Scaling a Credible
Transition FinanceMarket in China:
Opportunities forElectrical Utilities

This report was produced collaboratively by the Climate Bonds Initiative and the Peking University Institute of Energy Climate Change
and Energy Transition ProgrammeReport summary
Table of Contents
Report summary 2
Introduction 3
Credible transition financing
for electrical utilities 5
Case studies 9
Outlook 12
Appendix 13
Endnotes 14

To achieve the climate goals of the Paris
Agreement and tackle climate change, allsectors of the global economy must urgently
decarbonise. The rapid transformation ofemission intensive industries is critical to thiseffort, which can be supported by a flexible,
inclusive, and credible transition finance market.
Access to transition finance requires acredible transition plan that details thesteps an entity intends to follow to decarbonise
its activities, and the levers it will deploy.
Such action plans allow investors to assess
the ambition, progress, and credibility of thetransition which reduces greenwashing risks,carbon lock-in and delayed climate action. This
contributes to the integrity of the global andChinese domestic transition finance market.
The power sector is the single mostimportant source of greenhouse gas (GHG)
emissions in China. Decarbonising electricity
generation is pivotal to achieving national andinternational climate goals, given its role in the
decarbonisation of other energy-intensive sectors
via electrification. Therefore, the power sector
needs to collaborate with multiple stakeholders
to achieve the Chinese government peakemissions target by 2030 and carbon neutrality
by 2060 (2030:2060 targets). Transition financecan contribute to this by optimising resource
allocation, and supporting price discovery andrisk management. Climate Bonds Initiative(Climate Bonds) is supporting this effort with aseries of collaborative research reports focusedon transition finance in China.
This report addresses the role of transition
finance in the power sector, within thecontext of the national carbon goals,
emphasising the importance of soundtransition plans. The following aspects are
explored:• Guidance for non-financial and financial
corporates to develop and disclose specificand credible transition plans which will
underpin the development of a comprehensive
transition finance market.
• The role of transition finance in attracting
capital to support all stages of low-carbon
development, including new renewableenergy generation, upgrades to existing plants,
retirement of emission-intensive assets todeliver a just and inclusive transition, energy
storage, and grid optimisation.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative• The selection by issuers of appropriate
financing tools according to their transition
plan objectives. These could include Use ofProceeds (UoP) bonds to support investment,or performance-related instruments such assustainability-linked bonds (SLBs) or loans(SLLs) tied to relevant and material key
performance indicators (KPIs).
• The emergent use of climate targets, transition
pathways, disclosure framework alignment,
and transition finance instruments by electricalutilities to support their goals. Additionally, thepotential for improvement in transition-related
capital expenditure planning and disclosure,and other quantitative financial indicators.

About the authors
About the Climate Bonds Initiative
Climate Bonds is an international non-profit
organisation dedicated to mobilising global
capital to address climate change. It promotes
investments in projects and assets necessary
for a rapid transition to a low-carbon, climateresilient, and equitable economy. Climate Bonds
focuses on helping reduce financing costs forlarge-scale climate-related infrastructure projects
and supporting government departments aiming
to achieve climate and greenhouse gas (GHG)
emission reduction goals through increased
capital market investments. Climate Bonds
conducts market analysis, policy research, andmarket development work, providing advice
to governments and regulatory bodies, andpromotes climate-related bonds and entity
certification mechanisms worldwide.

About the Climate Change and Energy
Transition Program (CCETP), Institute ofEnergy, Peking University
Peking University Institute of Energy launched
the Climate Change and Energy Transition
Programme in March 2021, aiming to help China
address climate change and promote energy
transition to peak its carbon emissions by 2030
and achieve carbon neutrality by 2060. The
programme provides policy recommendations
and support to the Chinese government by
setting science-based ambitious goals andformulating clear roadmaps and effective actionplans. It also encourages China’s energy industry
to be safer, greener, and more efficient, and helps
China reduce and ultimately phase out the use offossil fuels.

2Introduction
Transition finance aims
to provide funding foremission-intensive
sectors, such as the power
sector, heavy industry,
and agriculture, which
traditionally fall outside the scope of green financeinstruments. While supporting their transition to
low-carbon or carbon neutral business practices,it also allows investors to support climate goals
across a broader investment universe.
Globally, financial regulators are actively
developing guidelines and standards
to promote the orderly development oftransition finance markets. As of March
2024, the European Union (EU), Japan, andSingapore had published transition financestandards. China’s central bank, the People’s
Bank of China (PBOC), is actively supporting thedevelopment of transition finance standards,
and various local governments have and are
exploring transition finance pilots. For instance,
provincial governments included in China’s
pilot zone project, such as Huzhou, Chongqing,
Tianjin, Shanghai, and Hebei, have publishedlocal transition finance catalogues or standards.
In 2024, the National Development and Reform
Commission (NDRC) led the joint publication of
the Guidance Catalogue for Green and Low-Carbon
Transition industries (2024 edition), which for the
first time, incorporates low-carbon transition
elements into national classification standards.1

The advent oftransition financemarkets
Entities can deploy
a range of transition
finance instruments
including green and sustainability UoPbonds, SLBs and SLLs, and other unlabelledfinancial instruments. Among these, theFigure 1: Cumulative SLB volume was USD283bn by the end of 2023
120
100

Global

China

80
60
40
USD Billions

Developments intransition finance

20
0
2018

2019

2020

2022

2023

Source: Climate Bonds Initiative SLB Databasesustainability-linked format has established aclear link between sustainability performanceand financing costs, providing clear formula forprogress on sustainability ambitions.
SLBs have no restrictions on the UoP but issuersmust establish sustainability performance targets(SPTs), the achievement of which are tied to thecost of financing. However, the lack of restrictions
on the materiality or ambition of the SPTs obliges
investors to assess the credibility of each deal. In
2024, Climate Bonds featured the high proportionof SLBs lacking alignment with the Climate
Bonds SLB database methodology globally in areport titled Sustainability-Linked Bonds: Buildinga High-Quality Market. Despite this lack of market
standardisation, financing tied to sustainability
targets still has significant potential to accelerate
the global economic transition towards
decarbonisation. Realising this potential will
require market guidance and regulation.2
The transition bond label represents a small
but growing segment of the market. In 2023,
Climate Bonds recorded 19 labelled transition
bonds, with cumulative volume of USD3.3bn.
Among these, three were issued by Chinese

Transition bonds and updates to Climate Bonds’
screening methodology
Historically, Climate Bonds tracked
but did not screen bonds bearing thetransition label. As of January 2024, Climate
Bonds regards such bonds as a sub-set of
the green label and screens them against its
Green Bond Dataset (GBD) Methodology.10
Regardless of the label used, or the issuer’s
sector classification, if the instruments arelabelled green or transition and meet the
UoP requirements of the Climate Bonds GBD
Methodology, they are eligible for inclusion.

2021

Note: The above SLB volumes are representative of overall issuance volumes, and include deals considered aligned and not aligned with the
Climate Bonds SLB Database Methodology.

While transition bonds were originallyintended for issuance by hard-to-abate sectors
like cement, steel, mining, and others, Climate
Bonds has expanded its Taxonomy to define
green assets, activities, and measures forthese hard-to-abate sectors. Accordingly, theClimate Bonds GBD Methodology reflects the
new coverage of the steel, cement, and basic
chemicals sectors.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

entities with combined volume of USD560m.
In February 2024, Japan issued the world’s
first sovereign climate transition bond, which
received Climate Bonds Certification. The JPY1.6tn(USD11bn) deal showcases the leadership rolethat governments can play in earmarking financing
to support decarbonisation expenditures.3
China’s SLB and transition bond issuanceguidance were published in 2021 and 2022
respectively, marking the beginning ofdomestic transition bond market.4 In 2021,
transition bonds were limited to bullet bonds but
asset-backed instruments emerged in 2022. In
2023, China was the source of the largest number
of SLBs which comparable to China’s UoP
market, tend to be short dated.
The Climate Bonds SLB database hadrecorded cumulative global SLB volume of
USD283bn by the end of 2023. China ranks
third globally in cumulative volume, following
Italy and Chile. Italy’s SLBs are primarily issued bynational electric utility Enel, while Chile’s volumes
are dominated by its sovereign SLBs. Notably, themajority of SLBs (81.2%) issued in 2023 included
one or more GHG emission reduction targets,indicating that issuers are increasingly focusedon climate financing and directly linking KPIs todecarbonisation efforts.
Despite the progress made, studies have observeda lack of clear cost advantages, insufficient incentive
mechanisms, and a limited understanding by
issuers of how to identify appropriate transition
projects.5 Additionally, the credibility of transition
finance products relies on issuers’ carbon
management capabilities and disclosure practices,which are in the development stage. As China’stransition finance policies advance and carbon
accounting systems are established, transition
finance products are expected to present greater
opportunities to support decarbonisation.63

Summary of China’s electricalutility sector transition
China’s power sector must
decarbonise to meet to thenation’s 2030:2060 targets.
In 2022, China’s carbon
dioxide (CO₂) emissions fromthermal power generation
were approximately 4.85bn tCO₂e, accounting foraround 40% of total emissions.7
At end of 2022, China’s installed capacity ofelectricity generation reached 2.57bn kilowatts(kW), with coal-fired capacity accounting for some
1.12bn kW (approx. 43.8%). Coal-fired capacity
decreased 3% compared to 2021, and the share ofcoal-fired electricity generation as a share of total
output declined 1.3%, dropping below 60% for
the first time.8 Over the past two decades, both theemission intensity per unit of electricity generated
and per unit of thermal power generation havedecreased consistently. According to the China
Electricity Council (CEC), in 2022 the emission
intensity of thermal power generation wasapproximately 824g CO₂/kWh, representing a small
0.48% reduction compared to 2021.
Predictions indicate that China’s overall electricity
demand will continue to grow during the latestages of the 14th Five-Year Plan (FYP), the 15th
FYP, and the 16th FYP, albeit at a slower pace.9
Against the backdrop of carbon peak and carbon
neutrality, the low-carbon transformation of thepower industry will focus on three key pathways:• High proportion of renewable energy
development: during the carbon peakphase (<2030), renewable energy should
replace incremental fossil fuel-based power
generation; during the carbon neutrality phase(2030-2060), renewable energy should replace
existing fossil fuel-based power generation.
• Diversification of non-coal large-scale controllable
power sources and new energy storage:
developing flexibility resources such as demand
response to ensure secure power operation.
• Transitioning the role of coal-fired power plantsfrom foundational supply to flexibility services.

Figure 2: Transition options for coal power plants under discussion
Coal-fired power plants transition options

Upgrading andretrofitting

Substitution withequivalent or
reduced capacities

Coal consumption
reductionand increasing
efficencies

Close small
inefficient plants,
and upgradelarger plants

Heating
retrofitting

Biomass co-firing

Flexibile retrofits

New energy
replacement

Direct asset
retirement

Normalretirement

Government
redemption

Extend lifespanor retain as
backup supply
Immediatesuspensionof smallinefficient plants

The optimisation roadmaps for coal-fired
power plants include three levers: upgrading
and retrofitting coal-fired units, substitution
with equivalent or reduced capacity, anddirect asset retirement. During the 14th FYP
period, the focus will be controlling new coalcapacity and accelerating improvements togrid flexibility. Coal-fired power plants should
provide baseload support and maximise systemstability. Over the course of the 15th FYP period,
efforts should be made to unlock the flexibility
potential of existing coal-fired units andpromote their gradual retirement. Finally, during
the 16th FYP, a more rapid and orderly exit fromcoal-fired power will be necessary.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

Under the Chinese 2030:2060 targets, the powerindustry needs to adopt a multi-stakeholder
coordinated electrification development path toachieve low-carbon transformation. The Climate
Change and Energy Transformation Project(CCETP) established by the Peking University
Energy Research Institute predicts that under theaccelerated electrification scenario, coal power
installed capacity (excluding backup units) willreach a peak of 1.18bn kW in 2025 and gradually
decrease thereafter. The power generation andcarbon emissions of the coal power sector will
also peak in 2025 and plateau around 2030.
Transition finance can support the developmentof optimal resource allocation, price discovery,
and risk management.

4Credible transition financing for electrical utilities
The importance oftransition plans
The credibility of transition
finance is a key concern
for market stakeholders.
To address the lack ofstandardisation, issues with
ambition and transparency,
and greenwashing risks, market participantsrequire that credible and ambitious transition
plans underpin financing efforts. Robusttransition plans with clear decarbonisation
pathways and the identification of appropriate
levers can be used as reference points to selectmaterial KPIs and SPTs for use in performancelinked instruments such as SLBs or SLLS, and canalso identify expenditures which are appropriate
for inclusion in UoP instruments.

A transition plan can be divided into two key
parts: planning and disclosure. A transition plan
which describes the organisation’s strategy androadmap to net zero, needs to be time-boundand trackable, and include an action plan rooted
in climate science.11
Transition plans are already reflected innumerous climate initiatives including
Climate Bonds, Assessing low-Carbon Transition(ACT) initiative, Climate Action 100+ (CA100+),
CDP, Climate Policy Initiative (CPI), Glasgow
Financial Alliance for Net Zero (GFANZ),International Capital Market Association (ICMA),
Science Based Targets Initiative (SBTi), Transition
Plan Taskforce (TPT), among others.12 By the endof 2023, financial regulators and standard-setterssuch as the G7, the International Sustainability
Standards Board (ISSB), and the governments ofAustralia, the EU, Hong Kong, Japan, Singapore,
Switzerland, the UK, and the USA had also begun
to emphasise the importance of transition plansand programmes.13 For example, the UK’s TPT
is based on disclosure guidance from the ISSB
and is in line with the International Financial
Reporting Standard on Sustainability Disclosures(IFRS S2), as well as the GFANZ Transition Finance
Guidance.14 Overall, there is clear and broadconsensus on the importance of transition plans,
and their further development by both nonfinancial and financial corporates as the next stepin the evolution of the transition finance market.

Figure 3: How transition plans relate to financial institutions and issuers
Financial Institution Transition Plans

Transition
plans help
and Financial
Institutions tap
opportunities
and managetransitional risks

Financial
Institutions

Targetsetting

Financialplans

Disclosure

Actionplan

Implementation
actionGovernment
mechanisms
Transition
plans help
and reduce
marketconcerns ofgreenwashing

Non-Financial Institution Transition Plans

Transition plans
can help issuers
communicate
climate targets
and action plans,
thus accessing
transition finance

Issuers

Targetsetting

Financialplans

Disclosure

Actionplan

Implementation
actionGovernment
mechanisms

Otherstakeholders

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

5

Figure 4: Credible transition plan framework and key elements and Climate Bonds Five Hallmarks
Ambition

ActionTargets

Robust plans

Specific actions

Governancemechanisms

Disclosure• Climate change
mitigation• Vision• Short- and mediumterm milestones• Board and senior
management oversight• Disclosure data

• Climate change
adaptation andresilience• Action plans covering
Scope 1, 2, and 3 GHG
emissions• Annual progressverification• Setting and monitoringof KPIs and plans• Nature and biodiversity• Action plans for other
KPIs• Orderly and justtransition*

Accountability• Strategy• Compatibility andaccessibility• Corrections andupdates to corporate
strategy• Internal corporate
climate management
policies• Climate changetransition risk andopportunity sensitivity
analysisHallmark 1

Hallmark 2 and 3

Hallmark 4 and 5

Climate Bonds Five Hallmarks: Climate Bonds identified five hallmarksof a credibly transitioning company. These are the elements required todrive transformative changes across a whole business and align efforts
with the Paris Agreement.

*The climate transition has a wide range of impacts on industry, business,
and workers, and the focus of a just transition is to ensure equal accessto opportunities, prevent the transition and climate change impacts fromexacerbating inequalities, and safeguard rapid climate action.
Source: Climate Bonds Initiative

Transition plans are an appropriate tool forcompanies to communicate the economicand environmental integrity of theirbusiness strategy to investors and financial
institutions.15 Transition plans are a platform
for issuers to explain their goals, commitments,
actions, and progress on climate action andsustainability, how they will maintain financial
performance and competitiveness, and better
finance their transition.

The number of companies with transition
plans is growing. According to CDP, amongthe 18,600 companies participating in its
questionnaire in 2022, 4,100 indicated that they
had a 1.5°C aligned transition plan in place, and6,520 said they plan on having a transition plan inplace within the next two years.18

Transition plans can support investment
decisions and help institutions to explore
opportunities in climate transition, while
better managing their own transition risks.16
Credible transition plans help capital market
stakeholders to identify genuine efforts totransition and channel capital into investmentsthat will support those initiatives.17

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

The financial sector andtransition to net zeroThe financial sector has a vital role
to support the transition to net-zeroemissions. As the world’s largest alliance offinancial institutions (FIs) supportingnet zero, the Glasgow Financial Alliancefor Net Zero (GFANZ) has more than 500
members, including asset managers, asset
owners, auditors, banks, data providers,exchanges, insurance companies, rating
agencies, and more.26

6

Transition plans andfinancial instruments
Bond instruments
Entities can deploy transition-related UoPbonds or performance-linked instruments tofinance their transition:19• UoP bonds: Bonds falling into the green or
sustainability themes, including those bearing
the transition label can be used to financeprojects, activities, assets, or expenditures withspecific environmental and/or social benefits.

Climate Bonds sustainability-linked bond database

NO

Does the SLB use GHG
emission reduction targets?
YES

NO

Transition plans
underpin performance-linked instruments

Do the targets exclude offsets and are
not measured in economic intensity?
YES

The goals and action plan described in atransition plan should inform the selectionof KPIs and SPTs used in performance-linked
instruments. Issuers must begin by designing acomprehensive transition plan at the entity level,referencing sector-specific pathways to reaching
net zero, and describing which levers the entity
will deploy to achieve decarbonisation. It should
include short-, medium-, and long-term goals forachieving net-zero emissions.

NO

Do the GHG targets cover the sector
specific emission sources?
YES
Are the targets aligned withthe sector-specific pathway?
NO

YES

Fully-aligned
SLB

Strongly-aligned
SLBNo, but will be aligned by 2030

No, but is aligned on a %reduction basis, and has all the
key elements of transtion plans

Aligning SLB

No, and lacking transition plans

SLB not aligned

Figure 6: Total SLB volumes from electrical utilities
25
20

Global

China

2019

2020

15
10
USD Billions

To inform SLB structures, issuers can select KPIs
from their transition plans, such as achieving astated percentage of reduction in greenhousegas emissions by a specific date compared toa given baseline. The proceeds from an SLB
are not restricted and can be used for general
corporate purposes. The transition element of
the instrument comes from the accountability
supported by the KPIs and SPTs, so it is crucial
that those are both material and ambitious.

A summary of the assessment process is
illustrated below, with the full methodology
available in Chinese and English on the
Climate Bonds website.27

SLB• Performance-linked bonds: SLBs can support
general purpose financing, where the issuer
sets entity-level KPIs, and there are financial
penalties/rewards for the achievement of predetermined SPTs.

For power generation companies, key leversof transition include adding new clean power
generation equipment, upgrading and retrofitting
existing generation equipment, decommissioning
high-carbon generation equipment, ensuring ajust transition, and enhancing grid and storage
capacities. The Climate Bonds Electrical Utilities
Criteria sets science-based requirements forcompanies to assess climate transition finance,and Financing a Credible Coal Transition provides
a framework to assess climate and social
outcomes of coal transition mechanisms.20,21
Issuers need to identify performance targets anddevelop financial plans based on the assets andbusiness models required for their transition.

Aligned deals in the SLB database reflectissuers which tie their cost of capital tocredible and ambitious decarbonisation
targets, in line with a 1.5°C transition.

Climate Bonds screens self-labelledsustainability-linked bonds (SLBs) from all
jurisdictions against the Climate Bonds SLB
database methodology to inform the size,
credibility, and ambition of deals in the SLB
market globally.

5
0
2021

2022

2023
Source: Climate Bonds Initiative

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

7

The views of Chief Financial Officers on labelled debt instruments
Chief Financial Officers (CFOs) play a crucialrole in uncovering low-carbon transition
opportunities and managing risks. The
Climate Bonds 2023 report The Role of
the CFO in Driving Credible Transitions
explored the intersection between financeand sustainability. The report was basedon interviews with more than 30 CFOs
representing companies with a total market
capitalisation of USD930bn.28
The Climate Bonds 2022 survey of Chinese
green bond investors revealed that
respondents are actively seeking to diversify
their green bond investments, with renewableenergy being the most favoured sector. Bothdomestic and international respondents
expressed a desire to increase their holdingsof Chinese green bonds, provided these bonds
meet appropriate standards. Respondents
emphasized the importance of green
credentials and fundamental credit quality.29

Figure 5: CFO Views on labelled debt instruments
Green bonds

Advantages

Disadvantages• Mature tool, strong investor demand• Requires large quantity of
eligible green projects• Well-established format andframework, aligns with ESG-related
regulatory principles

SLBs• Enhances reputation• May take a long time toprepare bond frameworkand structure• Increases dialogue with investors• Restricted UoP• Potential for pricing advantage• Additional costs anddisclosure requirements• Investors are highly interested in
integrating the issuer’s operations,financing, and forward-looking
assessment systems; this tool can
integrate multiple elements of lowcarbon transition• There is ongoingdebate about the climate
benefits and credibility ofthis instrument• Unrestricted use of proceeds; easier
to issue bonds once the framework
is established• Increases dialogue with investors• Potential to increase sectoral
diversity (for investors)

Transition plans forelectrical utilities
Electrical utilities have started focusing
on elements of the transition
The power sector is currently the main
source of global GHG emissions according
to the International Energy Agency (IEA),
accounting for about 42% of global energyrelated CO2 emissions in 2020.22 Decarbonising
the power generation industry is crucial as it willassist in decarbonising other industries throughelectrification. The share of electricity in total
final energy consumption is expected to exceed
50% by 2050.23
Electrical utilities have made progress inincreasing renewable energy capacity towards
the transition of the industry. Transition
plans should include a description of financial
expenditure plans and quantitative indicators
related to low-carbon initiatives. Among the powercompanies participating in the CDP questionnaire,
28% indicated that they had established transition
plans and shareholder feedback mechanisms, thehighest proportion among all industries.24 According
to the World Benchmarking Alliance (WBA) 2023
assessment of the transition plans of 68 major

global power companies, there is a significant trend
in increasing renewable energy capacity. However,current transition plans do not clearly outline thephase-out of fossil fuels, with 84% of the sample
companies not setting net-zero targets alignedwith the 1.5°C pathway. 25 Among the 44 power
sector SLB issuers tracked by Climate Bonds, only
five issuers have formulated transition plans that
include sustainable frameworks and low-carbon
transition financial plans.

Electrical Utilities are the largest
source of SLBs
According to Climate Bonds data, as ofDecember 2023, global electrical utilities issuers• Requires significant effort tocoordinate all business units(in the development of anentity-level transition plan)• Concerns about meeting
performance targets, leading
to hesitation in issuing
linked debt

have cumulatively issued USD52.9bn in SLBs,
accounting for 19% of the total SLB market,
which makes electric utilities the largest sourceof SLBs. The most frequently selected KPI by
Chinese domestic electric utilities issuers is
related to increasing renewable energy capacity,with 79% of the KPIs chosen being associatedwith renewable energy installations.
Climate Bonds’ SLB database methodology
requires issuers to address all three scopes of
GHGs, which for electric utilities are primarily
from scope 1. Further details are provided in thetable below.

Table 1: Requirements for emission targets in the Climate Bonds SLB
database methodology for electrical utilities
Issuer sector

Emission scope coverageElectric utilities

Scope 1*
*If the issuer has fossil-fuel based operations, scope 2 and 3 are also
required, or 80% of total issuer emissions
Hydropower and geothermal require scope 1; reservoir emission andbiomass require scope 3.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative8

Performance targets: The company’s vision
is to achieve a fossil-free status within ageneration, aiming to do so responsibly.30 The
company aims to reach net zero by 2040. In theinterim, the company aims to reduce scopes 1
and 2 by more than 77% and scope 3 by 54.6%
by 2030, compared to 2017, which has been
approved by the Science Base Target initiative.31
Robust plans: Vattenfall plans to achieve net
zero by 2040, which means reducing emissions
across its entire value chain by approximately
95%, with the remaining emissions being
offset through negative emissions. The
company plans to phase out coal by 2030.32
Action: In 2022, Vattenfall allocated 81% of its
research and development (R&D) expenditure
to developing low-carbon technologies. This
includes the HYBRIT project, a hydrogenbased zero-fossil steel initiative.33

Eligible- aligned

Turnover

Capex

55%

10%

7%

3%

19%

SEK
240bn

SEK
7bn

SEK
31bn
71%

17%

90%
37

Image source: Vattenfall

Figure 8: Vattenfall’s emission reporting and low-carbon
transition pathway
CO2e Mtonnes

gCO2e/kWh electricity and heat

25

150

20

120

15

90

10

60

5

30

0

0
2018

2019

2020

2021

2022

50
Scope 340
30
20

Mt CO2eDisclosure: According to the company’s annual
report, most of Vattenfall’s 2022 revenue,
operating expenses, and capital expenditures
were assessed as eligible and aligned with thetechnical screening criteria of the EU Taxonomy.
The specific proportions are illustrated below.36

Not eligible

Opex

28%

Vattenfall issued its first green bond in June
2019. From 2019 to 2023, investments under
the company’s green bond framework were
earmarked for wind (total capacity 2843 MW)
and fossil-free steel (HYBRIT) projects. By yearend 2023, Vattenfall had a total of SEK25.2bn inoutstanding green bonds and invested a totalof SEK43.6bn.34
Governance: The company’s CEO and boardof directors are responsible for its sustainability
work and impact, which is integrated into its
group strategy, target-setting, decision making,and risk management.35

Eligible- not aligned

g/kWh

Vattenfall is a major electricand energy company
headquartered in Sweden,
and one of the largest
energy companies in
Europe. This company
has a high proportion of renewable energy
generation and provides electricity forfossil-free steel production. The case study
introduces Vattenfall’s practices in climate
targets, transition planning, actions, and lowcarbon transition financing.

Figure 7: Alignment of Vattenfall’s financial
indicators with the EU Taxonomy

CO2e Mtonnes

Vattenfall

Scope 1 & 2

10
0
2017

2020

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

2025

2030

2035

2040
38,39

Image sources: Vattenfall

9

Enel
Enel is an Italianmultinational manufacturer
and distributor of electricity
and gas. Its businesses
include green and thermal
power generation, electricity
distribution, and retail electricity and gas.
Although Enel is the largest corporate issuerof SLBs, only one SLB is included in the
Climate Bonds SLB database. This case study
introduces the company’s transition plan andcompares the issued SLBs with Climate Bonds
SLB database methodology.
As of June 2023, Enel had issued 30 SLBs
worth USD31.1bn, four of which are tied torenewable energy installed capacity targets,one deal to GHG scope 1 and 3 targets, andthe remainder to GHG scope 1 targets. In 2022,
Enel reported emissions of 132.9 MtCO₂eq,
of which around 40% were scope 1, 3% were
scope 2, and 57% were scope 3.40 Their scope 1
and 3 bond (described below) covered a totalof 77.6% of their total emission footprint andis the only one of their bonds categorised asaligned in the Climate Bonds SLB database.
Enel missed its SLB targets, the sustainability
performance targets (SPT) of which were set to
reduce emissions to 148gCO₂eq/kWh by 2023,
while the performance was 160gCO₂eq/kWhby 2023. The failure to hit targets triggered a
25bps coupon step-up for 10 bonds, five eurodenominated bonds (EUR5.6bn) and five US
dollar bonds (USD4.8bn).41
Performance Targets: Enel has short-, mid, and long-term targets for all material
scopes of emissions that align with the
1.5°C pathway for electrical utilities. These
were revised in 2022 to increase the ambitionof the decarbonisation pathway, targetinga reduction of 78% by 2030 (73 gCO₂eq/
kWh) and 100% by 2040 (0 gCO₂eq/kWh) in

Amount Issued EUR750.0m (USD800.6m)
Issue Date: 20 February 2023

Maturity date: 20 February 2043

Financial Mechanism: Step-up 25bps if the SPTs are not met
Keyperformanceindicator(s)GHG emissions intensity(Scope 1, 3 – related tointegrated power)

GHG emissions(Scope 3 – related to gas retail)Sustainability
performancetarget0 gCO2e/kWh

0 Mt CO2e

Assessment: Fully Aligned (Climate Bonds SLB methodology)

Emission sources required by SLB Database Methodology for sector
Scope 1* or 80% of total emissions*If entity has fossil fuel-based business segment, scopes 2 and 3 are also required
scope 1 and 3 GHG emission intensity relating
to integrated power (gCO₂eq/kWh), both against
2017 baselines (332 gCO₂eq/kWh).42 This included
a 90% reduction in absolute emissions for all
scopes by 2040, vs 2017.
Robust plans: Enel has published detailedtransition plans, reliant on exiting its existingcoal by 2027 and fossil gas businesses by 2040,
replacing them with large-scale renewableenergy installed capacity, and investments in
its transmission and distribution arm, as wellas smart energy demand management. Enel’scommitment to phasing out the stranded fossilbased assets, supported by a robust investment
plan, is to be commended.
Action: Enel has committed EUR210bn between
2021–30 to increase its renewables energy mix(43%), continue the expansion of its distribution
and transmission networks (44%), as well as
its energy management business and support
services (10%), with minimal investments in
its conventional energy sources (3%). Overall,

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

low-carbon business areas represented 92%
of total capex in 2022. While Enel’s detailed
financial commitment is notable, both GHG
emissions and revenues from coal plants
have increased year-on-year. Therefore, thefront-loading of emission reductions andimplementation of planned decarbonisation
levers should commence as soon as is feasible.
Governance: This vision is supported
by Enel’s sound governance structure.
Progress on transition-related key performanceindicators (KPIs) is reported directly to theBoard and executive remuneration is tied totransition performance targets.
Disclosure: Enel reports on a range oftransition-related transition KPIs in its annual
reports, and its SLB portfolio is tied to scope 1
emission and renewable energy targets.

10

China Huaneng Group Co., Ltd.

100

Unlabelled bonds

2020

2022

40

Of Huaneng’s green bonds, 67.4% of thevolume, totalling RMB56.6bn (USD8.3bn) has
been recorded in the Climate Bonds Green
Bonds Dataset. Among the bonds excluded
from the dataset, 17.1% of the volume
includes operational capital in the UoP and
13.4% lacks the required UoP disclosure.

100%

Huaneng’s SLBs are all linked to renewableenergy capacity targets. As of mid-2024, theissuer had not stated GHG targets, which area prerequisite for alignment with the Climate
Bonds SLB database methodology. As a result,these SLBs were recorded as Not Aligned in the
Climate Bonds SLB database methodology.

40%

Robust plans: Similar to many other large
state-owned electrical utilities, Huaneng isundergoing a low-carbon transformation,although formal transition plan documents
have not yet been developed. According to
Huaneng’s 2022 annual report, the company’stransition action plan includes measures
such as deploying CO₂ capture, storage, andutilisation technology, accelerating the increasein the proportion of clean energy, exploring
the potential for energy conservation andcarbon reduction in existing coal-fired power
generation, implementing energy conservationand carbon reduction renovations, and actively
expanding into the heating market.

Green bonds

60

Huaneng issued its first green bond in 2016and has since issued around RMB83.8bn(USD12.4bn) through 98 green bonds. In
2021, Huaneng issued its first SLBs, and by
mid-2024, had priced eight SLBs totalling
RMB13.5bn (USD2bn), all of which are linked torenewable energy targets.

Performance Targets: Huaneng has alignedwith China’s 2030:2060 targets but has not yet
established more detailed short-, medium-, orlong-term emission reduction targets.

Sustainability-linked bonds

80

RMB Billions

China Huaneng Group
Co., Ltd. (Huaneng) is
one of China’s five majorstate-owned electric power
producers, and one of themain issuers, using green
bonds and SLBs to finance its low-carbon
transition. It engages in the investment,
construction, operation, and management ofelectric power production assets, as well as
power generation and sales.

Figure 9: Increasing proportion of Huaneng Group’s liabilities bears asustainability label

20
0
2016

2017

2018

2019

Sustainability-linked bonds

2021

2023

Unlabelled bonds

Green bonds

80%
60%

20%
0%
2016

2017

2018

2019

2020

2021

2022

2023

Source: Climate Bonds Initiative, Wind

Action: Huaneng’s disclosed capital expenditurein the annual report reflects the direction
and ambition of Huaneng’s low-carbon
transformation. In 2022 and 2023, Huanengplans to invest about two-thirds of its annual
capital expenditure of approximately RMB40bn
into clean energy development, includinghydropower, solar power, and wind power.
Capital expenditure on thermal power generationis reduced from RMB2.3bn to zero, while capital
expenditure on coal decreases from 14.7%
to 13.4%, and expenditure on technologicaltransformation increases from 17.9% to 19.9%.

responsible for environmental and transition
policies. The company has not yet disclosed
comprehensive greenhouse gas emissions andcorresponding third-party certifications.
Disclosure: The key performance indicator(KPI) currently used by Huaneng is GHG
emission intensity. The company has notdisclosed all its sources of GHG emissions andhas not specified scopes 1, 2, and 3. Over the
five-year period from 2018 to 2022, Huaneng’s
GHG emission intensity decreased byapproximately 5.8% (from 661.29 to 623 gramsof GHG emissions per kilowatt-hour).

Governance: In terms of governance,
Huaneng Group has a sound management
structure supporting its climate transition, with
the Environmental Protection Department

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative11

Outlook
Enhancing transparency andcredibility will support thegrowth of transition financeAt the current stage of thetransition finance market,
enhancing credibility
is essential for market
development. Investment
institutions need to fully
understand the plans, performance, andactions of the companies in which they invest.
Companies should publish transition plans
following the guidance provided by existing
frameworks, such as Climate Bonds guidance toassess transition plans.43

Transition plans canattract capital to support
the transformation ofenergy utilities
Credible transition plans
can encourage investors
to support thetransformation of power
generation companies.
As renewable energy
infrastructure begins to gain price advantages,
investors will be more inclined to moveaway from investments in coal-fired power
generation, leading to a decline in newly
added coal-fired power generation capacity.
This capital shift can be supported by credible
transition planning.
Where green expenditures are required, UoP
instruments can be deployed. New businessplans, employee training, etc., can be fundedthrough equity or performance-linked debt
instruments which do not restrict the UoP.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative12

Appendix
Considerations andrecommendations for financing
the low-carbon transition ofelectrical utilities
The transformation of electrical utilities requires
significant financial support, which can beprovided by the thriving labelled debt market.
Debt instruments with restricted UoP and KPIclass debt instruments both provide possibilities
for financing electrical utilities. Corporate issuersof debt instruments can meet their financing
needs and maintain market credibility, by
heeding the following steps:

Step 1: Develop an entity-leveltransition plan
• Conduct a comprehensive assessment of
the business’s geographical and industrial
characteristics and formulate a corporate-leveltransition plan that covers achieving net-zeroemissions in the long term. Issuers can develop
a low-carbon transformation roadmap,
detailing the greenhouse gas emission
reduction achievements targeted for 2030,
2050, and 2060 plans.
• For electrical utilities, the main dimensions
to consider include the addition of clean
power generation equipment, upgrading
and retrofitting existing power generationequipment, retiring high-carbon power
generation equipment, conducting fairtransitions, and investing in grid and energy
storage. Additionally, the identification of
performance targets based on the assets andbusiness models required for the company’stransition and formulation of financial plans.

Step 2: Choose the appropriate typesof financing tools to meet the entity’s
financing needs• Issuers can utilise bonds with restricted UoP
or KPI-linked bonds in the capital markets
according to their financing needs.
• The use of debt finance instruments shouldalign with the entity’s transition plan. For
example, UoP bonds can finance assets or
decarbonisation levers identified within thetransition plan, while KPI-linked instruments
can be tied to entity target achievement (e.g.,
a 30% reduction in emissions by 2030 for
Company X).

Green bondframework

Sustainability-linked
bond framework

1. Introduction to the entity

1. Introduction to the entity

2. Sustainability-related disclosureand reporting

2. Sustainability-related disclosureand reporting

3. Description of transition plan

3. Description of transition plan

4. Rationale for establishing a green
bond framework

4. Rationale for establishing asustainability-linked bond framework

5. Alignment of green bond with the ICMA
green bond principles

5. Sustainability-linked bonda. UoPb. Process for project evaluation andselectionc. Management of proceeds
d. Reporting
6. Information on the possible
engagement with external providersof review of alignment of the bondframework with ICMA principles or otherbond standards

a. Selection of KPIs
b. Calibration of SPTs
c. Bond characteristics
d. Reportinge. Verification
6. Information on possible engagementwith external providers of review ofalignment of the bond framework withICMA principles or other bond standards

7. Commitment of the issuer to obtainan external verification on allocation andimpact reporting.

Step 3: Develop the bond framework

Step 6: Evaluation of fund use and impact• Financial service institutions can assist
corporate issuers in developing issuanceframeworks for UoP/KPI-linked bonds.

• The entity should internally review theissuance and performance process, evaluate
the materiality of KPI achievement, and ensurealignment with the overall transition plan to
optimise subsequent updates to the transition
plan, as well as action and financing plans.

Step 4: Bond issuance• Evaluate whether second-party opinions
or third-party certification is required or
supportive to the bond issuance process.

Step 5: Post-issuance disclosure ofbond information• Following the initial bond issuance, progress
and/or impact data must be disclosed tomarket participants. UoP bonds disclose theflow of funds raised, and relevant impact
metrics. KPI-linked bonds disclose the issuer’s
progress and achievement against the
selected KPIs.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative13

Endnotes

1. 国家发展改革委。
2024。
关于印发《绿色低碳转型产业指导目录
（2024年版）》的通知
2. Climate Bonds Initiative. 2024. Sustainability-Linked Bonds:
Building a High Quality Market
3. Climate Bonds Initiative. 2024. Japan’s Climate Transition Bond.
4. 中诚信绿金。
2024。
2023年国内（低碳）转型债券市场年报。
5. 鲁政委、钱立华、方琦。
兴业研究宏观。
2023。
[绿色金融]我国转型类债券市场发展与建议。
6. 鲁政委，钱立华，方琦。
兴业研究宏观。
2023。
[绿色金融]我国转
型债券的实践与展望。
7. 中国电力企业联合会. 中国电力行业年度发展报告2023。
8. 中国电力企业联合会. 中国电力行业年度发展报告2023。
9. 华北电力大学袁家海教授课题组, 北京大学能源研究院气候变化
与能源转型项目: 电力部门碳达峰路径与政策研究. 2021年12月.
10. Climate Bonds Green Bond Dataset Methodology, Climate Bonds,
April 2024, Green Bond Database Methodology | Climate Bonds Initiative
11. OECD. 2022. Guidance on Transition Finance: Ensuring Credibilityof Corporate Climate Transition Plans.
12. GFANZ. 2022. Expectations for real-economy transition plans.
13. GFANZ. 2023. 2023 progress report.
14. Transition Plan Taskforce (TPT). 2023. Disclosure Framework.
15. OECD. 2022. Guidance on Transition Finance: Ensuring Credibilityof Corporate Climate Transition Plans.
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17. Climate Bonds Initiative. 2023. Guidance to assess transition plans.
18. CDP. 2023. Are companies developing credible climate transition
plans? Disclosure to key climate transition-focused indicators in CDP’s
2022 Climate Change Questionnaire.

19. Climate Bonds Initiative. 2023. Financing the Corporate Climate
Transition with Bonds.
20. Climate Bonds Initiative. 2023. Electrical Utilities Criteria. Climate
Bonds Standard and Certification Scheme
21. Climate Bonds Initiative, Climate Policy Initiative, RMI. 2022.
Guidelines for financing a credible coal transition.
22. International Energy Agency. 2023. Electricity. https://www.iea.
org/energy-system/electricity
23. International Energy Agency. 2024. Electricity 2024.
24. CDP. 2023. Are companies developing credible climate transition
plans? Disclosure to key climate transition-focused indicators in CDP’s
2022 Climate Change Questionnaire.
25. World Benchmarking Alliance. 2023. Electric Utilities Benchmark.
https://www.worldbenchmarkingalliance.org/publication/electric-utilities/
26. GFANZ. 2022. Expectations for real-economy transition plans.
27. Climate Bonds Initiative. Climate Bonds Sustainability-linked bond
Methodology. 2023. https://www.climatebonds.net/market/SLBD
28. The role of the Chief Financial Officer in driving low-carbon
transition, Climate Bonds Initiative, September 2023, The role of
the Chief Financial Officer in driving low-carbon transition | Climate
Bonds Initiative
29. Climate Bonds Initiative. April 2022. China Green Bonds Investor
Survey 2021
30. Vattenfall annual and sustainability report 2022. 2022. https://group.vattenfall.com/siteassets/corporate/investors/annualreports/2022/vattenfall-annual-and-sustainability-report-2022.pdf
31. Vattenfall website. Environmental responsibility. https://group.vattenfall.com/who-we-are/sustainability/environmentalresponsibility/reducing-emissions

32. Vattenfall website. Roadmap to fossil freedom. https://group.
vattenfall.com/what-we-do/roadmap-to-fossil-freedom
33. World Benchmarking Alliance. 2023. Vattenfall. https://www.
worldbenchmarkingalliance.org/publication/electric-utilities/
companies/vattenfall-3/
34. Vattenfall green bond-investor report 2023. https://group.
vattenfall.com/siteassets/corporate/investors/funding_ratings/doc/
vattenfall-green-bond-investor-report-2023.pdf
35. Vattenfall website. Policies and management. https://group.
vattenfall.com/who-we-are/sustainability/policies-and-management
36. Vattenfall annual and sustainability report 2022. 2022. https://group.vattenfall.com/siteassets/corporate/investors/annualreports/2022/vattenfall-annual-and-sustainability-report-2022.pdf
37. Vattenfall website. CO2 roadmap. https://group.vattenfall.com/
what-we-do/roadmap-to-fossil-freedom/co2-roadmap
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what-we-do/roadmap-to-fossil-freedom/co2-roadmap
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40. Enel. 2023 GHG INVENTORY.https://www.enel.com/content/
dam/enel-com/documenti/investitori/sostenibilita/2023/ghginventory-2023.pdf
41. Sustainable Fitch. 2024. Enel’s Missed Targets Could Support
Maturing SLB Market
42. Enel Zero Emissions Ambition:
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investitori/sostenibilita/zero-emissions-ambition-report.pdf
43. Climate Bonds Initiative. 2023. Guidance to Assess Transition Plans

This report was produced collaboratively by the Climate Bonds Initiative and the Peking University Institute of Energy Climate Change
and Energy Transition Programme

Authors:
Climate Bonds Initiative: Xiaoyun Xu, Matthew MacGeocH, Wenhong Xie
Peking University Institute of Energy Climate Change
and Energy Transition Programme: Xiaozhu Zhou, Dan Chen
Special thanks: Hao YU, Ana Diaz, Caroline Harrison (Climate Bonds),
Lei Yang, Fuqiang Yang, Junjie Kang, Di Wu (CCETP)
Sibo Liu, Jinlong Chen (Lianhe Equator)
Editorial support: Stephanie Edghill
Design: Godfrey Design, Joel Milstead
Recommended citation: Scaling a Credible Transition Finance Market in China 2023,
Climate Bonds Initiative, July 2024.

© Published by Climate Bonds Initiative, July 2024 www.climatebonds.net

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation or debt
instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external websites. The
Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should be taken as such,nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds of a designated debt
instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours. The Climate Bonds Initiative accepts noliability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole or in part on any information contained
within this, or any other Climate Bonds Initiative public communication.

Scaling a Credible Transition Finance Market in China Climate Bonds Initiative

14