus of the ICMA Handbook is on debt
instruments, such as green bonds, social bonds
and sustainability-linked bonds, the ATF
Guidelines covers transition finance as a whole.
Climate-transition-related funding instruments are
categorized in two formats:(i) General Corporate Purposes financing13 ,which supports a corporation’s overall
decarbonization strategy; and(ii) Use-of-Proceeds (UoP) financing14, which
supports specific projects contributing todecarbonization.
The next section is a high-level summary of themain reference points, which can be used forassessing transition finance for each intended
purpose.

3.1.2.1 Decarbonization pathway
Decarbonization pathways are essential toassessing decarbonization strategy as part of atransition finance assessment. But they also havea broader significance beyond transition finance.
They represent the decarbonization plan for acountry or company and are focused on absolutevolume of carbon dioxide (CO2 ) emissions oremission intensity (volume of emissions per unitof economic and physical activity). Theyfrequently take the form of a yearly plan publishedby policymakers and global institutions, setting out
how to achieve the Paris Agreement goal ofrestricting the rise in mean global temperature towell below 2°C above pre-industrial levels, andpreferably limiting the increase to 1.5°C. The aim
is to deliver long-term emissions reductions andsustainable development in collaboration withlocal communities, businesses and otherstakeholders (see Chapter 3.3 for details).

12 While the ICMA Handbook and its relevant principles do not delve into equity, the ATF Guidelines covers transition finance as awhole, including equity.
13 The term ‘General Corporate Purposes financing’ is borrowed from ICMA, which specifies that it takes the form of sustainabilitylinked bonds. Sustainability-Linked Bond Principles and Sustainability Linked Loan Principles list specific requirements for
issuing sustainability-linked bonds/loans. (The ATF Guidelines is not limited to debt instruments.)
14 The term ‘UoP financing’ is borrowed from ICMA, which stipulates that it can be either green bonds, social bonds, orsustainability bonds. For more detailed information, see the ICMA’s Green Bond Principles, Social Bond Principles andSustainability Bond Guidelines for debt instruments, as well as Green Loan Principles, Social Loan Principles andSustainability Linked Loan Principles published by LMA, APLMA and LSTA.

16

3.1.2.2 Taxonomy
A taxonomy is a classification system thatprovides businesses with a common language
and the means to identify whether or not a given
economic activity is environmentally sustainable.
A taxonomy typically introduces a threshold thatindicates if a goal is reached. Although taxonomy
can be applicable within a wider context, it is also
relevant to a transition finance assessment to see
if UoP financing (specific project) for a proposedtransition finance is in line with the Paris
Agreement (see Chapter 3.4 for details).

3.1.2.3 Technology roadmap
Technology roadmaps outline the technologies
that will be necessary to get specific industry
sectors aligned with the Paris Agreement,
showing which technology should be ready foruse in what year. Although technology roadmaps
can be applicable within a wider context, they arealso relevant to transition finance assessment to
see if UoP financing (specific project) for a
proposed transition finance is in line with the Paris
Agreement (see Chapter 3.4 for details).

3.1.2.4 Technology list

3.2 GUIDELINES: ICMAHANDBOOK
ICMA, a not-for-profit organization for participants
in international debt capital markets, established
the Climate Transition Finance Working Groupand Social Bond Principles Working Group.
These working groups reviewed analysis anddisclosure frameworks developed by industry
groups, regulatory bodies, and the scientificcommunity regarding climate-change mitigation
and adaptation. Based on this work, it published
the Climate Transition Finance Handbook in 2020
(further details are available in Appendix 2) toprovide clear guidance and common expectations
to capital markets participants on the practices,
actions, and disclosures to be made available
when raising funds in debt markets for climatetransition-related purposes: UoP and General
Corporate Purposes financing.
The ICMA Handbook is targeted at corporations
seeking to raise finance in carbon-intensive
sectors that have committed to reducing
emissions in line with the Paris Agreement.
However, companies in many different sectors
wishing to raise debt that can be labeled astransitional finance often reference the ICMA
Handbook. It recommends that transition-labeleddebt instruments meet certain requirements infour areas (Exhibit 7)

A transition technology list can help FIs by acting
as a reference point when assessing potential
transition technologies until technology roadmaps
or taxonomies with thresholds and eligible activity
lists are developed. Although technology lists canbe applicable to a wider context, they are also
relevant to transition finance assessment to see if
UoP financing (specific project) for a proposedtransition finance is in line with the Paris
Agreement (see Chapter 3.4 for details).

3.1.3 Other relevant framework:
Carbon credit guidelines
A carbon credit is a certificate representing acarbon dioxide equivalent (CO2 e) that is either
prevented from being emitted into the atmosphereor removed from the atmosphere. Use of carbon
credits is often a key question for transition
finance practitioners to assess whether a certain
climate strategy can be considered suitable fortransition finance (see Chapter 3.5 for details).

17

Exhibit 7

Transition Finance Issuance guidelines are available globally by ICMA
– involving 4 key elements of requirements​Overview of ICMA Transition Finance Handbook…

 Objective is to provide issuer-… which shows four key requirements for transition
finance suitability
1level disclosures to finance thetransaction, particularly forhard-to-abate sectors

 Designated guidelines whenissuing green bonds, social
bonds, sustainability bonds orsustainability-linked-bonds.

2

Strategy

Materiality

Financing purpose should befor enabling an issuer’s climatechange strategy

Climate trajectory should bematerially relevant to business
model

3

4

Science-based

Transparency

Science-based target andpathways

Transparency of underlying
investment program​Source: ICMA, Climate Transition Finance Handbook 2020, 2020,
https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Climate-Transition-Finance-Handbook-December-2020-091220.pdf

1. Element 1: Climate transition strategy andgovernancea. Quantitatively measurable (using a consistentmeasurement methodology)

The finance should support the implementation ofa fundraiser’s decarbonization strategy, whichshould be based upon credible commitments andchanges in practices. The strategy should makeclear how the business model will be adapted toassist a transition to a low-carbon economy.

b. Aligned with, benchmarked against, orotherwise refer to recognized, science-based
trajectories where such trajectories exist

2. Element 2: Business model environmental
materiality
The strategy and its decarbonization trajectoryshould be relevant to the material parts of theissuer’s business model—its core activities—asthese account for most of the fundraiser’s carbon
emissions. The fundraiser should also consider
how the trajectory will affect the environment andsociety and seek to mitigate any negative impact.
3. Element 3: Science-based targets andpathways
The fundraiser’s decarbonization strategy shouldreference science-based targets and transition
pathways. The planned decarbonization trajectoryshould be:c.

Publicly disclosed (ideally in main financing
filings) and include interim milestones

d. Supported by independent assurance orverification
4. Element 4: Implementation transparency
A decarbonization strategy requires the long-term,internal allocation of capital by the company alongwith governance and process changes. Both are
crucial if future operations are to support thestrategy. Market communication of a fundraiser’s
strategy should provide transparency on theintended underlying investment program and its
expected impact, including planned capital andoperational expenditure, where feasible.
Additionally, where a transition might negatively
affect workers and communities, fundraisers
should outline how they have incorporated
consideration of a “just transition15” into theirstrategy and may detail any relevant social
expenditure

15 The concept of just transition is defined in Guidelines for a just transition towards environmentally sustainableeconomies and societies for all, International Labour Organization, 2015, and Just Energy Transition: A Framework for
Company Action, the Council for Inclusive Capitalism, December 2021.

18

Other global guidelines
In addition to the ICMA Handbook, otherguidelines have been published, most notably the
Financing Credible Transitions by the Climate
Bond Initiatives, an international organization
working to mobilize global capital for climate
action16. FIs can credibly refer to this paper for
guidance when assessing transition financeproposals (further details are available inAppendix 4).

•

IEA. Published in May 2021, Net zero by 2050:
A roadmap for the global energy sector is acomprehensive study of how to transition to a
net zero energy system by 2050, while
ensuring stable and affordable energy
supplies, providing universal energy access,and enabling robust economic growth17.

•

NGFS. The Network for Greening the Financial
System (NGFS) has developed a set of six
emission scenarios out of which four are
climate (carbon) neutral/net zero scenarios(June 2021 edition), split into three categories,
to provide a common starting point foranalyzing climate risks to the economy andfinancial system18.

•

ERIA. The Economic Research Institute for
ASEAN and East Asia (ERIA) has published astudy that aims to quantitatively describe theenergy transition pathway necessary toachieve climate (carbon) neutrality across 10
ASEAN countries through model analysis19.

3.3 DECARBONIZATION PATHWAYS
Decarbonization pathways represent the
decarbonization plans for a country or company
and are focused on absolute volume of CO2
emissions or emission intensity (volume ofemissions per unit of economic or physicalactivity). They take the form of mid- and long-termplans published by policymakers and global
institutions, setting out how to achieve the Paris
Agreement goal of restricting the rise in mean
global temperature to well below 2°C above
pre-industrial levels, and preferably limiting theincrease to 1.5°C. In the ATF Guidelines fortransition finance assessment, country- and/or
sector-level pathways published by local
governments or governmental organizations areencouraged to be used (see Chapter 4 andChapter 5 for details) although none of theASEAN countries have so far published an official
country pathway.
In addition to pathways published by local
governments or governmental organizations,
there are several other potential reference
pathways for use, as outlined below. These
scenarios are based on cost-optional deployment
of energy technologies for the whole Asian region.
Other scenarios (for instance, ones published by
local governments) could be chosen if, forinstance, affordability or other relevant factors are
the consideration being assessed.

More details of specific pathways can be found in
Appendix 5. See also the following section on
ICMA Climate Technology Finance
Methodologies registry for further references.

OTHER REFERENCES: ICMA
CLIMATE TECHNOLOGYFINANCE METHODOLOGIESREGISTRY
Released in June 2022, ICMA’s Climate
Technology Finance Methodologies registry is alist of tools specifically to help issuers, investors,
or financial intermediaries validate that theiremission reduction trajectories/pathways are“science-based.” This list is dedicated tovalidation of specific emission reduction
trajectories and pathways and is not complete. It
does not seek to provide a comprehensive
repository of all the complementary tools that anissuer, investor, or financial intermediary may alsoutilize to design, report, or guide the setting of
those trajectories. As such, this document should
be seen as “live” and will evolve over time withregular updates.

16 Climate Bond Initiative, Financing credible transformation, 2020, https://www.climatebonds.net/resources/reports/financingcredible-transitions-white-paper
17 International Energy Agency, Net Zero by 2050, 2021, https://www.iea.org/reports/net-zero-by-2050
18 Network for Greening the Financial System, NGFS Climate Scenarios for central banks and supervisors, June 2021,
https://www.ngfs.net/sites/default/files/media/2021/08/27/ngfs_climate_scenarios_phase2_june2021.pdf
19 Economic Research Institute for ASEAN and East Asia, Decarbonisation of ASEAN Energy Systems: Optimum Technology
Selection Model Analysis up to 2060, 2022, https://www.eria.org/publications/decarbonisation-of-asean-energy-systemsoptimum-technology-selection-model-analysis-up-to-2060/

19

3.4 TAXONOMIES, TECHNOLOGYROADMAPS, TECHNOLOGY LISTS
To assess transition finance, it is critical tounderstand which types of technology can beconsidered as environmentally sustainable. In
Asia, three main types of reference
documentation are available to facilitate this:taxonomies, technology roadmaps andtechnology lists.

3.4.1 Taxonomies
A taxonomy is a classification system thatprovides businesses with a common language
and the means to identify whether a given
economic activity is environmentally sustainable.
Across Asia, multiple countries have produced
national taxonomies (for instance, Indonesia,
Malaysia) alongside a regional taxonomy
formulated by ASEAN (Exhibit 8). Meanwhile,
China has published similar documentation,
Green Bond Endorsed Projects Catalogue,
governing China's green bonds market.

Exhibit 8

Overview of taxonomies in Asia (as of August 2022, not exhaustive)​ASEAN​Other​ASEAN: ASEAN taxonomy​Bangladesh: Sustainable Finance Policy for Banks and FIs​China: Green Bond Endorsed Projects Catalogue​Indonesia: Indonesia green taxonomy​Republic of Korea: K-Taxonomy​ alaysia: Climate Change and Principle-based Taxonomy1
M​Singapore: Singapore taxonomy​Thailand: Thailand taxonomy​Vietnam: Vietnam taxonomy
1. The Securities Commission Malaysia is currently developing the principles-based SRI Taxonomy for the capital market, which is targeted to be released by end of 2022. The SRI Taxonomy will
provide more clarity and guidance for the market in identifying sustainable investment assets or activities.
​Source: Press release

Among the taxonomies in the ASEAN region, there are some notable differences (Exhibit 9). For an indepth look at the various taxonomies in Asia, see Appendix 7.

Exhibit 9

Taxonomies in ASEAN countries show different approaches forclassification while they all cover transition activities​Applicable​Not applicable​Publication​ScopeASEAN
taxonomy

Singaporetaxonomy

Indonesia
taxonomy

Malaysiataxonomy2​November 2021
(Version 1)​May 2022(2nd draft)​January 2022
(Published)​Apr. 2021
(Published)​Green​Transition​Guiding
principles​Environmental
objectives​DNSH1​Classification​Pre-determined
list of activities​TBD​Thresholds
1. Do No Significant Harm principle
2. The Securities Commission Malaysia is currently developing the principles-based SRI Taxonomy for the capital market, which is targeted to be released by end of 2022. The SRI Taxonomy
will provide more clarity and guidance for the market in identifying sustainable investment assets or activities.
​Source: ASEAN Taxonomy Board, ASEAN Taxonomy for Sustainable Finance, November 2021, https://asean.org/wp-content/uploads/2021/11/ASEAN-Taxonomy.pdf
Green Finance Industry Taskforce, Identifying a Green Taxonomy and Relevant Standards for Singapore and ASEAN, May 2022, https://abs.org.sg/docs/library/second-gfit-taxonomy-consultation-paper
Sustainable Finance Indonesia, Indonesia Green Taxonomy, January 2022, https://www.ojk.go.id/keuanganberkelanjutan/Uploads/Content/Regulasi/Regulasi_22012011321251.pdf
Central Bank of Malaysia, Climate Change and Principle-based Taxonomy, April 2021, https://www.bnm.gov.my/documents/20124/938039/Climate+Change+and+Principle-based+Taxonomy.pdf

20

3.4.2 How could the taxonomies be
used?
These taxonomies could be employed in thecontext of transition finance: most importantly, as areference for assessing transition suitability—
providing they include enough detail (pathways,
lists of eligible activities, and thresholds)—or, inother cases, as an additional reference in relation
to compliance, even if some components might be
missing. If a taxonomy includes a pathway,
revenue breakdown or CAPEX and/or OPEX
allocation, it could be used for a transition financesuitability assessment of corporate strategy or a
project plan.

The FI can use the taxonomy to check whether the
proposal under review includes a long-term
decarbonization plan including CO2 emissions
reduction targets, and to ensure that it is alignedwith a Paris Agreement-compliant country and/or
sector pathway, or in other words, a pathway toclimate (carbon) neutral/net zero emissions. If ataxonomy includes a list of eligible activities andthresholds, it could be used for a transition financesuitability assessment to see if a technology in atargeted project can be assumed as climate(carbon) neutral/net zero with publicly recognizedsources (Exhibit 10). The details of how FIs could
use a taxonomy are in Chapter 4 and Chapter 6.

Exhibit 10

Taxonomies could be used as (1) reference for transition suitability
assessment or (2) additional reference​Transition finance suitability assessment​Use of taxonomies​Corporate
level

Company has a long-term decarbonization plan in line with the Parisaligned country and/or sector pathway, or in other words, a pathway toclimate (carbon) neutral/net zero, with a medium-term target included
1-1

If a taxonomy includes a pathway, it could
be used for transition finance suitability
assessment​Use ofproceedlevel

Project has a long-term decarbonization plan aligned with
 Paris Agreement-compliant country and/or sector pathway Corporate strategy1
1-2

If a taxonomy includes a list of eligible
activities and thresholds, they could be
used for transition finance suitability
assessment

2

Even if not, taxonomies could be an
additional reference to comply in order tobe recognized as transition in the jurisdiction

The technology in a targeted project can be assumed as eligible withpublicly-recognized sources, e.g.
 Paris Agreement-compliant country technology roadmap
 Corporate strategy

1. Even if both project plan and corporate strategy are aligned with Paris compliant pathway, project plan may possibly not be aligned with corporate strategy​Source: ATF Study Group

3.4.3 Technology roadmaps
Technology roadmaps can be used as referencematerials for consideration of funding via transition
finance. They outline the technologies expected tobe necessary to make specific industry sectors
climate (carbon) neutral, showing which technology
would be ready for use in what year, depending on
the choices. Technology roadmaps include
expected future innovations alongside tried-andtested low-carbon technologies available today (forexample, energy conservation and transition). They
may refer to domestic policies and international
scenarios.

Technology roadmaps are designed to be referred
to by companies when considering climate
measures that use transition finance. They also
help FIs (banks, securities companies, investors,
rating agencies) decide whether a company’s
strategies and efforts toward decarbonization aresuitable for transition finance when the company
approaches them for funding (further details areavailable in Appendix 8). To remain useful andrelevant for FIs to make such assessments,
technology roadmaps should be regularly updated
to reflect the latest technological innovations.

21

3.4.4 Technology lists
FIs can use a technology list as a reference point when reviewing transition technologies for Asia-based
projects until other stakeholders (such as ASEAN and governments in Asia) develop technology roadmaps
or taxonomies with thresholds and eligible activity lists.
In September 2022, ERIA published the Technology List and Perspectives for Transition Finance in Asia
to help FIs assess potential transition technologies. Its first edition covers some of the main potential
transition technologies in the power sector and its upstream, which together account for more than 50
percent of Asia’s CO2 emissions. The document also provides six key framework dimensions to holisticallyassess potential transition technologies. Those 6 framework dimensions are composed of ones concerningtechnology characteristics (emissions impact, reliability, and affordability) and additional considerations(lock-in prevention considerations, Do No Significant Harm (DNSH) considerations, and social
considerations). ERIA is planning to expand its sector coverage at a future date. For now, it covers
technologies that have a direct impact on carbon emission reduction and does not cover green
technologies (those with zero carbon emissions through operation).
The tools mentioned above are not comprehensive and may not include all potential transition technologies
available in Asia. They are not tools on which FIs can solely rely when making a final decision on whether
to provide transition finance. Under certain circumstances, taxonomies, technology roadmaps, andtechnology lists can be interchangeable: for example, FIs can use either a taxonomy that includes
thresholds and a list of eligible activities, a technology roadmap, or a technology list to consider a projectas transition finance, as long as the tools allow them to gauge whether the project can reach compliancewith the Paris Agreement.

3.5 CARBON CREDIT
3.5.1 What is a carbon credit?
A carbon credit is a certificate representing CO2 e that is either prevented from being emitted into theatmosphere or removed from the atmosphere. In this context, carbon offsetting refers to the use of carbon
credits to compensate or neutralize greenhouse gases (GHG) emissions emitted elsewhere. High-quality
carbon credits are certified to a reputable standard by an independent third-party to verify that their impact
is, for example:
 Real Enforceable Measurable/verifiable Legally attributable (avoids double counting) Permanent Additional

22

3.5.2 How relevant are carbon credits to transition finance?
Carbon credits could be included in corporate/project decarbonization plans, which transition finance needs
to examine. However, some global climate finance standards and taxonomies tend not to support carbon
credits for transition finance (Exhibit 11). Other global standards, on the other hand, do not mention the useof carbon credits in the guidelines or taxonomy. Although the ATF Study Group recognizes the challenges
of doing so, given divergent views among stakeholders, creation of practical guidelines for the use ofcarbon credits in assessing transition finance eligibility may be needed. More details are outlined inAppendix 9.

Exhibit 11

Global standards for climate finance and taxonomies mostly either donot support carbon credits or do not mention them
​Carbon credits in global standard and other taxonomies​Non-supportive for carbon credits​Not mentioned​Globalstandard​Climate Bonds Initiatives​ICMA​“Credible transition goals andpathways don’t count offsets”(carbon credits)​Climate Transition
Finance Handbook​Taxonomy​EU taxonomy​“Not considered suitable forclimate mitigation, separate anddistinct from impacting activities,
last step of the mitigation
hierarchy, after harm has takenplace, not guaranteed to
remediate the harm1”​Under development​China taxonomy​ASEAN taxonomy​Indonesia taxonomy​Singapore taxonomy​Malaysia taxonomy

1. EU position on carbon credits is increasingly unfavorable (Certified Emission Reductions are no longer swappable with EU Allowances since 2020)​Source: ATF Study Group, press release,
Climate Bond Initiative, Financing Credible Transitions: Summary note, 2020, https://www.climatebonds.net/files/reports/transition-summary-note-092020-report-page.pdf
Platform on Sustainable Finance, Part A Methodological Report, March 2022,
https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/220330-sustainable-finance-platform-finance-report-remaining-environmentalobjectives-taxonomy_en.pdf

23

CHAPTER 4
PRACTITIONER’SGUIDELINES24

4.1 INTENDED AUDIENCE
Users who benefit most
The ATF Guidelines is principally for FIs that are starting to provide transition finance and that needsupport making the necessary assessments. The document is also useful to companies and otherorganizations working with FIs on transition finance.
Countries of note
Transition investments are particularly important in Asia as the region needs to balance sustainability
against its growth objectives and unique decarbonization challenges. Many individual countries in theregion have begun to consider transition finance. In most cases, however, they lack a “practical playbook”
that would help in areas such as using pathways, technology roadmaps, and technology lists for transition
finance assessment. To help scale transition finance in the Asian region, this guide is intended to fill thatgap.

While the primary regional scope of this document is Asia given its regional decarbonization challenges,
many of the guidelines and perspectives are based on analyses and realities of the ASEAN region.
Singapore, Malaysia, Indonesia, Vietnam, Thailand, and the Philippines are relatively far alongin their development of sustainability taxonomies and case studies, so this document uses those countries’
experiences to illustrate the approach and guidance.
Financial products covered in the ATF Guidelines
The ATF Guidelines is applicable to all types of fundraising instruments, including loans, bonds, andequities.

4.2 HOW TO USE ATF GUIDELINES
Complement to the ICMA Handbook: The ATF Guidelines is designed to outline practical steps that canbe taken to assess whether the financing might be suitable as transitional finance in Asia, referring to the
ICMA Handbook.

 As described in Chapter 3, the ICMA Handbook discusses four key elements:
1. A credible climate transition strategy and governance
2. Materiality with respect to a fundraiser’s core activities
3. Science-based targets and pathways
4. Implementation transparency.
 Most FIs tend to have a basic understanding of how to assess fundraisers’ funding requests on Element
2 and Element 4—materiality and implementation transparency. FIs could refer to the disclosure sectionsof the ICMA Handbook to gauge these elements. It may be as simple as checking a fundraiser’s annual
report and sustainability report. Relevant guidance from accounting standards bodies or professional
accounting advice can help FIs discuss materiality. For implementation transparency, they may want to
explore the sections related to capital expenditures (CAPEX) and operating expenses (OPEX) to
determine which expenditures were part of the fundraiser’s decarbonization strategy. As what FIs should
do appears to be relatively clear with respect to these two elements, they are not the main focus of the
ATF Guidelines.

25 Element 1, relating to strategy, and element 3, relating to science-based targets and pathways, are more
complicated. For Element 1, FIs need to determine whether a prospective fundraiser’s strategy includes
a long-term target aligned with the goals of the Paris Agreement for the maximum amount by which
global temperatures should rise. As the Paris Agreement provides only a global target, allocation ofemission reduction targets across countries and sectors is not easy. Challenges remain in creating anddocumenting country-level and sector-level targets and pathways linked with the global target, as well as
evaluating interim goals20. Moreover, there is no clear guidance on which of the available references
to consult for the assessment. Pathways, taxonomies, and technology roadmaps are among thepossibilities.

 Element 3, relating to science-based target setting, has its own assessment challenges. Manyorganizations have put forward definitions of what it means to be “science-based”—the Science-Based
Targets initiative is one of them. However, the definitions are not always aligned with one another,making it hard for FIs to know which to use or how to choose it. Even if FIs get help from an independentcompany for scienced-based target setting, there will still be some uncertainty about how
to do these assessments given the different approaches and measures taken. Moreover, factors such as
the reliability of energy supplies and their affordability for governments and their citizens need to beconsidered in addition to setting science-based, top-down targets. Such multifaceted perspectives are
critical to enable a just and orderly transition as introduced in Chapter 1.
Essential Steps in Transition Finance: FIs conducting transition finance assessments can referto a three-step process, as described below (Exhibit 12).

 Step 1: Communicate with fundraisers (clients) to understand the emissions of those considering
raising transition finance, with a view to:21‒ Deciding the type of finance required —General Corporate Purposes finance or UoP financefor a specific project‒ Helping a fundraiser assess whether it meets the ICMA’s transition finance criteria (the four elements)
 Step 2: Assess transition finance suitability. Here, the FI assesses whether the requested financing
might reasonably be treated as transition finance. The ideal determination will include a review of agovernment’s stated pathway, taxonomy, and technology roadmap to use as a cross-check reference.
(This assessment will be discussed in more detail in the following sections.) Step 3: Make decision: Based on Step 1 and Step 2, the FI decides whether to proceed with therequested financing under its internal procedures as transition finance suitable, non-transition financesuitable — for instance, go with other financing solutions — or no financing. This decision is subject
to each FI’s judgment based on its internal policies, additional due diligence (which may include
collaboration with SPO providers,22 usually initiated and led by a fundraiser) and more, as wellas the assessments made in Step 1 and 2. Accordingly, the focus of the ATF Guidelines is on
information related to Steps 1 and 2, which is described in more detail below.

20 Governments are highly encouraged to create country-level targets and pathways where none exists.
21 The order of these two sub-steps will vary from case to case. What matters most is that FIs capture all relevant information |needed from fundraisers at this step.
22 External organization that provides an independent, expert assessment of whether a green, social, sustainability bond/loan,
or transition loan/bond/equity framework conforms with credible guidelines provided by ICMA or LMA, APLMA and LSTA. FIs 26
could refer to such assessments in deciding whether to proceed with the requested financing.

Exhibit 12

Overview of Transition Finance Suitability Assessment​(Step 2) Assess Transition Finance suitability(Step 1) Communicate withfundraisers (clients)​Communicate with fund raisers tounderstand the following key points
 Purpose of financing:‒ General corporate purposes; or‒ Specific project Status on ICMA’s elements‒
1 Strategy and governance:
what is a fundraiser’s climate
strategy?
‒
2 Environmental materiality: isthe climate strategy material toits overall business model?
‒
3 Science-based: is the climate
strategy in line with Sciencebased targets and pathways?
4 Transparency: how‒transparent is the underlying
investment program for the
climate strategy?
1. Pathway to climate (carbon) neutral/net zero​Source: ATF Study Group​(Step 2A): Basic approach​GeneralCorporate
Purposes​UoP(specific
project)

Chapter 5​Assessment criteria (corporate-level) ICMA’s four elements based on
ICMA’s Transition FinanceHandbook Alignment of fundraiser’s strategy
with science-based, Paris-aligned
country/sector pathway1
Chapter 6​Assessment criteria (UOP-level) ICMA’s four elements based on
ICMA’s Transition FinanceHandbook Alignment of fundraiser’s
project/corporate strategy andtechnology with Paris-aligned:‒ Country/sector Pathway‒ Technology roadmap‒ Country/regional taxonomy​(Step 2B): Interim approach​Consider interim approach during theabsence of Paris-aligned referencesfrom governmental organizations(Step 3)Make
decision​Make decision
for the next
step
​TF suitable​Consider interim approach during theabsence of Paris-aligned referencesfrom governmental organizations​Technology list and perspectives fortransition finance in Asia

​Non-TF
suitable (i.e.,
Consider otherfinancingsolutions)​No Financing

4.3 STEP 1. COMMUNICATE WITH FUNDRAISERS
This step is particularly relevant when FIs consider transition finance opportunities, and when a client
requests a transition finance assessment.
The first consideration is the type of financing required by the fundraiser. There are two main types:
General Corporate Purposes financing and UoP financing. FIs use different processes to evaluate
applications for each, so it is important to be clear (Exhibit 13).
 General Corporate Purposes financing23 supports a corporation’s overall decarbonization strategy
 UoP financing supports specific decarbonization projects

23 Financial instruments that are considered General Corporate Purposes financing are usually sustainability-linked bonds (fordetails, please refer to the ICMA) or sustainability-linked loans (for details, please refer to the LMA, APLMA and LSTA).

27

Exhibit 13

Transition finance can support at both project and corporate level​Overview of labeled transition financing structures​General corporate purposes​Only corporate levelelements are recommended
for consideration​Use-of-Proceeds​Both Use-of-Proceed level
and corporate level elements
are recommended forconsideration​(see Chapter 5 for details)​(see Chapter 6 for details)

 Use of funds to support
decarbonization strategy, not limited
to specific projects

 Use of funds limited to specificdecarbonization project​Source: ATF Study GroupThe second consideration is the assessment of transition finance itself. The ICMA Handbook is the starting
point for FIs seeking to understand whether the financing is suitable for transition finance. In mapping
prospective fundraisers against those elements, FIs are encouraged to get answers to the following key
questions (a checklist for FIs is available in Appendix 3).

 Element 1 (Climate Transition Strategy and Governance):‒ Does the fundraiser’s long-term climate ambition include net zero, climate (carbon) neutrality or is it
Paris-aligned? (Namely, the objective of limiting global warming ideally to 1.5°C and, at the very least,
to well below 2°C).

‒ Has the fundraiser disclosed relevant interim targets?
‒ Does the fundraiser disclose measurable levers toward decarbonization and strategic planning toward
long-term targets to align with the goals of the Paris Agreement?

‒ Does the fundraiser have clear oversight and governance in place to implement its climate strategy?
For example, is there an organizational structure for the board of directors and/or an oversightcommittee to supervise climate change activities, as well as clearly defined roles for management
to assess and run the climate-related initiatives?

‒ Does the fundraiser have evidence of a broader sustainability strategy to mitigate relevant
environmental and social externalities and to follow the 17 UN Sustainable Development Goals?24‒ Is the transition strategy based on the risks and opportunities identified through the categorization
framework of the Task Force on Climate-related Financial Disclosure (TCFD)?

‒ Is the fundraiser’s pathway to transition broadly in line with the respective region’s pathway
and sector roadmap? Also, is the fundraiser’s transition strategy based on its own starting point?

‒ Is the fundraiser’s transition strategy disclosed in advance in the company’s integrated report,sustainability report, statutory documents and other materials for investors and FIs?

24 United Nations, Transforming our world: the 2030 Agenda for Sustainable Development, n.d., https://sdgs.un.org/2030agenda

28 Element 2 (Business model environmental materiality):‒ Is the fundraiser's decarbonization strategy outlined in its business plan or annual report?
‒ Is climate awareness evident in the operations of the company’s core businesses?
‒ Do the initiatives for achieving the transition strategy contribute to transforming core business activities
that are environmentally material parts of the company today and in the future?

 Element 3 (Science-based targets and pathways):‒ Does the fundraiser state that its strategy, project, and short-, medium-, and long-term targets
are aligned with a science-based, Paris-aligned pathway, that is a pathway to climate (carbon)
neutral/net zero? (See Box under Chapter 5.1 for details)‒ Does the fundraiser’s short-, medium-, and long-term emissions reduction targets have a clear
emission baseline — for the baseline year and the business-as-usual (BAU) trajectory — andformulate both in intensity and absolute terms? (See Chapter 3 for details)‒ Does the fundraiser refer to any scenarios used, methodologies applied and the GHG scope (Scope 1,
2, and 3)25 covered regarding their targets (for example, assessing low carbon transition (ACT) 26,
Science Based Targets initiatives (SBTi),27 etc.)?

 Element 4 (Implementation transparency)28:‒ Does the fundraiser have a published investment plan for achieving its specified climate goals
in and/or related to its transition finance application that the FI can review?

‒ If so, does the fundraiser disclose the percentage of assets/ revenues/ expenditures/ divestmentsaligned to its the climate goals?

‒ Does the fundraiser have a CAPEX roll-out plan consistent with the climate goals and science?
‒ Does the investment plan outline the assumed climate-related outcomes and impacts with quantitative
data where possible, along with the calculation methods and prerequisites?

4.4 STEP 2. Assess transition finance suitability
Here, information gathering gives way to assessment. FIs will assess fundraisers’ financing with the
ICMA’s four elements as detailed in Chapter 3. For the areas that are the most difficult to assess—ICMA’s
Element 1 (climate transition strategy and governance) and Element 3 (science-based targets andpathways)—two reference points are particularly important:

25 While Scope 3 may not be stipulated as necessary in some pathways, projects that could reach Scope 3 should not be
discouraged from including the target.
26 Initiative run by a not-for-profit charity to support and assess the readiness of an organization for transitioning to the low-carbon
economy. Further details are available at https://actinitiative.org/about-us/
27 Partnership between Carbon Disclosure Project, the United Nations Global Compact, World Resources Institute and the World
Wildlife Fund for Nature to stimulate the private sector to take ambitious climate action. Further details are available athttps://sciencebasedtargets.org/about-us
28 What is stipulated in this section will not always apply to loans and, where appropriate, a fundraiser may choose to share
relevant information confidentially with lenders rather than making it publicly available.

29 Target level: This is the climate (carbon) neutral/net zero commitment made by the fundraiser’s and/or
project’s country,29 depending on the financing purpose.

 Target year: This is the year set by governments—or by globally recognized climate organizations—for when Asian countries will achieve climate (carbon) neutral/net zero emissions

The FI should determine whether the fundraiser’s decarbonization plan is aligned with the country
and sectoral pathways identified by the fundraiser’s government or other globally recognized bodies. Thosepathways will be aligned with the Paris Agreement, meaning the ones to climate (carbon) neutral/net zero if
local governments have committed to it. The FI is also expected to assess the fundraiser’s suitability
for transition finance by comparing the fundraiser’s technology roadmap, threshold-defined taxonomies,
and activity lists to those in the Paris Agreement.
Next are an introduction of practical approaches to assess Paris-alignment of fundraisers’ climate strategy
and targets.

4.4.1 Basic approach: Factors for Paris Alignment Assessment
As discussed in Chapter 1, it is critical to recognize
the importance of a just and orderly transitionin Asia. Developing Asian countries are facing
significant pressure to align their targets with theParis Agreement, but a hasty transition may resultin energy disruptions similar to those seen recently
in Europe and China (see Box in Chapter 1 fordetails). Therefore, as indicated in Exhibit 14,
the ATF Guidelines recognizes the importanceof pathways published by government bodies sincethey, in principle, are designed to balance theimportant factors for a just and orderly transition,
while considering the decarbonization challenges
faced in Asia.
As such, the ATF Guidelines sets out different
basic approaches to transition finance suitability
assessment depending on the type of financing
required.
 For General Corporate Purposes financing, only
corporate-level elements are recommended
for consideration. The most relevant criterion
is whether the company has a long-term
decarbonization plan in line with the Parisaligned country and/or sector pathway,
or in other words, pathway to climate (carbon)
neutral/net zero, and includes a medium-termtarget. FIs should check individual project
specifications for CAPEX and OPEX plans.
The basic approach encourages institutions
to use pathways published by local governments
or ASEAN for the reasons mentioned above,
if appropriate.

 For UoP financing, both corporate-level and useof-proceeds level elements are recommended
for consideration. In addition to analyzing thecorporate-level factors, FIs should review thefollowing parameters for use-of-proceeds levelconsiderations:‒ Project-level: The project should be a partof its corporate decarbonization strategy (seeChapter 6 for details) and be aligned withcountry or sector pathways to climate (carbon)
neutral/net zero in order to implement lock-in
prevention. Again, the basic approachsuggests that FIs refer to pathways publishedby local governments or ASEAN if appropriate.

‒ Technology-level: The technology in atargeted project could be evaluated against
publicly recognized sources published bygovernments such as a science-based, climate(carbon) neutral/net zero country technology
roadmap and country or regional taxonomy, as
well as corporate strategy.

29 What is needed in this case is the pathway to climate (carbon) neutral/net zero, not the Nationally Determined Contributions(NDCs)

30

Exhibit 14

Basic approach for transition finance suitability assessment​Transition Finance assessment​Basic approach
1​Corporatelevel

The targeted company has a long-term decarbonization plan
including a medium-term target and KPIs, aligned with a science-based,
Paris Agreement-compliant1 country and/or sector pathway​Use-ofProceeds
level

The targeted project has a long-term decarbonization plan including
a medium-term target, aligned withCountry-/Sector-level Pathway published by
Asian governments or ASEAN

a Paris-aligned
pathway

 Science-based, Paris Agreement-compliant
country and/or sector pathway Corporate strategy2

2Technology roadmap/ Taxonomy withthreshold and list of eligible activities by
Asian governments or ASEAN

The technology in a targeted project can be assumed as eligible withpublicly-recognized sources, e.g.,
 Science-based, Paris Agreement-compliant country technology
roadmap Paris Agreement-compliant country taxonomy that includes boththreshold and list of eligible activities Corporate strategy
1. Climate (carbon) neutral/net zero
2. Even if both project plan and corporate strategy are aligned with a Paris-compliant pathway, project plan may not necessarily be aligned with corporate strategy​Source: ATF Study Group

4.4.2 Interim approach
As explained, the ideal reference point for FIs should be pathways published by Asian governments.
However, not every Asian government has published one, while some state-owned companies and many
private ones in Asia have not yet developed a decarbonization plan or published a climate strategy.
Collecting the relevant information is therefore not always easy. With reference pathways and technology
roadmaps still scarce in Asia, an interim approach, using a wider set of sources, is needed to evaluate
requests for transition finance. The interim approach allows FIs to assess transition finance suitability when
there are no official pathways and technology roadmaps. This approach complements the basic approach.
Where no country or sector-specific pathway has been compiled by the relevant government, FIs could use
pathways issued by outside parties, such as the IEA, NGFS, and ERIA. If there are no technology
roadmaps or taxonomies with thresholds and activity lists, FIs could consult reference sources such as theTechnology List and Perspectives for Transition Finance in Asia devised by the ERIA. More detail on theinterim approach appears in the next two chapters (Chapter 5 and Chapter 6).

31

Exhibit 15

Interim approach for transition finance suitability assessment​References for the interim approach​Key references​What to assess for TF

Corporate level

Projectlevel
Use-ofproceeds
level​Basic approach​Company’s
long-term
decarbonization
plan​Project’s
long-term
decarbonization
plan​Technology in a
Technology targeted project
level​Southeast Asia

​Interim approach​World​200

A​0•1 Pathway publishedby Asian
governments or
ASEAN

​200

B
C

•2 Technology
roadmap/ Taxonomy
with threshold andlist of eligible
activities publishedby Asian
governments or
ASEAN

​0
​200
​0
​2020 ​2030 ​2040 ​2050​Technology List andPerspectives for Transition
Finance in Asia (TLPTFA)​Source: ATF Study Group32

CHAPTER 5ASSESSINGCORPORATESTRATEGY33

As described in Chapter 4, there are two possible types of financing: General Corporate Purposes
financing and UoP financing. This chapter helps FIs assess whether a General Corporate Purposes
financing they are evaluating is suitable as transition finance.
The ATF Guidelines has already discussed the ICMA’s four elements that FIs should review – thefundraiser’s decarbonization strategy, the materiality of its strategy with respect to the fundraiser’s core
activities, the existence of science-based targets and pathways, and implementation transparency. It isnoted that the hardest of these to assess are the strategy and the science-based targets and pathways.
This section shows how a FI can make these assessments and more, even when some of the information
they need is not readily available.
Use of Government-issued country-level pathway
For a General Corporate Purposes financing, the most relevant criteria are whether the targeted company
has a long-term decarbonization plan in line with the Paris-aligned country and/or sector pathway, or inother words, a pathway to climate (carbon) neutral/net zero, with a medium-term target included. In thebasic approach introduced below, pathways published by local governments or ASEAN are encouraged
for usage as discussed in Chapter 4.

5.1 STEP 2-A. BASIC APPROACH FOR ASSESSING CORPORATE STRATEGY
Different countries have made different commitments as part of the Paris Agreement. These different
agreements, called Nationally Determined Contributions (NDCs), consist of interim plans. In deciding
whether to treat a fundraiser’s proposed corporate-purposes financing as transition finance, FIs areencouraged to evaluate the fundraiser’s long-term, medium-term, and short-term emissions reduction plans
against the pathway to climate (carbon) neutral/net zero (could be NDCs or other decarbonization targets)of the country where the fundraiser has its headquarters or operations (see BOX for details). Plans should
be in place to achieve each step on the short-, mid- and long-term pathway toward emissions reductions.

34

BOX: further details on climate target timeframes: Long-term plan: According to the Paris
Agreement, many Asian countries havecommitted to achieving climate (carbon)
neutral/net zero emissions by 2050, 2060,
or 2070, with the expected date ofachievement depending on its overall climate
ambition. Here, the question is whether the
corporate strategy has a long-term climate(carbon) neutral/net zero plan in line with the
net zero time frame of the country where thefundraiser has its headquarters or operations.
 Mid-term plan: This is the interim emissions
reduction goal for the period between now
and usually 2030. A prospective fundraiser’s
mid-term goal for emissions reduction shouldalign with the 2030 goal of the country where
the fundraiser has its headquarters or
operations.
 Short-term: This is another relevant data
point for the FI to consider. In the fundraiser’s
emissions plan for the next three to five
years—what most businesses would consider“short term”—the FI should be able to see a
set of well-thought-out ideas for moving
toward the mid- and long-term pathways. The
alignment and feasibility of the short-termplan against the longer-term goals can beimportant to the FI.

As for the corporation’s decarbonization plan,
this should be broken down in the following
ways so that the FI can make a proper
assessment.
 Additional detail about emissions: What
are the corporation’s historical and projected
GHG emissions, whether measured on an
absolute basis or based on emission
intensity? And besides the long-term targets,
what are the mid-term and short-termtargets?
 Additional detail about measures: The FI
considering transition financing can seek
information about how its client will achieve
climate (carbon) neutral/net zero and its midterm and short-term targets. The measuresexplained could include a timeline oftechnology changes and investments,and other planned activities that will havea material impact on emissions.
In theory, such information would allow the FI
to compare the plan with science-based
pathways to climate (carbon) neutral/net zerofor the relevant sector and country.

Although there is no one single definitive
definition of climate target time frames,
the above is an example of what seems to becommonly understood and used among
relevant stakeholders.

Case example: Indonesian Power Utility Company
Let’s consider the steps that a FI would take if it were assessing the long-term decarbonization plan of apower utility company in Indonesia (Exhibit 16). First, the FI would need to check if the power utility
company’s GHG emissions reduction plan was aligned with the pathway of the power sector in Indonesia
which in line with the Paris Agreement.
Moreover, FIs can take technology-level assessment even for GCP financing when such information isavailable. In this case, the FI might analyze the details underlying the power utility’s plan. The details could
include the planned dates for transitioning away from traditional technologies, such as coal or open cycle
gas turbine (OCGT),30 to transition or green technologies.

30 Combustion turbine plant fired by liquid fuel to turn a generator rotor that produces electricity

35

Exhibit 16

A dearth of government-created pathways in Asia
For FIs assessing the transition finance potential of Asian corporations, one big challenge is the absence
to date of fully developed government-published pathways. Many Asian governments are working
on pathways that would show their movement toward climate (carbon) neutral/net zero by 2050, 2060,
or 2070, but those pathways are almost all still under development. FIs therefore may consider using
an interim approach to evaluate transition finance requests by Asian corporations, at least until
government-published pathway information becomes more available in Asia.

5.2 STEP 2-B. INTERIM APPROACH FOR ASSESSING CORPORATE STRATEGY
In the interim approach, the FI still makes its assessments using Paris-aligned pathways to climate(carbon) neutral/net zero emissions of the country where the fundraiser has its headquarters or operations.
What’s different is the source of the pathway information. Indonesia, Malaysia, Singapore, and many othercountries in Asia are still working on their pathways and have not published them yet, but the pathways forthese countries—and many others in Asia—are available from other sources. These alternative pathways
have been published by organizations that include, among others, the IEA, NGFS, and ERIA. Somepathways published by these organizations are sector/regional-level and in line with the Paris Agreement
so they could be used as an interim approach for FIs during the absence of government-publishedpathways (Exhibit 17). Each alternative source has its own strengths as outlined below. Overviews of eachscenario are available below.

36

Exhibit 17

Pathways as potential references for project and corporate assessments​Completed​Region/country coverage​Southeast Asia

​World​Publisher
Referencesin principle

Paris-aligned pathway / pathway
to climate (carbon) neutral/net
zero scenarios; 2020=100​ASEAN1​Singapore2​Indonesia2​Malaysia2​Thailand2​Vietnam2​N/A

Philippines

Government/
Association
A

2050: 1.6C

Sustainable
development scenario
​200

​100
​0
​2020

Potentialreferences
for use in
the interim​Sectorcoverage​Partially completed

B

​2030

​2040

​2050

​Delayed transition scenario 2050: 1.8C
​200
​100
​0
​2020

C

NZ4: AEs5 by
2050, Chinaaround 2060,
others by 2070

​30

​40

​2050

​CN2050/2060 scenario
in ASEAN

2050: Below
2.0C

​200

NZ: by 2060

​100
​0
​2020

NZ: N.A. (6.4
Gt CO2 in
2050)

​2030

​2040

​2050

Energy,Industry,
Transport,
Buildings
AFOLU3,Chemicals,
Buildings,
Electricity,
Transport,
Cement, Steel​Not yet publicly launched

Energy,Industry,
Transport,
LULUCF6

1 ASEAN has begun work on its taxonomy, 2. Net zero target exists, 3. Agriculture, Forestry, and Other Land Use, 4. Net zero, 5. Advanced Economies, 6. Land use, land-use change and forestry
Source: Based on IEA data from IEA (2021) World Energy Outlook, www.iea.org/statistics, All rights reserved; as modified by The Asia Transition Finance Study Group., Based on IEA data fromIEA (2020) Energy Technology Perspectives 2020, https://www.iea.org/reports/energy-technology-perspectives-2020, All rights reserved; as modified by The Asia Transition FinanceStudy Group., NGFS, NGFS Climate Scenarios for central banks and supervisors, June 2021,
https://www.ngfs.net/sites/default/files/media/2021/08/27/ngfs_climate_scenarios_phase2_june2021.pdf, ERIA, Decarbonization of ASEAN Energy Systems: Optimum Technology
Selection Model Analysis up to 2060, 2022, https://www.eria.org/publications/decarbonisation-of-asean-energy-systems-optimum-technology-electionmodel-analysis-up-to-2060/

IEA. One of the key relevant reference points in the IEA pathway is the sustainable development scenario(SDS). In this scenario, the IEA takes the Paris Agreement—specifically the goal of limiting global
temperature increases to well below 2°C, preferably to 1.5°C —and uses that baseline to estimate whenmany of the world’s countries will reach climate (carbon) neutral/net zero emissions. The IEA’s SDS
scenario shows advanced economies, China and all other countries achieving such emissions by 2050,
2060, and 2070, respectively. Sectors covered include energy, industry, transport and buildings. The IEA’s
estimates for Southeast Asia are done on a regional basis as opposed to a country basis but could be used
as reference scenarios to assess Paris-alignment of the corporate strategy (Exhibit 18).

Exhibit 18

Overview of IEA scenarios​IEA scenarios1​Potential reference

Region level Paris
granularity alignment​Stated Policies Scenario (SPS)​Reflects the impact of existing policy frameworks and today’s
announced policy intentions​SEA regional
level coverage​Climate (carbon) neutral/net zero emissions achieved byadvanced economies by 2050, by China around 2060, and by
all other countries by 2070 at the latest​Partially covered​Not covered​SEA CO2 emissions in IEA scenarios​SPS​Gt CO2

SDS

​2.8

​2.6
​2.4

​Sustainable Development Scenario (SDS)​Holds the rise in global temperatures to “well below 2°C (…)
and pursuing efforts to limit it to 1.5°C”​Fully covered​SEA regional
level coverage​Minor overshootexpected until 2030

​2.2

​2.0
​1.8
​1.6
​1.4
​1.2

​Net Zero Emissions by 2050

​1.0

​Need beyond SDS over the next ten years to put global CO2
emissions on a pathway to climate (carbon) neutral/net zero by
2050

​0.8

​Must be in line with pathways used by the IPCC for the Special
Report on Global Warming of 1.5 °C

​0.2

​0.6
​0.4
​0
​2020

​25

​30

​35

​40

​45

1. Based on IEA's models combined with the IIASA’s Global Biosphere Management Model (GLOBIOM)​Source: Based on IEA data from IEA (2021) World Energy Outlook, www.iea.org/statistics, All rights reserved; as modified by The Asia Transition Finance Study Group., Based on IEA data​from IEA (2020) Energy Technology Perspectives 2020, https://www.iea.org/reports/energy-technology-perspectives-2020, All rights reserved; as modified by The Asia Transition
Finance Study Group., International Institute for Applied System Analytics, Global Biosphere Management Model (GLOBIOM), 2018, https://iiasa.github.io/GLOBIOM/toc.html#

​2050

37

NGFS. NGFS (as of September 2022) tracks six scenarios, four of which are climate (carbon) neutral/net
zero scenarios.31 The four scenarios are Delayed transition, Below 2°C, Net Zero, and Divergent Net Zero.
These scenarios are available for individual countries and sectors in Southeast Asia. The ASEAN region
is covered, as well as Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam, individually.
Sectors covered include agriculture, forestry, and other land use, buildings, cement, chemicals, electricity,
steel, and transport. The granular nature of the estimates, including emissions by year under eachof the four scenarios, make the estimates useful for the FI conducting a transition finance assessment(Exhibit 19).

Exhibit 19

Overview of NGFS scenarios​Potential reference​Fully covered

Region level Paris
granularity alignment​NGFS scenarios​Current
Policies​Assume only currently implemented policies arepreserved​NDCs​Include all pledged policies even if not yet
implemented​Delayedtransition​Expect overshoot until 2030, and climate(carbon) neutral/net zero in 2060

​Below 2.0℃

​Gradually increase the stringency of climate
policy to achieve 1.700C​Net Zero
2050​Limit to 1.500C and reach climate (carbon)
neutral/net zero around 2050

​Divergent
Net Zero​Reach climate (carbon) neutral/net zero around2050 with higher cost using divergent policies​Partially covered​Not covered​SEA CO2 emissions in NGFS scenarios​Current Policies​Delayed transition​Net Zero 2050

​NDCs

​Below 2C​Divergent Net Zero

​Gt CO2
​2.4
​2.2
​2.0
​1.8
​1.6
​1.4
​1.2
​1.0
​0.8
​0.6
​0.4
​0.2
​0
​2020

​Minor overshootexpected until 2030
​3.00C​2​2.50C​1.80C​1.70C​1.50C
​25

​30

​35

​40

​45

​2050

​1.50C​Paris-compliant
scenarios​Source: NGFS, NGFS Climate Scenarios for central banks and supervisors, June 2021, https://www.ngfs.net/sites/default/files/media/2021/08/27/ngfs_climate_scenarios_phase2_june2021.pdf

ERIA. In collaboration with the Institute for Energy Economics, Japan, ERIA published a set of scenarios in
May 2022, including a baseline case and pathways for achieving climate (carbon) neutral/net zero by 2050
or 2060. The focus is on ASEAN at a regional level. Sectors covered include energy, industry, land-use
change, forestry, and transport. As some of them are climate (carbon) neutral/net zero scenarios and have
ASEAN-level regional granularity, they could be used as reference scenarios to assess Paris alignment of
the corporate strategy. Moreover, ERIA has recently published a study that aims to describe in quantitative
terms the energy transition pathway necessary to achieve carbon neutrality across 10 ASEAN countries
through model analysis (Exhibit 20).

31 Further technical details are available in its technical documentation published by NGFS
https://www.ngfs.net/ngfs-scenarios-portal/

38

Exhibit 20

Overview of ERIA scenarios​Potential reference

Region level
granularity​ERIA scenarios for ASEAN
1 Baseline
Does not assume any emission constraints by 2060

​Country-level pathways
not yet publishedParisalignment​Fully covered​Partially covered​Not covered​SEA CO2 emissions in ERIA scenarios​Baseline​CN2050/2060_Stringent2030​CN2050/2060_w/oCarbonSink​CN2050/2060

MtCO2​6,0002 CN2050/2060 w/o Carbon Sink
Assume climate (carbon) neutral/net zero by 2050 in
BRN and SGP, and by 2060 in the rest of ASEAN​Country-level pathways
not yet published3 CN2050/2060 Stringent 2030
Apply stringent emission constraints by 2030,
consistent with IEA SDS​Country-level pathways
not yet published

4 CN2050/2060​5,0001​4,000​3,000​Minor overshootexpected until 2030

​2,000

4
3​1,000

Achieve climate (carbon) neutral/net zero with naturalcarbon sink by 2060 in ASEAN​Country-level pathways
not yet published

​0
​2017

2
​30

​40

​50

​2060

ERIA already discussed and aligned with each of the ASEAN members when crafting a pathway​Source: ERIA, Decarbonization of ASEAN Energy Systems: Optimum Technology Selection Model Analysis up to 2060, 2022,
https://www.eria.org/publications/decarbonisation-of-asean-energy-systems-optimum-technology-selection-model-analysis-up-to-2060/

When prospective fundraisers do not have well-developed decarbonization strategies
As discussed, the lack of government-published pathways in Asia is one part of the assessment challengethat FIs face in Asia. The second challenge is the lack of climate strategies from many Asian corporations
themselves. Many Asian companies that would like to put a “transition finance” label on a corporate
purpose financing do not yet have a public decarbonization strategy or plan. This is sometimes observed
among state-owned companies in Asia.
Under this situation, FIs can help Asian companies develop their own climate (carbon) neutral/net zerostrategy or plan. One source to use in developing such strategy or plan is the January 2022 report,
Leadership Strategies for Client Engagement: Advancing Climate-Related Assessments, published by theUnited Nations Environment Programme Finance Initiative.32 As part of its engagement, FIs can help thefundraising company develop a strategy or plan that meets the transition finance criteria.
However, some cases require exceptional measures. For example, state-owned companies may typicallystruggle in forming a climate strategy, given it may be developed along with government policy and may
be limited to short- or mid-term targets. As such, although it may not ultimately become fully compliant
with ICMA’s four elements, FIs could start by checking first whether a government has a climate (carbon)
neutral/net zero strategy, and then confirming that the company’s activity is aligned with the government’s
strategy. Separately, FIs could conduct a technology assessment for targeted projects, which is detailed in
Chapter 6.

5.3 INTRODUCTION TO CASE STUDIES
Chapter 4 to 5.2 have provided initial guidance on how transition finance suitability assessments could bedone in practice, including methodologies for reference to different pathways scenarios. This section
discusses practical questions that transition finance practitioners may encounter, providing several

32 United Nations Environment Programme Finance Initiative, Leadership Strategies for Client Engagement: Advancing ClimateRelated Assessments, January 2022,
https://www.unepfi.org/publications/leadership-strategies-for-client-engagement-advancing-climate-related-assessments/39

hypothetical case examples. This section also introduces a real-case example to explain how a transition
finance assessment was and could be done in practice.
Key question: Which reference pathways can be used: the regional pathway (for example, ASEAN
pathway) or country pathway? To answer this question, here are two hypothetical case studies to illustratesuggested approaches (see Exhibit 21 for the overview of case studies).

Exhibit 21​Currently no official government pathway

Hypothetical Case Studies​Basic approachcase(details incase 1 )​Basic approach(pathway published by government)​Interim approach​Regional-level​Regional-level​Country-level

N/A(basic approach is available)​Pathway published by ​Pathway published by
ASEAN (hypothetical) Indonesia government(hypothetical)​Combination ofbasic and interim
approach cases ​Pathway published by(details in
ASEAN (hypothetical)
case . 2 )​Country-level

N/A(basic approach isavailable)​Pathway published by
NGFS1​Suggested
approach
Check
ASEAN’s andthe Indonesian
government’s
pathwaysCheck
ASEAN’s and
NGFS’spathways

Case overview
FI: Multinational bank in Singapore
Fundraiser: Construction and engineering company in Indonesia
Project: Transition-linked bond to support company’s transition strategy
1. Although NGFS pathway is chose for this case, IEA or ERIA pathway also could be used if available​Source: ATF Study Group

Hypothetical case 1: Both regional and country-specific pathways are available
 Case overview: The FI in this case is a global bank headquartered in Singapore, while the fundraiser
is a construction and engineering company based in Indonesia. The project involves a transition-linked
bond to support the company’s global transition strategy. Namely, in this case, a €500 million inauguralsustainability-linked bond33 will be applied to address the company’s Scope 1 and 2 emissions for
operationally controlled assets and entities. The bank has two pathways available for reference:
ASEAN’s regional sector-specific pathway (hypothetical) and the Indonesia government’s countryspecific and sector-level pathway (hypothetical). Under the circumstances, the bank is unclear about
which pathway it should use to assess the application for transition finance assessment.
 Suggested approach: The bank is advised to use both references to check whether the construction
company’s decarbonization plan is aligned with both pathways – namely, ASEAN’s regional sectorspecific pathway (hypothetical) and the Indonesia government’s country-specific and sector-level
pathway (hypothetical).
Hypothetical case 2: No country-specific pathways issued by local governments or ASEAN are
available
 Case overview: The overview itself is similar to Case 1 (above) and involves the same parties: the FI
is a global bank headquartered in Singapore, while the fundraiser is a construction and engineering
company based in Indonesia seeking a transition-linked bond to support the company’s transition
strategy. However, in this case, the Indonesia government has not issued a country- and sector-level
pathway, while ASEAN has issued a regional pathway that does not cover country and sector levels(hypothetical). On the other hand, NGFS has published country-level pathways to climate (carbon)
neutral/net zero for carbon heavy sectors in Indonesia. Although the basic recommended approach ispathways published by governmental organizations, the NGFS pathway has sufficient detail under thecurrent circumstances.

33 The ATF Guidelines does not detail the specific requirements that may be followed to issue sustainability-linked bonds. Refer tothe ICMA’s Sustainability-Linked Bond Principles for instructions on issuing these bonds

40

Suggested approach: The bank could use NGFS’s pathway as an interim approach during the absenceof a government-published pathway in Indonesia, as it offers an Indonesia-specific sectoral pathway. In thiscase, the bank could use both references (ASEAN regional pathway (hypothetical) and country-specificpathway published by NGFS) and check whether the construction company’s decarbonization plan isaligned with both.
The case study below and Chapter 6 introduce some real-case examples to illustrate how a transition
finance assessment unfolded. FIs are advised to obtain an SPO to determine the suitability of transition
finance, as well as to gain positive acceptance from stakeholders, including investors.

Case study 1: ENEOS transition-linked bondThis is an example where the company issued transition-linked bonds as part of its transition strategy.
It commissioned a second-party opinion to ensure its framework was aligned with the transition
principle. The company used ICMA’s four elements from the ICMA Handbook to determine its
transition finance eligibility.
Fundraiser

ENEOS Holdings (ENEOS)

Financial
Institution

MUMSS (lead manager, structuring agent), Mizuho Securities/Daiwa
Securities/Nomura Securities (lead manager)

Issue Date

June 2022

Value and Tenor

JPY 85 billion 10-year bond and a JPY 15 billion 20-year bond

KPIs and SPT(Sustainability
Performance Target)

46% reduction compared with FY2013 in Scope 1 and 2 net CO2 emissionsof the ENEOS Group by FY2030, and zero net Scope 1 and 2 CO2emissions of the ENEOS Group by FY2040

Assessment: The transition finance assessment was based on four elements in the ICMA Handbook:•

Element 1 (climate transition strategy and governance). The company announced a long-term
vision for 2040, showing a measurable medium- to long-term CO2 -reduction target together with ameasurable plan for renewable energy use at its refineries, manufacturing plants, and smelters, aswell as carbon capture and storage (CCS), carbon capture, utilization and storage (CCUS), andforest absorption. The strategy was developed based on scenario analysis aligned with the TCFD
and shown to be Paris Agreement–aligned based on the SDS in the IEA’s World Energy Outlook
and 2018 New Policies Scenario.

•

Element 2 (business model environmental materiality). From an energy-security viewpoint, thepetroleum industry’s most important task in advancing climate transition is to promote efforts
to achieve carbon neutrality while also maintaining energy security and a stable supply of oil (as an
essential energy source for people’s daily lives and economic activities). Under its Long-Term
Vision for 2040, the company has positioned its Materials Business34 as a growth business—its
policy is to invest further to flex around rapidly expanding demand and to contribute to thedecarbonization of society through the provision of materials. Equally, the company believes
decarbonization initiatives are crucial to the materials manufacturing supply chain.

34 While its current core business lies in petroleum refining and sales, ENEOS positions its Material Business as a growing entity inwhich functional materials such as polymers, monomers and elastomers are produced for high-tech industries.

41 Element 3 (science-based targets and pathways). The company’s transition roadmap indicatesthat the company will work toward achieving net-zero Scope 1 and 2 by FY2040 and carbon
neutrality of Scope 3 by FY2050. The company’s transition roadmap covers Scope 1, 2, and 3. The
company’s goal to reduce net CO2 emissions of Scope 1 and 2 by 46 percent by FY2030 comparedwith FY2013 (16 million tons of CO2 per year on a net CO2 emissions basis) is consistent withJapan’s 2030 CO2 Emissions Reduction Target. The company’s targets are considered consistent
with the policies of Japan in the context of the Paris Agreement and the roadmap for transition
finance in the oil sector published by the Ministry of Economy, Trade and Industry (METI).
 Element 4 (implementation transparency). Under the Second Medium-Term Management Plan
(FY2020 to FY2022), the company has announced plans to allocate 960 billion of its 1.6 trillion
capital expenditures for strategic investments in growth businesses, such as next-generation energy
supplies and regional services, and environmentally friendly businesses. The company also plans
to disclose future investment plans in line with Medium-Term Management Plans for FY2023
and beyond.

42

CHAPTER 6ASSESSING USE-OFPROCEEDS
This chapter moves on to another type oftransition finance in Asia, involving specificUoP financing. As outlined in Chapter 4,
UoP financing involves assessments of both
corporate-level and project-level factors.
The FI that is evaluating a possible UoP
project also should assess the technologythat would be used.

43

6.1 STEP 2-A. BASIC APPROACH FOR ASSESSING UOPThe basic approach to assessing a UoP financing proposal, laid out in the ICMA Handbook (discussed
previously) highlights several prerequisites for transition financing, starting with the credibility of thefundraiser’s overall decarbonization strategy, particularly with respect to science-based targets andpathways.
To determine whether a UoP is suitable for transition financing, the FI should look at four dimensions:

1. Corporate-level: Whether the projectsponsor itself is on a Paris-aligned
pathway, that is a pathway to climate(carbon) neutral/net zero. First, the FI is
encouraged to check if the project sponsor’s
decarbonization plan is aligned with the Paris
Agreement. The approach itself is consistent
with the one outlined in Chapter 5. To do this,the FI would need to find a reference country
pathway, typically the headquarters of the
project sponsor. However, one thing that
could complicate the assessment of thisdimension for the case of UoP is if a project
has multiple owners or sponsors, especiallyfrom different countries. In the case of atransition finance project that has sponsors in
multiple countries—for example, Indonesia,
Japan, and the U.S.—the FI needs to decide
which sponsor’s corporate strategy would be
the right reference point, in addition to thecountry’s decarbonization pathway where theproject is based in. FIs might be able toconsult with an external party such as an
SPO provider if their views are available.35
2. UoP-level (project): Whether the project’s
proposed strategy is Paris-aligned. After
conducting a corporate-level assessment, theFI can also consider a UoP-level assessment.
The FI could start by comparing the project
decarbonization plan with the goals of theParis Agreement. The FI should find areference country/sector-level pathway in linewith the Paris Agreement. Let’s take theexample of a FI trying to assess a transitionbond project in Vietnam for transforming coal
into ammonia co-firing (Exhibit 22). The FI
would need to check the project emissionplan, namely the projected emissions of theplants, against a sector/region pathway toassess the plan’s alignment with the Paris
Agreement.

If the project’s plan lags behind the pathway toclimate (carbon) neutral/net zero, the projectplan may not be considered suitable astransition finance. The details on which
pathways to choose are outlined in Chapter 4
and Chapter 5. In short, if government
published pathways are available, the FI is
encouraged to use them as a basic approach.
During the absence of such pathways, theinterim approach to use other pathways (forinstance, IEA, NGFS, ERIA) could also be
considered.
3. UoP-level (technology): The technology’s
suitability for a transition finance project.
Either of two factors can be taken as
evidence that the technology in a targeted
project could be suitable as transition finance.
One factor is if the technology is part of acountry technology roadmap that is in linewith the country’s decarbonization strategy.
The other factor is if the technology can beconsidered as suitable for transition based on
the thresholds and lists of eligible activities
listed in a country or region taxonomy.
4. UoP-level (project): Whether the project’s
proposed strategy is aligned with thecorporate strategy. Finally, the project’s
decarbonization plan is expected to align withthe corporation’s strategy of the projectsponsor. Even if both the project plan andcorporate strategy are in line with a pathway
to climate (carbon) neutral/net zero, theproject plan may not necessarily be alignedwith corporate strategy. That necessitates the
FI confirming whether the project’s
decarbonization plan is also aligned with thecorporate (for the main sponsor if available)
strategy.

35 It is not necessary for a project to be aligned with country’s pathway of the sponsors to be recognized as transition finance.

44

Exhibit 22

Case Study: Vietnamese Power Utility Company
Transition bond project for transforming Coal into ammonia in Vietnam
Project-level assessment​Country-level pathway (Vietnam/ Power)1​CO2 emissions; 2020=100%
Coal

​150

20% co-firing

60% co-firing​Project’s CO2 emission plan

100% firing

​100
​50

​Aligned withpathway

​0

​2020

​30

​40

​50

​2060

1. The scenario on this chart is illustrative​Source: ATF Study Group

More on taxonomies and technology roadmaps
Taxonomies are reference points that FIs can use to make technology assessments. Some taxonomies
include pathways, or thresholds and lists of eligible activities. In the case of a taxonomy that has apathway, the FI can use the pathway as a reference point to assess a project. In the case of a taxonomy
that shows thresholds and lists of eligible activities, the FI can use those to assess the proposed
technology. One of the key taxonomies under development in Southeast Asia is being created by ASEAN.
ASEAN’s taxonomy will provide an overarching taxonomy for the whole region. However, ASEAN’s
regional-level taxonomy isn’t the only taxonomy in the works in Asia. There are also taxonomies underway
by individual governments for their countries (Exhibit 23). And this makes it important for FIs to check bothregional- and country-level taxonomies before deciding if a project they’re considering might be suitable
for transition finance.

Exhibit 23

Some taxonomies may include pathways, thresholds and a list ofeligible activities, which could be useful for TF suitability assessment
Potentially used for TF assessment​Development
statusDeveloped

Under development​ASEAN​Singapore​Indonesia​Malaysia​November 2021
(Version 1)​May 2022(2nd draft)​January 2022
(Published)​April 2021
(Published)​Principle​Country/sector-pathway​TBD​Threshold

​TBD

​TBD

​Thailand​Include​Partially include​Vietnam​N/A​EU​February 2022
(Complementary
Act)

​TBD

​TBD

​TBD

​TBD

​TBD

​TBD

​TBD

​TBD

​3 sectors preliminary
developed​List of eligible activities​TBD​Alignment with only taxonomies usually may not be enough for transition finance suitability assessment
1. The Securities Commission Malaysia is currently developing the principles-based SRI Taxonomy for the capital market, which is targeted to be released by end of 2022. The SRI Taxonomy will
provide more clarity and guidance for the market in identifying sustainable investment assets or activities.
​Source: Press release45

Technology roadmaps developed by Japanese
government36 are another reference point that FIs
can use. These roadmaps outline the technologies
expected to be necessary to make specific industry
sectors climate (carbon) neutral/net zero, showing
which technology would be ready for use in whatyear. They include expected future innovations
alongside tried-and-tested low-carbon technologies
available today (for example, energy conservationand transition). For instance, if the FI was trying toassess a transition bond project in Vietnam fortransforming coal into ammonia co-firing, the FI
would need to check the project details against a
sector technology roadmap to assess thealignment (Exhibit 24).

If the sector technology roadmap assumes thesame level of transition as what the fundraiser isplanning (or the fundraiser’s plan has a moreaggressive timeline), the technology would beassessed suitable. If the project’s plan lags that of
the country technology roadmap, the technology
plan may not be assessed as suitable for transition
finance.

Exhibit 24

Case Study: Vietnamese Power Utility Company
Technology-level assessment (illustrative)​2020

Transition
project

​30

​Coal

​20% cofiring​Coal​Retirement

​40

​2050

​Retirement

Technology
roadmap​20% cofiring​Retirement​Aligned withthetechnology
roadmap​Source: ATF Study GroupA dearth of government-created technology roadmaps and taxonomies
in Asia
Although technology roadmaps and taxonomies are useful for transition finance suitability assessment, in
Asia today, there are few completed taxonomies and technology roadmaps. It’s therefore necessary for
FIs to have an alternative assessment method until these government-developed reference points havebeen published (Exhibit 25).

36 Japan-specific technology roadmaps became available in September 2022

46

Exhibit 25

No Asia-specific references for basic approach exist yet​Completed

Potential references for technology assessment (as of September 2022)​Types ofReference​Reference​ASEAN1​Singapore​Indonesia​Not yetcompleted​Available forthree
sectors2​Not yet completed; Existingtaxonomies do not include
thresholds​Malaysia​N.A.

Partially completed​Ref.

​Thailand​VietnamPhilippines

Japan3

Technology
roadmap
References
for basic
approachPotentialreferences
for use in theinterim​Taxonomy withthreshold and listof eligible
activities

Technology list
and perspectives
for transition
finance in Asia4​Published by ERIA in September 2022

1. ASEAN started working on its own taxonomy, 2. Energy, Transport, and Real estate, 3. Sector coverage is Iron and Steel, Chemical, Power, Gas, Oil, Pulp and Paper, Cement sector
4. Sector coverage for the 1st edition is the power sector and its upstream​Source: Literature search

6.2 STEP 2–B. INTERIM APPROACH
FOR ASSESSING UOPThe basic approach described in Chapter 6.1
assumes the existence of government-compiled
country- and sector-specific pathways, technology
roadmaps and taxonomies. With such references
still scarce in Asia, FIs that want to support
transition finance for specific projects (UoP) could
consider other interim approaches. As outlined in
the interim approach for pathways in Chapter 5,
this chapter details the interim approach fortechnology assessment using taxonomies andtechnology roadmaps.

Using ‘Just and Orderly’ Factors to
Enable the Interim Approach
If no official or alternative technology roadmaps
exist, the FI is encouraged to determine if thetechnology being proposed by a fundraiser meetsthe requirements of a “just and orderly” transition.
The ATF Study Group discussions identified four
factors of a just and orderly transition broken
down as follows, with the first one (sustainability)
having three sub-components. These factors are
all relevant in assessing transition financesuitability of a technology (Exhibit 26):

 Sustainability:‒ Emissions impact: This is the fundamental
requirement. The technology should haveadequate emission-reduction potential.
‒ Lock-in prevention consideration: This
component is unique and critical to transition
finance. Transition technologies, by definition,
may still produce emissions today, but are
evolving to help a company move toward
climate (carbon) neutral/net zero in the years
ahead. To do so, the technology should befree of potential built-in roadblocks (or lock-ins)
that would prevent a just and orderly transition.
The fundraiser should consider what paths
exist for a proposed technology to be climate(carbon) neutral/net zero in the future, as wellas what obstacles in the way of those paths
need to be cleared along the way. For
example, there should be no contractual
commitments that assume the business runs
without change. If a fundraiser proposes its
gas-fired power plant will shift to 100 percent
hydrogen co-firing in 2035, it should not have afuel gas purchase agreement that runs beyond
2035.

47

‒ DNSH considerations: Technologies that

 Reliability: There should be reasonable belief

contribute to a climate (carbon) neutral/net
zero future can sometimes impede otherenvironmental objectives, such as protecting
healthy ecosystems and biodiversity,
preventing pollutants (besides GHG) into theair, water or land, or promoting the transition toa circular economy. Care should be taken to
avoid this kind of collateral damage.

 Affordability: The fundraiser should havethat the technology will be developed andreliable within the proposed timeline. For
example, if a project uses an ammonia-fired
power plant and is planning to increase the cofiring ratio to meet emissions reduction
expectations, the fundraiser needs to assess
whether the higher co-firing technology will beready and operable in the proposed timeline.

 Social considerations: Some of the trends

reason to believe that the targeted technology
will be economically competitive or at least
commercially viable—compared to existing
technology—at some point in the future.

related to climate (carbon) neutral/net zero
emissions could affect existing social structures
or local economies—for example, key
considerations could include whether thetechnology will lead to a loss of job opportunities
or result in a negative change in working
environments. These are the risks thatdeveloping countries acutely understand.

Exhibit 26

Technology Assessment for a Just and Orderly Transition​Important factors for a just and orderly transition​6 key framework dimensions​Emissions impact

1 ​Sustainability
1​Lock-in prevention
considerations​DNSH considerations

3
Reliability

4 Social stability

2
Affordability

2​Affordability

3​Reliability/maturity

4​Social considerations​Source: ATF Study GroupAs introduced in Chapter 3, the Technology List and Perspectives for Transition Finance in Asia is analternative outside reference point when technology roadmaps do not exist. The list is available from
ERIA. As of September 2022, it covers major potential transition technologies in the power (electricity
generation) sector and in the upstream (fuel production) sector within the energy sector (such as
exploration, drilling, and extraction). The list could be used to interpolate the impacts of these technologies
on GHG emissions, and to track fundraisers’ progress against the other goals of a just and orderlytransition (for instance, six dimensions mentioned above). Chapter 6.3 uses a case study to outline how atechnology assessment could be done in practice using the six dimensions.

48

6.3 INTRODUCTION TO CASE STUDIES
Chapter 4 and 6.1 - 6.2 have provided initial guidance on how transition finance suitability assessments
could be done in practice, including methodologies for reference to different pathways, taxonomies andtechnology roadmaps. This section discusses practical questions that transition finance practitioners may
face in reality, providing several hypothetical case examples. Several real case examples are also
introduced to explain how transition finance assessments have been conducted already.
Here are hypothetical case studies to help illustrate suggested approaches to the key questions FIs may
have when they use these guidelines (Exhibit 27)

Exhibit 27

Hypothetical Case Studies Overview​Currently no official government
pathway/ taxonomy​Assessment​Fundraiser​ 1 Singlecountry
case(details incase 1)​Power utility
company inVietnam​ 2 Multicountry
case(details incase 2)​Power utility
company inJapanProject
operation​Corporate-level​Project-level​Technology-level​Interim​ asic approach approach
B​Interim​ asic approach approach
B​Interim​Basic approach approach​Pathway
published by
NGFS1​Vietnam​Pathway by
Japan gov.

N/A(basic approachis available)​ 3 SPC case
​SPC withseveralsponsors

On a case-by-case basis(recommended to consult with
SPOs)

​Pathway
published by
NGFS1​Technology list
andperspectives
for transition
finance in Asia
published by
ERIA

1. Although NGFS pathway is chose for this case, IEA or ERIA pathway also could be used
​Source: ATF Study GroupKey question 1: What pathways and othersupporting checklists can FIs use for the purposesof assessment as an interim approach in theabsence of government-published pathways?
Hypothetical case 1: Project and theheadquarters in Vietnam where there are yet noreferences published by government
 Case overview: The FI in this hypothetical caseis a local bank in Vietnam, while the fundraiser isa power utility company in Vietnam working on a
new gas power plant project incorporating a
combined-cycle gas turbine (CCGT). The projectis in Vietnam where there is yet no governmentpublished pathway and taxonomy withthresholds and list of eligible activities. However,
NGFS has published a relevant country- andsector-level pathway, while ERIA has publishedthe Technology List and Perspectives forTransition Finance in Asia (albeit not official
government-published documents).
 Practically recommended approach: The bankcould use NGFS’s pathway for corporate-leveland project-level assessments and ERIA’s

Technology List and Perspectives for Transition
Finance in Asia for the technology assessment until
Vietnam’s government publishes the requisite
country- and sector-level pathway and taxonomy
with thresholds and list of eligible activities:‒ Corporate-level and project-levelassessment: The bank is advised to check
pathways published by non-governmentorganizations such as ERIA, IEA, and NGFS.
In this case, to assess both the corporate andthe project long-term decarbonization plans,
the bank can compare each plan with the
NGFS pathways (or others) until countryspecific pathways for Vietnam become
available. If both decarbonization plans arealigned with the NGFS pathway, it would meanthat they are aligned with pathways to climate(carbon) neutral/net zero. An assessment
example is illustrated in Exhibit 28. In thisexample, the corporate and project emission
trajectories based on its plans are in line with
the NFGS delayed transition pathway for theVietnam/power sector. As such, theassessment result would be aligned withpathways to climate (carbon) neutral/net zero.
49

Exhibit 28[Corporate-/Project-level] FI can Assess Corporate and Project
Decarbonization Plans by Referring to NGFS’s Pathway​A new gas power plant with CCGT in Vietnam​NGFS delayed transition (Vietnam/ Power)​Alternative reference​Corporate emission​Project’s emission​Decarbonization plan vs the reference pathway​CO2 emissions; 2020=100%
​150

​100

​Pathway
by NGFS1

​50
​0

​2020

​30

​40

​50

​2060

​2020

​30

​40

​50

​2060

​150
​100

​NGFS’s
pathwayaligned​50​0

1. Although NGFS pathway is chose for this case, IEA or ERIA pathway could also be used
​Source: ATF Study Group‒ Technology-level assessment: To assess
the technology to be used for the project, as aninterim approach, the bank can check theTechnology List and Perspectives forTransition Finance in Asia issued by ERIA andassess the CCGT technology based on the six
framework dimensions outlined in Chapter 6.2.
The example assessment result is shown in
Exhibit 29. Based on the assessment using theTechnology List and Perspectives forTransition Finance in Asia, although the CCGT
technology could cover five dimensions(emissions impact, reliability, affordability,
DNSH considerations, and social
considerations), it is not clear whether thetechnology covers lock-in prevention, because
the company has not publicly announced plansaround technology requirements to achieve
climate (carbon) neutral/net zero by 2060.

Thus, in this case, the bank would be welladvised to ask the company to create a lock-in
prevention plan. Then a new assessment
would be meaningful. To do this, the bankneeds to refer to the taxonomy with threshold
and the list of eligible activities, technology
roadmap, or the Technology List andPerspectives for Transition Finance in Asia,37
then assess that plan38, and finally reassess
the whole project prior to moving ahead withtransition finance.

37 For instance, the Technology List and Perspectives for Transition Finance in Asia mentions pathways such as transition
to co-firing/full-firing with low-carbon fuels, retrofitting with CCUS, retirement and shift to peaking/reserve use withinlargely decarbonized power systems in order to achieve long term climate (carbon) neutral/net zero
38 It is important for FIs to check whether the plan calculates and includes the costs of necessary prevention plans

50Exhibit 29[Technology level] FI can assess the target technology using the six
framework dimensions compliant with just and orderly transition
A new gas power plant with CCGT in Vietnam​Alternativereference​Assessment of target technology​Emissions
impact​TLPTFA1

Emission intensity of CCGT is lower than that of coal, whichis the major source of electricity in Vietnam

Assessment
considerations:▪

Lock-in prevention
plans are unclear,becaue potential
future shift to lower
emission by the
corporate entity is
uncertain (e.g.,hydrogen co-firing,
CCUS)

▪

There is a lack ofclarity in lock-in
prevention
considerations, whichmakes it difficult toassess TF eligibility​Reliability/maturity ​CCGT has already been commercialized at scale and there
are other ongoing cases in Vietnam​Affordability​The cost would be acceptable relative to that of other options​Lock-in prevention T​ he company has not publicly announced plans on technology
considerations
to achieve climate (carbon) neutral/net zero by 2060
​DNSH
considerations​Project complies with environmental rules and regulations,
including global standards​Socialconsiderations

Project will result in additional employment / contribution to
the local economy

1. Technology list and perspectives for transition finance in Asia
​Source: ATF Study GroupKey question 2: What pathways and othersupporting checklists can the bank use for the
purposes of assessment when dual locations are
involved (for example, project located in Vietnam
and company headquarters in Japan)?
Hypothetical case 2: Project in Vietnam and HQ
in Japan Case overview: The FI in this hypothetical caseis a local bank in Vietnam, while the fundraiser isa power utility company in Japan. The project
relates to conversion of an existing coal power
plant to ammonia co-firing. However, the projectis in Vietnam, where the government has yet to
publish its country-level pathway and taxonomy
with thresholds and list of eligible activities.
However, NGFS has published a country- andsector-level pathway for Vietnam. Additionally,
the fundraiser’s headquarters is in Japan, where
the government has published its official
pathway.
 Practically recommended approach: The bankcould use the Japanese government’s pathway
in combination with NGFS’s pathway for its
assessment of the company’s long-term
decarbonization plan. For the technology
assessment, ERIA’s Technology List andPerspectives for Transition Finance in Asia could
be used:‒ Corporate-level and Project-levelassessment: FIs are advised to check both
the Japan specific pathway and Vietnam
specific pathway. For the Japan specificpathway, FIs could assess the company’s
long-term decarbonization plan against theJapanese government pathway where thecorporate headquarters is located. For theVietnam specific pathway, it is advised to use
NGFS’s Vietnam-specific pathway (or others)
as an interim approach to check if the targeted
project has a long-term decarbonization plan inline with the pathway to climate (carbon)
neutral/net zero specific to Vietnam where theproject operation is expected to occur (seeExhibit 30).

51

Exhibit 30[Company-/Project-level] FI can Assess Corporate/Project Decarbonization
Plans by Checking Japanese and Vietnamese Pathways
Low-carbon ammonia 20% co-firing coal-fired power plant case in Vietnam (Corporate HQ in Japan)​Assessed​Alternative
decarbonizationreference​Decarbonization plan vs. reference
plan
Corporate level

Project level​N/A (Japanese
Government
issued pathway
available1)​NGFS
pathway2​CO2 emissions; 2020=100%​Japan Gov. Pathway (Power)​200​Corporate’s emission

​100
​0

​2020

​30

​40

​50

​2060

​CO2 emissions; 2020=100%
​200

Coal

20%
cofiring

60%
cofiring

100%
cofiring

​2020

​30

​40

​50

​Japan Gov. pathway aligned​NGFS delayed transition(Vietnam/ Power)​Project’s emission

​100
​0

​2060

​NGFS pathway aligned

1. Based on Strategic Energy Plan 2022 and Technology Roadmap 2022; 2. Although NGFS pathway is chose for this case, IEA or ERIA pathway could also be used
​Source: ATF Study Group‒ Technology level assessment: To assess the technology to be used for the project, as an interim
approach, the bank can check the Technology List and Perspectives for Transition Finance in Asia
issued by ERIA and assess the CCGT technology based on the six elements (same process as
Hypothetical case 1 in this chapter)
Here are real-case examples to illustrate how a transition finance assessment was done or could be donein practice.

CASE STUDY 1: SUMITOMO CHEMICAL TRANSITION LOAN
This is an example where a company issued a transition loan for the construction of LNG-fired power
generation facilities in the Chiba and Ehime districts of Japan. The Chiba project will convert
petroleum coke into natural gas with CO2 emission reduction of 240k tons/year. The Ehime project will
convert oil and heavy oil into natural gas with CO2 emission reduction of 650k tons/year. The ICMA’s
four elements are used to determine its transition finance eligibility.
Fundraiser

Sumitomo Chemical Company, Limited and Sumitomo Joint Electric Power
Co., Ltd.

Financial Institution

SMBC (arranger & structuring agent)

Issue Date

2022

Value and Tenor

JPY 10 billion and JPY 8 billion

Assessment: The transition finance assessment was based on four elements in the ICMA Handbook: Element 1 (climate transition strategy and governance). The company has established concretemeasures to achieve an ambitious target of 50 percent reduction by 2030 in its Scope 1 and 2
emissions, compared to the level of the emissions in 2013, and net zero by 2050. It is also striving
for rapid social implementation of products and technology that contribute to global GHG reduction.
On top of these efforts, a Carbon Neutral Strategy Council was set up with the purpose ofpromoting carbon neutrality within the company.

52 Element 2 (business model environmental materiality). Mitigating climate change is the principal
way of reducing environmental impact and building social value. The Use-of-Proceeds for the loan isaligned with the company’s carbon neutral strategy, which is aligned with the Paris Agreement andJapan’s technology roadmap. In addition, the LNG gas turbines can also be expected to utilizehydrogen by the future progress in technological development, further contributing to the mitigationof climate change.
 Element 3 (science-based targets and pathways). The company’s targets and strategy are inalignment with the chemical sector roadmap. Medium- and long-term targets have been set for
Scopes 1, 2, and 3. The interim target for 2030 including all Scopes 1, 2, and 3 has obtained SBTi
certification39. Targets are also in alignment with the METI’s Technology Roadmap for “Transition
Finance” in the chemical sector. The construction of the funded LNG-fired power plant is positioned
as one of the main measures to realize the company’s 2030 ambitions and will contribute to thetransition strategy over the medium- to long-term.
 Element 4 (implementation transparency). From 2013 to now, the company has invested andmade decisions to invest JPY 80 billion to reduce GHG emissions. In addition, the company expects
to invest JPY 120 billion by 2030, aiming at becoming carbon neutral. These investments include
plant energy conservation measures, fuel conversions, production equipment upgrades at plants,
chemical recycling of plastic resources, technologies such as CO2 separation and CCU, etc. The
company has introduced an internal carbon pricing system for investment decision making thatreflects a carbon price of JPY 10,000 per ton since 2019.

CASE STUDY 2: IHI CORPORATION TRANSITION BOND
This is an example in which IHI Corporation issued a transition bond for JPY 20 billion to fundinitiatives for Zero Emission Mobility, ammonia exclusive-firing solutions, build an ammonia value chainat its facilities, and to perform carbon recycling on site. The company developed its framework inaccordance with roadmaps and guidelines from the METI, the Ministry of Land, Infrastructure,
Transport and Tourism (MLITT), and the International Air Transport Association (IATA). The company
used ICMA’s four elements to determine its transition finance eligibility.
Fundraiser

IHI Corporation

Financial Institution

Mizuho Securities (structuring agent, lead manager) Nomura Securities(lead manager)

Issue Date

June, 2022

Value and Tenor

JPY 11 billion 5-year bond and JPY 9 billion 10-year bondAssessment: The transition finance assessment was based on four criteria from the ICMA Handbook: Element 1 (strategy and governance). The company has set a long-term goal of achieving 2050
carbon neutrality across the entire value chain. The company’s transition strategy is based on the
results of risk scenario analyses with guidance from the TCFD and will be a key part of thecompany's business model transition. The IHI Group established the ESG (environment, social, andcorporate governance) Management Promotion Committee in FY21 to examine basic policy andmeasures for ESG management, and to evaluate and improve the implementation status. The
Environment Committee and the Carbon Neutral Task Force are under the umbrella of the ESG
Management Promotion Committee to implement and follow up on group-wide measures.

39 GHG Emission Reduction Targets Certified under the Science Based Targets initiative are as follows. Scope 1 and 2: A
reduction of 36% by 2030 (vs. FY2020), which equals to a reduction of 50% (vs. FY2013), and Scope 3: A reduction of 14% by
2030 (vs. FY2020)53

 Element 2 (materiality). The company cites climate change, circular economy, and environmental
protection as critical issues. The Project Change management policy clarifies the social issues thecompany should address (becoming carbon-free, disaster prevention and disaster mitigation,
fulfilling lifestyles), the values that it can provide (create a world where nature and technology workin unity) and re-examines important issues.

 Element 3 (science-based targets and pathways). The company has set mid-term targets of 46%
emissions reduction by 2030 in Scope 1 and 2, and 50% reduction by 2035 (in the Resources,
Energy, and Environment Business Area that account for the majority of Scope 3). The number ofemission-intensive businesses are expected to shrink by 2030, and the market for technologies
related to renewable energy, hydrogen, ammonia, etc. are expected to grow. The company aims todevelop these businesses into their core activities by expanding to new market segments (carbon
neutral related businesses, hydrogen, ammonia, etc.) that will contribute to carbon neutrality. In thelong term, their goal is to become carbon neutral by 2050 by riding the transition to an economy
reliant on hydrogen, ammonia, and renewable energy. The company is implementing developing
power generation technology using ammonia and verification projects for the social implementationof domestically produced engine-equipped vessels with ammonia fuels. In addition, in the future,
anticipating a society in which ammonia use is expanding, the company aims to contribute to theconstruction of a value chain from the production to the use of ammonia. It also plans to implement
CCUS and carbon dioxide monetization to streamline the transition from a hydrocarbon-centriceconomy.

 Element 4 (transparency). The company plans to invest JPY 380 billion over three years to create
growth businesses set forth in its medium-term management plan. Over 30% of this amount will beallocated to hydrogen and ammonia-related technology development and electrification
technologies. These growth businesses will address social issues by “Prevent and mitigate
disasters,” “Become carbon-free,” and “Materialize fulfilling lifestyles” through air transportation
systems, carbon solutions and maintenance and disaster prevention and mitigation. These goals will
be achieved through a combination of stronger R&D efforts and measures such as electrification,
new materials, advanced manufacturing technology, digital tools, and strategic acquisitions. The
progress of R&D projects and the status of fund appropriations and their intended effects will bereported to the extent possible for disclosure.

54

APPENDIX

55

TABLE OF CONTENTS
1

Glossary

57

2

Guidelines: ICMA Handbook 2020

60

3

Assessment checklist for Transition Finance62

4

Climate Bond Initiatives: “Financing Credible Transitions”

63

5

Example pathway

64

6

ICMA Climate Technology Finance Methodologies registry

66

7

ASEAN taxonomies

67

8Technology roadmaps: Japan example

71

9

Carbon credit

7156

1. GLOSSARY
Glossary of Terms
Carbon credits

Certificate representing carbon dioxide equivalent (CO2 e) that is either
prevented from being emitted into the atmosphere or removed from theatmosphere

CCUS

The technological process of capturing carbon dioxide (CO2 ) from or
before it enters the atmosphere, and then transporting and storing it(carbon sequestration) permanently

Climate (carbon)
neutral/net zero
emissionsCutting greenhouse gas emissions to close to zero, with any remaining
emissions absorbed by forests and oceans

Climate Finance

Local, national or transnational financing – which can come from public,
private and alternative sources– that is used to reduce emissions andsupport mitigation efforts to address climate change

Decarbonization

Reducing or removing carbon dioxide emissions, usually by using low
carbon power sources

ERIA (Economic
Research Institute for
ASEAN and East Asia)

An international economic research and policy organization establishedin Jakarta, Indonesia in 2008 by a formal agreement among leaders of 16
countries in the East Asian region

General Corporate
Purposes financing

Financing instrument to support a corporation’s overall decarbonization
strategy

GHG emissions

Also known as greenhouse gas emissions, these are gases (particularly
CO2) that trap heat in the atmosphere, causing climate change

Green FinanceAny financing that is created to benefit sustainable development

Green Bond / Loan

Any type of bond or loan instrument whose proceeds are used in part tofund projects that make a substantial contribution to an environmental
objective (Green Projects), and that align with the core components of
the Green Bond Principles / Green Loan Principles

IEA (International
Energy Agency)

An autonomous intergovernmental body established in the framework of
the Organisation for Economic Co-operation and Development (OECD)
whose mission is to shape global energy policies for a secure andsustainable future

IPCC(Intergovernmental
Panel on Climate
Change)An intergovernmental body of the United Nations that assesses thescience related to climate change so that policymakers can use theinformation for mitigation efforts. It produces special reports requested byits members, as well as assessments on the state of scientific,
technological and socio-economic climate change knowledge.

Just and orderlytransition

Concept of moving toward decarbonization and climate sustainability
while weighing the reliability of the energy supply and affordability ofenergy, avoiding social instability
57

Glossary of Terms
Nationally
Determined
Contributions

Climate action plans that are required by signers to the Paris Agreement.
The plans, which are updated every five years, must include how
countries will reach their emission reduction targets and what steps,
systems, and financing they will use to ensure that their goals are met.

NGFS (Network forGreening the
Financial System)

A global coalition of central banks and financial supervisors that formed
to help ensure that the Paris Agreement goals would be met. It seeks toenhance the role of the financial system in managing climate risk andmobilizing capital for green and low-carbon investments.

The Paris Agreement

A legally binding international climate change treaty that sets a global
framework for how countries should reduce greenhouse gas emissions.
Its goal is to limit global warming to well below 2°C, preferably to 1.5°C,
compared to pre-industrial levels. Article 4, paragraph 2 requires eachcounty to document how it will achieve its reductions in plans known asnationally determined contributions (NDCs).

Pathway

A process or roadmap for how a country or company will reach its
stipulated emissions targets. Also referred as climate (carbon) neutral/net
zero pathways.

Science Based Target

Targets that are in line with the scale of reductions required to keep the
global temperature increase below 2°C above pre-industrial
temperatures

Social Finance

A type of financial services that manages investments to deliver both asocial dividend and an economic return. It is often used to describe thelending and investment into social enterprises, charities, co-operatives,
non-profits and other impact-focused organizations that address societal
and environmental challenges.

Social Bond

Any type of bond instrument whose proceeds are used to fund projects
that address or mitigate a social issue and/or seek to achieve positivesocial outcomes (Social Projects), and are aligned with the ICMA’s four
core components of Social Bond Principles

Sustainable Finance

While some organizations say this is when investment decisions consider
environmental, social and governance issues, ICMA has a broader
definition. It considers sustainable finance to include climate, green andsocial finance that also weighs the economic sustainability of theorganizations being funded, as well as the stability of the overall financial
system in which they operate (refer to Sustainable Finance High-level
definitions for further details)

Sustainable Bond

Bond instruments whose proceeds are used to finance a combination ofboth Green and Social Projects (refer to Sustainability Bond Guidelines
for further details)

58

Glossary of Terms
Sustainability-linked
bond

Bond instruments in which the financial and/or structural characteristics
are tied to whether the issuer achieves predefinedsustainability/environmental, social, and governance objectives (refer to
Sustainability-Linked Bond Principles for further details)

Sustainability-linked
loan

Loan instruments and/or contingent facilities (such as bonding lines,
guarantee lines or letters of credit) that are used to help the borrower
achieve predetermined sustainability performance objectives (refer tothe Sustainability-Linked Loan Principles for further details)

Taxonomies

Classification system that provides businesses with a common language
and the means to identify whether or not a given economic activity isenvironmentally sustainable

Technology
roadmaps

Roadmaps that outline the technologies that will be necessary to get
specific industry sectors aligned with the Paris Agreement, showing
which technology should be ready for use in what year

Transition activities

Activities that support a just and orderly transition to low-carbon
economies by lowering rather than eliminating GHG emissions

Transition Finance

Financial support that helps companies in their long-term strategic efforts
to reduce greenhouse gas emissions on the path to climate (carbon)
neutral/net zeroUse-of-Proceeds
financing

Financing instrument to support specific projects contributing todecarbonization

59

2. GUIDELINES: ICMA HANDBOOK
2020
As outlined in Chapter 3, The Climate Transition Finance Handbook (ICMA Handbook) published by ICMA
is targeted at corporations seeking to raise finance in carbon-intensive sectors that have committed toreduce emissions in line with the Paris Agreement. However, companies in many different sectors wishingto raise debt that can be labelled as transitional finance often reference the ICMA Handbook. It
recommends that transition-labeled debt instruments meet certain requirements in four elements, and it
suggests the data and verification processes that should be used to gauge whether these requirements aremet (Exhibit A1). The following descriptions of the four elements are from the ICMA Handbook.

Exhibit A1:

Transition Finance Issuance guidelines are available globally by ICMA
– involving 4 key elements of requirements​Overview of ICMA Transition Finance Handbook…

 Objective is to provide issuer-… which shows four key requirements for transition
finance suitability
1level disclosures to finance thetransaction, particularly forhard-to-abate sectors

 Designated guidelines whenissuing green bonds, social
bonds, sustainability bonds orsustainability-linked-bonds.

2

Strategy

Materiality

Financing purpose should befor enabling an issuer’s climatechange strategy

Climate trajectory should bematerially relevant to business
model

3

4

Science-based

Transparency

Science-based target andpathways

Transparency of underlying
investment program​Source: ICMA, Climate Transition Finance Handbook 2020, 2020,
https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Climate-Transition-Finance-Handbook-December-2020-091220.pdf

ELEMENT 1) CLIMATE TRANSITIONSTRATEGY AND GOVERNANCE
The ICMA recommends that the finance should
support the implementation of an issuer’s
decarbonization strategy, which should be based
upon credible commitments and changes inpractices. The strategy should therefore also makeclear how the business model will be adapted toassist a transition to a low-carbon economy.
Data. The information and indicators required todemonstrate an issuer’s strategy are:
 A long-term target aligned with the goals of theParis Agreement
 Applicable interim targets

 Information on the decarbonization levers thatwill be used, and strategic planning toward along-term target to align with the goals of theParis Agreement
 Clear oversight and governance of thedecarbonization strategy
 Proof of a broader sustainability strategy
Verification. An independent technical review of
an issuer’s strategy can help ascertain whether the
strategy is credible. It should include: Evidence that long- and short-term targets arealigned with the overall scenario
 Confirmation that the issuer’s strategy to reachthe targets is credible

60

ELEMENT 2) BUSINESS MODELENVIRONMENTAL MATERIALITY
The strategy and its decarbonization trajectoryshould be relevant to the material parts of theissuer’s business model – that is, to its core
activities, as these account for most of the issuer’s
carbon emissions. The issuer should also consider
how the trajectory will affect the environment andsociety and attempt to mitigate any negative
impact.
Data. Discussions of the issuer’s transition
trajectory should include consideration ofmateriality. Issuers can use market guidance fromaccounting standards bodies such as theSustainability Accounting Standards Board.
Verification. An external review of an issuer’s
considerations regarding materiality may notalways be appropriate. Issuers should turn toaccountants for additional guidance.

ELEMENT 3) SCIENCE-BASEDTARGETS AND PATHWAYS
The issuer’s decarbonization strategy should
include science-based targets and transition
pathways. The planned decarbonization trajectoryshould be: Quantitatively measurable (using a consistentmeasurement methodology)
 Aligned with, measured against, or otherwise
referenced to recognized, science-based
trajectories
 Publicly disclosed (in financing filings) withinterim benchmarks
 Supported by independent assessments orverification
Data. The ICMA notes that issuers can rely onseveral frameworks to help disclose theirdecarbonization plans. It suggests the following
information and indicators be included:
 Short-, mid-, and long-term carbon-reduction
targets aligned with the Paris Agreement Baseline carbon emissions
 Scenario utilized, and methodology applied (forexample, ACT or SBTi) Carbon objectives covering all three scopes Targets calculated in both intensity and absolute
terms
Verification. The independent review of anissuer’s decarbonization strategy can include atechnical review of an issuer’s proposed
decarbonization trajectory to assess its alignment
with science-based trajectories. However, in thecontext of the accompanying debt instrument (forexample, a Use-of-Proceeds bond in alignment
with the Green Bond Principles), the issuer may opt
for an external review that also addresses theissuer’s overall trajectory.

ELEMENT 4) IMPLEMENTATION
TRANSPARENCY
A decarbonization strategy requires the long-term,internal allocation of capital by the company alongwith governance and process changes. Both are
crucial if future operations are to support thestrategy. Market communication of an issuer’s
strategy should therefore provide transparency on
the intended underlying investment program and its
expected impact, including planned capital andoperational expenditure, where feasible.
In addition, where a transition might negatively
affect workers and communities, issuers should
outline how they have incorporated considerationof a just transition and its social implications. Thismeans balancing the positive and negative impactsof their strategy, ensuring that the substantial
benefits of a green economy transition are sharedwidely, while also supporting those who stand tolose economically – whether they are countries,
regions, industries, communities, workers or
consumers.

Data. The suggested disclosures are:
 Information on the percentage ofassets/revenues/expenditures/divestmentsaligned to the various levers of the issuer’stransition strategy
 CAPEX roll-out plan consistent with the overall
strategy and climate science Disclosure of CAPEX and OPEX plans and otherfinancial metrics relevant to the decarbonization
strategy. These can be made in a company’s
annual report, a sustainability report, or on its
website.
Verification. Assurance or verification of CAPEXand OPEX plans is unlikely to be appropriate given
the difficulty in predicting forward-looking
expenditures. The issuer may consider providing
an analysis of the extent to which outcomesmatched the original plans, with explanations forvariances on items such as spending.

61

3. ASSESSMENT CHECKLIST FOR
TRANSITION FINANCE
Chapter 4 outlined four key questions FIs could ask to understand the baseline of fundraisers against thefour ICMA elements. This section includes the consolidated checklist for FIs (Exhibit A2). This checklist
could be used for FIs to conduct initial transition finance suitability assessments.

Exhibit A2:

Assessment checklist for Transition Finance​ICMA’s key elements ​Key questions​What is afundraiser’s climate
strategy?

​Sub questions​Check​Does the fundraiser’s long-term climate ambition include net zero, climate (carbon) neutrality or is it
Paris-aligned? (Namely, the objective of limiting global warming ideally to 1.5°C and, at the very
least, to well below 2°C)
​Has the fundraiser disclosed relevant interim targets?
​Does the fundraiser disclose measurable levers toward decarbonization and strategic planningtoward long-term targets to align with the goals of the Paris Agreement?
Does the fundraiser have clear oversight and governance in place to implement its climate
strategy? For example, is there an organizational structure for the board of directors and/or an
oversight committee to supervise climate change activities, as well as clearly defined roles for
management to assess and run the climate-related initiatives?

​Climate transition
1 strategy andgovernance​Does the fundraiser have evidence of a broader sustainability strategy to mitigate relevant
environmental and social externalities and to follow the 17 UN Sustainable Development Goals?
​Is the transition strategy based on the risks and opportunities identified through the categorization
framework of the Task Force on Climate-related Financial Disclosure (TCFD)?
Is the fundraiser’s pathway to transition broadly in line with the respective region’s pathway andsector roadmap? Also, is the fundraiser’s transition strategy based on its own starting point?
​Is the fundraiser’s transition strategy disclosed in advance in the company’s integrated report,sustainability report, statutory documents and other materials for investors and FIs?

​Business model
2 environmental
materiality​Science-based
3 targets andpathways​Is the climate
strategy material toits overall businessmodel?

​Is the fundraiser's decarbonization strategy outlined in its business plan or annual report?

​Is the climate
strategy in line with
Science-basedtargets andpathways?

​Does the fundraiser state that its strategy, project, and short-, medium-, and long-term targets arealigned with a science-based, Paris-aligned pathway, that is a pathway to climate (carbon)
neutral/net zero?

​Is climate awareness evident in the operations of the company’s core businesses?
Do the initiatives for achieving the transition strategy contribute to transforming core businessactivities that are environmentally material parts of the company today and in the future?

​Does the fundraiser’s short-, medium-, and long-term emissions reduction targets have a clear
emission baseline — for the baseline year and the business-as-usual (BAU) trajectory — andformulate both in intensity and absolute terms?
​Does the fundraiser refer to any scenarios used, methodologies applied and the GHG scope(Scope 1, 2, and 3) covered regarding their targets (for example, ACT, Science Based Targets
initiatives (SBTi), etc.)?

4​Implementationtransparency​How transparent isthe underlying
investment program
for the climate
strategy?

​Does the fundraiser have a published investment plan for achieving its specified climate goals in
and/or related to its transition finance application that the FI can review?
​If so, does the fundraiser disclose the percentage of assets/ revenues/ expenditures/ divestmentsaligned to its the climate goals?

​Does the fundraiser have a capex roll-out plan consistent with the climate goals and science?
​Does the investment plan outline the assumed climate-related outcomes and impacts withquantitative data where possible, along with the calculation methods and prerequisites?

​Source: ATF Study Group62

4. CLIMATE BOND INITIATIVES:“FINANCING CREDIBLE TRANSITIONS”
In addition to the ICMA Handbook, other guidelines
have been published, most notably Financing
Credible Transitions by the Climate Bond
Initiatives, an international organization working tomobilize global capital for climate action. FIs cancredibly refer to this paper for guidance whenassessing transition finance proposals. Aimed atinvestors, issuers, scientists, policymakers, andmarket analysts, Climate Bond Initiatives’ white
paper has two purposes:
 To define transition as a concept by presenting astarting point for the market to see a credible
brown-to-green transition as ambitious, inclusive,
and aligned with the Paris Agreement
 To propose a framework for proper use of thetransition label and lay out clear roles for both agreen and a transition label, with theunderstanding that transition differs for different
entities
The paper aims to engage different stakeholder
groups in helping establish what it calls “transition
with impact.” Investors – to work with the sell-side for acommon definition of transition finance andencourage future transactions to be aligned withthose principles.
 Issuers – to issue securities in line with thebenchmarks proposed to ensure faster emission
reductions.
 Scientists, subject experts, and academia – tohelp use the best available science and research
to refine the definitions of transition pathways
and fill in the gaps where needed.
 Policymakers – work to enact regulation that
could assist in incentivizing this market to scale.
 Market analysts – test and use the transition
concept to assess real transactions and financial
products.
To ascertain eligibility for the transition label, thepaper proposes five principles as well as
categorization frameworks for activities andentities: In line with 1.5°C trajectory – all goals andpathways need to align with zero carbon by
2050, while also nearly halving emissions by2030.
 Established by science – all goals andpathways must be led by scientific experts andbe consistent globally.
 Offsets don’t count – credible transition goals
and pathways don’t count offsets but should
include upstream Scope 3 emissions.
 Technological viability trumps economic
competitiveness – pathways must include anassessment of current and expected
technologies. Even expensive technology, if
viable, should be used to determine thedecarbonization pathway for that economic
activity.
 Action, not pledges – a credible transition isbacked by operating metrics rather than futurecommitments.
In line with its principles, the paper addresses
categories across a range of activities:
 Near zero – activities already at or near climate(carbon) neutral/net zero emissions that may
require some further decarbonization but not asignificant transition (for example, wind power
generation).
 Pathway to zero – activities needed beyond
2050 and have a clear 1.5°C decarbonization
pathway such as shipping.
 No pathway to zero – activities that are needed
beyond 2050 but at present do not have a clear
1.5°C decarbonization pathway to 2050 (forexample, long-haul passenger aviation).
 Interim – activities currently needed but thatshould be phased out by 2050 (for example, gas
power generation with CCS, gas production forheavy industry).
 Stranded – activities that cannot be brought intoline with global warming targets and have analternative, low-emissions substitute (forexample, electricity generation from coal).
 No label – activities that do not meet the
principles and are not eligible for a label.

63

5. EXAMPLE PATHWAY
Current situation in Asia
For FIs assessing the transition finance potential of Asian corporations, one big challenge is the absence,
to date, of fully developed government-published pathways. Many Asian governments are working on
pathways that would show their movement toward climate (carbon) neutral/net zero by 2050, 2060, or
2070, but those pathways are almost all still under development (Exhibit A3). FIs therefore need to use aninterim approach to evaluate transition finance requests by Asian corporations, at least until governmentpublished pathway information becomes more available in Asia.

Exhibit A3:

Pathways as potential references for project and corporate assessments​Completed​Region/country coverage​Southeast Asia

​World​Publisher
Referencesin principle

Paris-aligned pathway / pathway
to climate (carbon) neutral/net
zero scenarios; 2020=100​ASEAN1​Singapore2​Indonesia2​Malaysia2​Thailand2​Vietnam2​N/A

Philippines

Government/
Association
A

2050: 1.6C

Sustainable
development scenario
​200

​100
​0
​2020

Potentialreferences
for use in
the interim​Sectorcoverage​Partially completed

B

​2030

​2040

​2050

​Delayed transition scenario 2050: 1.8C
​200
​100
​0
​2020

C

NZ4: AEs5 by
2050, Chinaaround 2060,
others by 2070

​30

​40

​2050

​CN2050/2060 scenario
in ASEAN

2050: Below
2.0C

​200

NZ: by 2060

​100
​0
​2020

NZ: N.A. (6.4
Gt CO2 in
2050)

​2030

​2040

​2050

Energy,Industry,
Transport,
Buildings
AFOLU3,Chemicals,
Buildings,
Electricity,
Transport,
Cement, Steel
Energy,Industry,
Transport,
LULUCF6​Not yet publicly launched

1 ASEAN has begun work on its taxonomy, 2. Net zero target exists, 3. Agriculture, Forestry, and Other Land Use, 4. Net zero, 5. Advanced Economies, 6. Land use, land-use change and forestry
Source: Based on IEA data from IEA (2021) World Energy Outlook, www.iea.org/statistics, All rights reserved; as modified by The Asia Transition Finance Study Group., Based on IEA data fromIEA (2020) Energy Technology Perspectives 2020, https://www.iea.org/reports/energy-technology-perspectives-2020, All rights reserved; as modified by The Asia Transition FinanceStudy Group., NGFS, NGFS Climate Scenarios for central banks and supervisors, June 2021,
https://www.ngfs.net/sites/default/files/media/2021/08/27/ngfs_climate_scenarios_phase2_june2021.pdf, ERIA, Decarbonization of ASEAN Energy Systems: Optimum Technology
Selection Model Analysis up to 2060, 2022, https://www.eria.org/publications/decarbonisation-of-asean-energy-systems-optimum-technology-electionmodel-analysis-up-to-2060/

IEA. Published in May 2021, Net zero by 2050: A roadmap for the global energy sector is acomprehensive study of how to transition to a climate (carbon) neutral/net zero energy system by 2050,
while ensuring stable and affordable energy supplies, providing universal energy access, and enablingrobust economic growth. The report sets out a cost-effective and economically productive pathway thatwould result in a clean, dynamic, and resilient energy economy dominated by renewables. It also
examines key uncertainties, such as the roles of bioenergy, carbon capture, and behavioral changes inreaching climate (carbon) neutral/net zero. However, the Net Zero Emissions scenario from IEA is a
global scenario and does not cover a regional view. Another climate (carbon) neutral/net zero scenario
from IEA is its Sustainable Development Scenario (SDS), which achieves climate (carbon) neutral/net
zero emissions for advanced economies by 2050, for China around 2060, and for all other countries by
2070. Since SDS covers ASEAN on a regional-level (not a country-level) it is the only IEA scenario tounderstand regional-level granularity and the Paris-alignment in the ASEAN region as of September 2022
(Exhibit A4).

64

Exhibit A4:

Overview of IEA scenarios​Potential reference

Region level Paris
granularity alignment​IEA scenarios1​Stated Policies Scenario (SPS)​Reflects the impact of existing policy frameworks and today’s
announced policy intentions​SEA regional
level coverage​Climate (carbon) neutral/net zero emissions achieved byadvanced economies by 2050, by China around 2060, and by
all other countries by 2070 at the latest​Partially covered​Not covered​SEA CO2 emissions in IEA scenarios​SPS​Gt CO2

SDS

​2.8

​2.6
​2.4

​Sustainable Development Scenario (SDS)​Holds the rise in global temperatures to “well below 2°C (…)
and pursuing efforts to limit it to 1.5°C”​Fully covered​SEA regional
level coverage​Minor overshootexpected until 2030

​2.2

​2.0
​1.8
​1.6
​1.4
​1.2

​Net Zero Emissions by 2050

​1.0

​Need beyond SDS over the next ten years to put global CO2
emissions on a pathway to climate (carbon) neutral/net zero by
2050

​0.8

​Must be in line with pathways used by the IPCC for the Special
Report on Global Warming of 1.5 °C

​0.2

​0.6
​0.4
​0
​2020

​25

​30

​35

​40

​45

1. Based on IEA's models combined with the IIASA’s Global Biosphere Management Model (GLOBIOM)​Source: Based on IEA data from IEA (2021) World Energy Outlook, www.iea.org/statistics, All rights reserved; as modified by The Asia Transition Finance Study Group., Based on IEA data​from IEA (2020) Energy Technology Perspectives 2020, https://www.iea.org/reports/energy-technology-perspectives-2020, All rights reserved; as modified by The Asia Transition
Finance Study Group., International Institute for Applied System Analytics, Global Biosphere Management Model (GLOBIOM), 2018, https://iiasa.github.io/GLOBIOM/toc.html#​2050

NGFS. Developed a set of six emission scenarios (June 2021 edition) out of which four are climate(carbon) neutral/net zero scenarios to provide a common starting point for analyzing climate risks to theeconomy and financial system. Each scenario includes estimated temperatures in 2050 – Current policies(3.0°C), NDCs (2.5°C), Delayed transition (1.8°C), Below 2.0°C (1.7°C), Net Zero 2050 (1.5°C), andDivergent Net Zero (1.5°C). But only four, Delayed transition, Below 2°C, Net Zero 2050, and Divergent
Net Zero, are climate (carbon) neutral/net zero scenarios. Since the four scenarios cover the ASEAN
region as well as individual countries, FIs could reference them, as they have both regional-level
granularity and are aligned with the Paris Agreement. Sectors covered include AFOLU (agriculture,
forestry, and other land use); buildings; cement; chemicals; electricity; steel; and transport (Exhibit A5).

Exhibit A5:

Overview of NGFS scenarios​Potential reference​Fully covered

Region level Paris
granularity alignment​NGFS scenarios​Current
Policies​Assume only currently implemented policies arepreserved​NDCs​Include all pledged policies even if not yet
implemented​Delayedtransition​Expect overshoot until 2030, and climate(carbon) neutral/net zero in 2060

​Below 2.0℃

​Gradually increase the stringency of climate
policy to achieve 1.700C​Net Zero
2050​Limit to 1.500C and reach climate (carbon)
neutral/net zero around 2050

​Divergent
Net Zero​Reach climate (carbon) neutral/net zero around2050 with higher cost using divergent policies​Partially covered​Not covered​SEA CO2 emissions in NGFS scenarios​Current Policies​Delayed transition​Net Zero 2050

​NDCs

​Below 2C​Divergent Net Zero

​Gt CO2
​2.4
​2.2
​2.0
​1.8
​1.6
​1.4
​1.2
​1.0
​0.8
​0.6
​0.4
​0.2
​0
​2020

​Minor overshootexpected until 2030
​3.00C​2​2.50C​1.80C​1.70C​1.50C
​25

​30

​35

​40

​45

​2050

​1.50C​Paris-compliant
scenarios​Source: NGFS, NGFS Climate Scenarios for central banks and supervisors, June 2021, https://www.ngfs.net/sites/default/files/media/2021/08/27/ngfs_climate_scenarios_phase2_june2021.pdf

65

ERIA. In collaboration with the Institute for Energy
Economics, Japan, ERIA published a set of
scenarios in May 2022, including a baseline caseand pathways for achieving climate (carbon)
neutral/net zero by 2050 or 2060. The focus is on
ASEAN at a regional level. Sectors covered include
energy, industry, land-use change, forestry, andtransport. As some of them are climate (carbon)
neutral/net zero and have ASEAN-level regional
granularity, they could be used as reference
scenarios to assess Paris alignment of thecorporate strategy. Moreover, ERIA has recently
published a study that aims to describe inquantitative terms the energy transition pathway

necessary to achieve climate (carbon) neutral/net
zero across 10 ASEAN countries through model
analysis.
The model represents a long-term energy transition
from 2020 to 2050 or 2060 and analyzes therelationship between energy consumption and CO2
emissions. There are four scenarios: Baseline,
CN2050/2060 without Carbon Sink, CN2050/2060
Stringent 2030, and CN2050/2060. Except forBaseline, these scenarios cover ASEAN regionallevel granularity and are aligned with the Paris
Agreement (Exhibit A6).

Exhibit A6:

Overview of ERIA scenarios​Potential reference

Region level
granularity​ERIA scenarios for ASEAN
1 Baseline
Does not assume any emission constraints by 2060

​Country-level pathways
not yet publishedParisalignment​Fully covered​Partially covered​Not covered​SEA CO2 emissions in ERIA scenarios​Baseline​CN2050/2060_Stringent2030​CN2050/2060_w/oCarbonSink​CN2050/2060

MtCO2​6,0002 CN2050/2060 w/o Carbon Sink
Assume climate (carbon) neutral/net zero by 2050 in
BRN and SGP, and by 2060 in the rest of ASEAN​Country-level pathways
not yet published3 CN2050/2060 Stringent 2030
Apply stringent emission constraints by 2030,
consistent with IEA SDS​Country-level pathways
not yet published

4 CN2050/2060​5,0001​4,000​3,000​Minor overshootexpected until 2030

​2,000

4
3​1,000

Achieve climate (carbon) neutral/net zero with naturalcarbon sink by 2060 in ASEAN​Country-level pathways
not yet published

​0
​2017

2
​30

​40

​50

​2060

ERIA already discussed and aligned with each of the ASEAN members when crafting a pathway​Source: ERIA, Decarbonization of ASEAN Energy Systems: Optimum Technology Selection Model Analysis up to 2060, 2022,
https://www.eria.org/publications/decarbonisation-of-asean-energy-systems-optimum-technology-selection-model-analysis-up-to-2060/

6. ICMA CLIMATE TECHNOLOGYFINANCE METHODOLOGIES REGISTRY
Released in June 2022, ICMA’s Climate
Technology Finance Methodologies registry is a listof tools to help issuers, investors, or financial
intermediaries validate that their emissionreduction trajectories/pathways are science-based,
specifically in the context of Element 3 of the ICMA
Handbook. ICMA emphasizes that a multitude of
initiatives can be used to support efforts to reach aclimate (carbon) neutral/net zero economy, notingthat many tools, methods, scenarios, and plans areavailable, with each playing a role tailored towarddifferent audiences. Usually, these resources
complement each other and can be combined. This
list is for the validation of specific emissionreduction trajectories/pathways and is notcomprehensive. As of September 2022, thesuggested list includes, for example, SBTi and theUnited Nations Framework Convention on Climate
Change – NDCs. More details can be found on the
webpage of ICMA’s Methodologies Registry.40

40 ICMA, Climate Transition Finance Handbook, December 2020, https://www.icmagroup.org/sustainable-finance/theprinciples-guidelines-and-handbooks/climate-transition-finance-handbook/66

7. ASEAN TAXONOMIES
A taxonomy is a classification system that provides businesses with a common language and the means to
identify whether a given economic activity is environmentally sustainable or not. Across Asia, multiple
countries have produced national taxonomies (for example, Indonesia, Malaysia and Singapore). alongsidea regional taxonomy formulated by ASEAN.
Current situation in Asia
Regional and national taxonomies published to date vary in their scope (with the EU Taxonomy being themost comprehensive), covering principles, country/sector pathways, and a list of eligible activities (Exhibit
A7). By comparison, the Indonesia and Singapore (draft) taxonomies comprise both principles and lists ofeligible activities, while the Malaysia and ASEAN taxonomies currently focus solely on principles and do
not cover list of eligible activities (as of September 2022).

Exhibit A7:

Some taxonomies may include pathways, thresholds and a list ofeligible activities, which could be useful for TF suitability assessment
Potentially used for TF assessment​Development
statusDeveloped

Under development​ASEAN​Singapore​Indonesia​Malaysia​November 2021
(Version 1)​May 2022(2nd draft)​January 2022
(Published)​April 2021
(Published)​Principle​Country/sector-pathway​TBD​Threshold

​TBD

​TBD

​Thailand​Include​Partially include​Vietnam​N/A​EU​February 2022
(Complementary
Act)

​TBD

​TBD

​TBD

​TBD

​TBD

​TBD

​TBD

​TBD

​3 sectors preliminary
developed​List of eligible activities​TBD​Alignment with only taxonomies usually may not be enough for transition finance suitability assessment
1. The Securities Commission Malaysia is currently developing the principles-based SRI Taxonomy for the capital market, which is targeted to be released by end of 2022. The SRI Taxonomy will
provide more clarity and guidance for the market in identifying sustainable investment assets or activities.
​Source: Press release

Some taxonomies include pathways, list ofactivities, and thresholds, which can be useful fortransition finance suitability assessment. However,countries vary in their compliance requirements, so
the taxonomies that organizations need to checkvary by country and also depend on whether they
are ASEAN member states. Thus, it may be
important to check both country and regional-leveltaxonomies for projects to be recognized fortransition purposes in some countries (Exhibit A8):
that is, depending on the specific country, either acountry-level or regional taxonomy, orboth, may need to be checked. One way to boost
interoperability between taxonomies would be toensure continuous dialogue between the ASEAN
Taxonomy Board (ATB) and ASEAN countries on
the interoperability of diverse country-leveltaxonomies within the ASEAN taxonomy.

67

Exhibit A8:

Both/either of country and regional taxonomies may need to bechecked for transition finance​Country A​Taxonomy
development
status​Application
for TF​Country B​Country C

Regional taxonomy
Country A taxonomy​Both regional and country
level taxonomy may need to becheckedCountry C taxonomy​Only regional level taxonomy
may need to be checked as atemporary approach until
country level taxonomy being in
place​Only country level taxonomy
may need to be checked​Examples
Countries withcountrylevel/regionaltaxonomy​Source: ASEAN’s and each region’s taxonomy and press release

ASEAN
ATB published its first version of Taxonomy in2021, and it might be updated in the future. The
aim of creating its own taxonomy was that acommon taxonomy for sustainable activities was
critical for sustainable finance to succeed acrossthe ASEAN region. The ASEAN taxonomy initiative
was developed under the auspices of ASEAN
finance ministers and central bank governors todrive the region’s sustainability agenda bypromoting sustainable activities and investments. It
represents a major contribution to the region’ssustainability efforts by consolidating efforts,
providing consistency, and importantly, adding an
ASEAN voice. The taxonomy seeks to foster
credibility and secure global acceptance, while
facilitating better allocation of capital as part of theclimate (carbon) neutral/net zero transition.
However, it does not yet include thresholds and thelist of eligible activities that could be used for atransition finance suitability assessment to see if atechnology in a targeted project is aligned with theParis Agreement.

Five principles underpin the development andimplementation of the ASEAN taxonomy:
 Principle 1. The ASEAN Taxonomy will be theoverarching guide for all ASEAN member states,by providing a common language andcomplementing their respective sustainability
initiatives.
 Principle 2. It will take into consideration widelyused and other relevant taxonomies asappropriate and will be contextualized tofacilitate an orderly transition toward asustainable ASEAN.
 Principle 3. It is inclusive and beneficial to allmember states.
 Principle 4. It sets out to provide a credible
framework, including definitions, and whereappropriate, is science-based.
 Principle 5. The ASEAN taxonomy will bealigned with the sustainability initiatives taken by
the capital market, banking, and insurance
sectors—or at least will not conflict with them.

68The ASEAN taxonomy is based on a green, amber,
red traffic-light system and designed around atiered framework that builds on common principles
as a foundation. Subsequent tiers comprise morelayered definitions and criteria to cater to different
states of readiness across ASEAN. The
Foundation Framework is underpinned byenvironmental objectives and essential criteria to
guide ASEAN member states in classifying
economic activities. The Plus Standard offers
additional guidance and scope for member states
to further qualify and benchmark eligible green
activities and investments.
The taxonomy is focused on a series ofenvironmental objectives—climate-change
mitigation, climate-change adaptation, protection ofhealthy ecosystems and biodiversity, andpromoting resource resilience and transition to acircular economy—plus two essential criteria:“DNSH” and “Remedial measures to transition.”

Singapore
With initial consultation in January 2021 and final
consultation due in 2023, the Singapore taxonomy
has been led by the Monetary Authority ofSingapore through the Green Finance Industry
Taskforce (GFIT). The taxonomy, which focuses on
Singapore FIs operating in ASEAN, includes a listof technologies with strict CO2 emission thresholds
and associated timelines, although it only covers
thresholds for three sectors: energy, transport, andreal estate (Exhibit A9). It has been produced inconjunction with representatives of large banks andinsurance companies, rating companies, and theSingapore Exchange.
Targeting green activities and transition activities, itfocuses on eight sectors underpinned by two
guiding principles: contribution to environmental
objectives and DNSH. Its approach is a traffic-lightclassification (with “green” for energy activities
benchmarked against the EU standard, forexample) and a pre-determined list of technologies.
The threshold ratchets down with the model for
average emissions.

Exhibit A9:Singapore taxonomy includes a list of technologies withstrict CO2 emission thresholds and their timeline​Overview

A ​Scope​Led by: Monetary Authority ofSingapore through the Green FinanceIndustry Taskforce (GFIT)​Published

1st Consultation on taxonomy inJanuary 2021
White Paper with initial list oftransition activities in May 2021



2nd Consultation on taxonomy in
May 2022

Final consultation will be in 2023

​Participants to standard making


Activity type— Green activities— Transition activities
Geography: Singapore(Aiming to expand to ASEAN
countries)
Sector: 8 focus sectors

Representatives of large banks andinsurance companies, ratingcompanies, the Singapore
Exchange

C ​Approach to classification

 Pre-determined list of technologies by classification into
“traffic light” based on‒ Thresholds for each sector (energy/transport/real estate havebeen developed)​Thresholds for energy activities; CO2 /kWh (life cycle emission)​Green​202225​100g​202530​100g​203035​100g​203540​50g​204050​50g​Amber

​350g

​250g

​150g

​N/A

​N/A

​Starting point is based on
current average ofelectricity generation​Threshold ratchets downwith the model for average
emissions intensity of the
grid

​Red

​>350g​>250g​>150g

​>50g

​>50g

​…

B ​Guiding principles
Contribution to environmental
objectives
DNSH​Justification​EU threshold applied‒ Do no significant harm (e.g. environmental damage associatedwith the development of a hydropower project). (to be
developed)​Source: Green Finance Industry Taskforce, Identifying a Green Taxonomy and Relevant Standards for Singapore and ASEAN, 2022,
https://abs.org.sg/docs/library/gfit-taxonomy-consultation-paper

Indonesia
Led by the Indonesian Financial Services Authority (OJK), this traffic-light-based taxonomy, published in
January 2022, focuses on green and transition activities within the archipelago (Exhibit A10). It targets 17
sectors including energy from a perspective of “contribution to environmental objectives” and DNSH. It
includes a list of eligible activities, but it does not have classification thresholds.

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Participants in the standard-making include thefinancial services industry (especially members of
the Sustainable Finance Task Force), theacademic and research community, research anddevelopment institutions, international institutions
such as USAID, IFC, OECD, NGOs such as WWF
and YIDH, and relevant ministries.
Under the traffic-light system, activities areclassified as follows:
Green (DNSH, applies minimum safeguard,
provides positive impact to the environment, andaligns with the environmental objective of thetaxonomy). Business activities that protect,

restore, and improve the quality of environmental
protection and management, as well as climatechange mitigation and adaptation, comply with thegovernance standards by government, and apply
best practices at both the national and international
level.
Yellow (DNSH). Determination of businessbenefits for environmental protection andmanagement should still be conducted throughmeasurement and support of other best practices.
Red (harmful activities). The business activities do
not meet the yellow or green criteria.

Exhibit A10:

Indonesia taxonomy is a predetermined list of activities
with various conditions​Overview​Led by: the Indonesian Financial
Services Authority (OJK)A ​Scope​Published: January 2022
​Participants to standard making

Financial Services Industry (FSI),
especially members of the
Sustainable Finance Task Force

Academic/research anddevelopment institutionsInternational institutions: USAID,
IFC, OECDNGOs: e.g., WWF, YIDH



Relevant ministries

Activity type— Green activities— Transition activities
Geography: Indonesia
Sector: 17 sectors including
energyB ​Guiding principles
Contribution to environmental
objectives
DNSH

C ​Approach to classification


Activities of Green/Yellow need to meet multiple conditions basedon the following concept​Green​Business activities that protect, restore, andimprove the quality of environmental protection
and management, as well as climate change
mitigation and adaption, and comply with thegovernance standards by government, and apply
best practices at both the national andinternational level​Yellow​Determination of business benefits forenvironmental protection and management muststill be conducted through measurement andsupport of other best practices​Red​The business activities do not meet the yellow
and/or Green criteria threshold​(DNSH, applies minimum
safeguard, provides positive
impact to the environment,
and aligns with theenvironmental objective ofthe taxonomy​(DNSH)​(Harmful activities)​Source: Financial Services Authority, Indonesia Green Taxonomy, 2022, https://www.ojk.go.id/keuanganberkelanjutan/Uploads/Content/Regulasi/Regulasi_22012011321251.pdf

Malaysia
Malaysia’s taxonomy initiative was led by the government, through the Malaysian Central Bank (BankNegara Malaysia). Published in April 2021 (Exhibit A11), participants included Bank Negara Malaysia, theRisk Management sub-committee of the Joint Committee on Climate Change (JC3), representatives oflarge banks and insurance companies, as well as WWF for Nature (Malaysia and Singapore offices).
Covering green and transition activities, the taxonomy focuses on Malaysia across all sectors with“contribution to environmental objectives,” DNSH, and “remedial measures to transition” as guiding
principles. Its classification system is based around; 1) A positive impact on climate change objectives (thatis, mitigation (GP1) and adaptation (GP2); 2) Potential negative effects to the broader environment (GP3);and 3) Measures taken (or not taken) to reduce harmful practices (GP4). However, it does not include
thresholds and the list of eligible activities.41
41 The Securities Commission Malaysia is currently developing the principles-based SRI Taxonomy for the capital market,
which is targeted to be released by end of 2022. The SRI Taxonomy will provide more clarity and guidance for the market
in identifying sustainable investment assets or activities.

70Exhibit A11:

Malaysia taxonomy is a principle-based taxonomy, which canaccommodate various types of transition technologies​Overview

A ​Scope

C ​Approach to classification​Led by: Government throughthe Malaysian Central Bank
(Bank Negara Malaysia)​Published: April 2021

​Participants to standard
making Bank Negara Malaysia
 Risk Management subcommittee of the Joint
Committee on Climate
Change (JC3) : composedby representatives of largebanks and insurances The World Wide Fund for
Nature (Malaysia andSingapore offices) also
provided substantial inputs

Activity type‒ Green activities‒ Transition activities
Geography: Malaysia
Sector: Not limited

B ​Guiding principlesContribution toenvironmental objectives
DNSH
Remedial measures totransition

Classification system is constructed based on the following considerations‒ (a) Positive impact on climate change objectives i.e. mitigation (GP1) and adaptation (GP2);‒ (b) Potential negative effects to the broader environment (GP3); and‒ (c) Measures taken (or not taken) to reduce harmful practices (GP4).

​Classification​Economic activity(transaction level)​Overall business​GP1
Climate change
mitigation​GP3
No significant harmto environment​GP2
Climate change
adaptation​Climate
supporting​C1​GP1 or GP2 or both

​Transitioning​C2​GP1 or GP2 or both

​GP4
Remedial efforts topromote transition​C3​Watchlist​C4​GP1 or GP2 or both

​C5​Source: Central Bank of Malaysia, Climate Change and Principle-based Taxonomy, April 2021,
https://www.bnm.gov.my/documents/20124/938039/Climate+Change+and+Principle-based+Taxonomy.pdf

8. TECHNOLOGY ROADMAPS: JAPAN
EXAMPLEThe Japanese government has published sample technology roadmaps 42 for promoting transition financefor several sectors: cement, chemicals, gas, iron and steel, oil, power, and pulp and paper. The roadmaps,
which were crafted by a collaboration of industry representatives, technology and finance experts,
academics and government officials, provide a concrete direction to achieve climate (carbon) neutral/net
zero by 2050 for carbon-intensive industries. Companies can refer to the roadmap examples when
considering climate-change measures using transition finance. The roadmaps are designed to assist FIs in
determining whether a company’s strategies and initiatives toward decarbonization qualify for transition
finance when the company raises funds.

9. CARBON CREDIT
What is a carbon credit?
A carbon credit is a certificate representing a CO2 ethat is either prevented from being emitted into theatmosphere or removed from the atmosphere. In
this context, carbon offsetting refers to the use ofcarbon credits to compensate or neutralize GHG
emissions emitted elsewhere.

High-quality carbon credits are certified to a
reputable standard by an independent third-party toverify that their impact is: Real Enforceable Measurable /verifiable Legally attributable (avoids double counting) Permanent Additional

42 METI, Basic Guidelines on Climate Transition Finance, May 2021,
https://www.meti.go.jp/english/policy/energy_environment/transition_finance/index.html

71What systems are in the market?
Carbon credits based on three main types ofstandards (UNFCC, domestic, independent) aretraded across different carbon markets andsystems—voluntary (led by the private sector),compliance, and country-to-country transfer of
mitigation outcomes (both led by governments).
There are three current market systems in place:
1. Voluntary carbon market. Under this systema developer voluntarily sets up a project thateither avoids certain emissions or removes
emissions. Projects are registered under astandard and verified by an independent body.
Carbon credits equivalent to the mitigationachieved are issued to the project. The
developer then sells the carbon credits tocompanies, governments, or individuals. Thissystem comprises diverse carbon credits whichvary based on key characteristics. Certificationis required to issue voluntary carbon credits
with transactions conducted over the counteror via exchange.
2. Compliance carbon market. The regulator
sets a fixed limit on emissions (“cap”) andauctions allowances (typically one allowance
grants the right to emit one metric ton of CO2 e).
Regulated firms can choose to reduce
emissions or buy allowances from other firms
on a secondary market. This system is basedaround standardized allowances with many
compliance systems around the world
accepting carbon credits. In Asia, compliancesystems vary in structure and development
stage by jurisdiction.
3. Country-to-country trading. Article 6 of theParis Agreement facilitates transfer of
mitigation outcomes (emissions reductions)internationally for use toward individual
countries’ NDCs. Countries agree (via bilateralagreement) on transferring theseinternationally transferred mitigation outcomes(ITMOs), but they cannot be double counted byboth countries in the transaction. Participating
countries authorize accounting towards their
NDCs. Details still under negotiation.

How relevant is carbon credits to transition
finance?
In general, carbon credits are considered tocontribute to direct carbon emission reduction, andoften are included in corporate/project
decarbonization plans. Nevertheless, as thestandard for carbon credits for decarbonization
pathways is under development, it is important tobe aware of different arguments over their use.
Broadly, carbon credits are regarded either as adriver for decarbonization or a complement ofdecarbonization. Organizations like Voluntary
Carbon Markets Integrity Initiative (VCMI) are
believers in the role of carbon credits as an enabler
to promote private investment in climate mitigation
efforts. Organizations like the Integrity Council
consider carbon credits as an important yet
complementary means rather than a main driver for
decarbonization. But there are also detractors.
Some organizations refer to carbon credits as “alicense to pollute” because they allow companies tocontinue their carbon emissions and unsustainablebehaviors.
Despite such perceived association with direct
carbon emission reduction, global climate financestandards and taxonomies do not presently
stipulate the relevancy between carbon credits andtransition finance. Some organizations expressly
oppose carbon credits for transition finance, whileothers do not mention the use of carbon credits intheir guidelines or taxonomy. Although the ATF
Study Group recognizes the challenges of doingso, given divergent views among stakeholders,creation of practical guidelines for the use ofcarbon credits in assessing transition financeeligibility may be needed (Exhibit A12).

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Exhibit A12:

Global standards for climate finance and taxonomies mostly either donot support carbon credits or do not mention them
​Carbon credits in global standard and other taxonomies​Non-supportive for carbon credits​Not mentioned​Globalstandard​Climate Bonds Initiatives​ICMA​“Credible transition goals andpathways don’t count offsets”(carbon credits)​Climate Transition
Finance Handbook​Taxonomy​EU taxonomy​“Not considered suitable forclimate mitigation, separate anddistinct from impacting activities,
last step of the mitigation
hierarchy, after harm has takenplace, not guaranteed to
remediate the harm1”​Under development​China taxonomy​ASEAN taxonomy​Indonesia taxonomy​Singapore taxonomy​Malaysia taxonomy

1. EU position on carbon credits is increasingly unfavorable (Certified Emission Reductions are no longer swappable with EU Allowances since 2020)​Source: ATF Study Group, press release,
Climate Bond Initiative, Financing Credible Transitions: Summary note, 2020, https://www.climatebonds.net/files/reports/transition-summary-note-092020-report-page.pdf
Platform on Sustainable Finance, Part A Methodological Report, March 2022,
https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/220330-sustainable-finance-platform-finance-report-remaining-environmentalobjectives-taxonomy_en.pdf

Disclaimer
The ATF Guidelines is a compilation of voluntary process guidelines. They are not an offer to purchase or
sell securities nor are they specific advice of whatever form (tax, legal, environmental, accounting or
regulatory) regarding any securities. The ATF Guidelines do not create any rights in, or liability to, any
person, public or private. Issuers adopt and implement the ATF Guidelines voluntarily and independently,
without reliance on or recourse to the ATF Guidelines, and are solely responsible for the decision to issue
securities. Underwriters of the ATF Guidelines are not responsible if issuers do not comply with theircommitments to securities they issue and the use of the resulting net proceeds. If there is a conflict
between any applicable laws, statutes and regulations and the guidelines set forth in the ATF Guidelines,
the relevant local laws, statutes and regulations shall prevail.

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