Climate Bonds Initiative Working Paper

Transition Finance in
China’s Guangdong
Hong Kong-Macao
Greater Bay Area

Prepared by Climate Bonds Initiative.
10/2021Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative

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Executive Summary
Climate change is one of the most criticalglobal challenges facing the world. The
release of the Sixth Assessment Report of theIntergovernmental Panel on Climate Change(IPCC) has sounded a warning to the world. It is
now an imperative for all countries to jointly face
the climate crisis, enhance climate resilience, andstrengthen mitigation actions. It is not enoughto support the development of green andlow-carbon industries alone. Ensuring the rapidtransition of high-GHG emitting industries andhigh-emitting sectors is an essential componentof facilitating a low carbon economy.
There has been much discussion around theworld about the use of a transition finance label
to finance the transition journey of high-emitting
sectors to a low carbon future. However, theconcept of transition finance is still in its infancy
and there is no widely accepted definition ofwhat it encompasses. As a result, its use to datehas received mixed responses, in particular frominvestors who are concerned that it does not resultin any significant change from business as usual.
This report intends to review the transition
finance concepts and practices that are currently
being used around the world, to discuss theprinciples that credible transition finance should
adhere to, and to take the Guangdong-Hong
Kong-Macao Greater Bay Area (the GBA) as a casefor studying the application of transition financeconcerning the low-carbon transition.

Together with the development of the GBA’s
green climate-linked investment and relevant
supporting policies and practices, it has become
an ideal test field for the implementation oftransition finance.
In order to further stimulate the developmentof transition finance in China and the world,
we would like to bring forward the following
recommendations:
Policy makers can set ambitious targets for2030, and demonstrate sufficiently ambitious,
flexible and inclusive transition guidelines inorder to ensure a credible transition.
Policy makers and regulators can play aleading role in promoting transition finance,
specifically in Policy support, government
procurement and incentives mechanisms.
Research institutions can support industry to
formulate and refine a granular and scientifictransition pathway, and companies can use this asa basis to understand and make transition plans.
Build the GBA into a transition finance pilot- the development of transition finance requires
joint efforts by multiple stakeholders to promote
cooperation between cities, regions and stakeholders.

Contents
Executive Summary 2
1. Introduction 3
2. International Transition Finance
Practice and Progress 5
3. The prospects for the developmentof transition finance in the
Guandong–Hong Kong–Macao
Greater Bay Area 10
4. Summary and Discussion 16
Appendix I: International Transition
Pathways Research Organisations 17
Appendix II: Organisations that provide
transition services to investors 18
Appendix III: Overview of transition
finance definitions and key areas 19
Appendix IV: Selected green financepolicies in the GBA 21
Endnotes 23

Transition finance can learn from the current
green finance mechanisms and tools, andinnovate in the selection of paths and objectives
to ensure credible transition.

The GBA is one of the regions with the highest
degree of openness and has one of the strongest
economies in China. Under the framework of
China’s‘30·60’ (have CO2 emissions peak before
2030 and achieve carbon neutrality before 2060)
climate target and the Outline Development
Plan for the Guangdong-Hong Kong-Macao
Greater Bay Area (the GBA Outline Plan), thedevelopment positioning of the GBA determinesthat it must take into account the environmental
impact and realise a sustainable form ofdevelopment, while maintaining high-quality
economic growth.

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1. Introduction
1.1 The need to financegreen transitions
The UN’s 17 Sustainable Development Goals(SDGs) frame a global sustainable future ofclean air and water and the mitigation of climatechange to avoid threats to peace and survival. In
order to achieve these goals, we urgently need toreverse rising greenhouse gas (GHG) levels andhelp communities and economies to adapt.
By mid-2021, countries representing more than
65% of global CO2 emissions and more than
70% of the world economy, had made ambitious
commitments to carbon neutrality.
The implications of this are enormous – investors
all around the world shall no longer questioning
if a shift will happen, but rather how quickly it will
happen and how it will play out. Stranded assets
are already seeing declining share and restricted
access to financing.
Meanwhile, the implications of transition are much
more far-reaching than coal or even the fossil fuelsector – every entity in every sector needs to bealigned with the net zero emissions target by 2050.
The IEA’s Net Zero report outlines a pathway to
net zero which requires no new investment infossil fuels and that the least efficient coal plants
are phased out by 2030, and the remaining coalplants still in use are retrofitted by 2040. By 2050,
almost 90% of electricity generation comes fromrenewable sources.
Green and sustainable bonds have become anincreasingly important tool to finance thesetransitions. As the market has grown, so too has
the breadth of assets and activities that is being
financed to cover a more diversified cross-sectionof the global economy. Large GHG emitters,
however, are still largely absent from the green
finance market. While large GHG emitters havenot played a significant role in the green financemarket to date, they have a vital role to play in
reducing global emissions. They are also often
key constituents in mainstream investment
portfolios, which make them critical to thetransition of those investment portfolios.
There is, however, an absence of a marketadopted standard for transition finance and,specifically, transition-labelled transactions.
Some of the transactions to date have raised
concerns in the market about inconsistencies
across transition-labelled products and thepotential for greenwashing. Investors have also
expressed concerns that the label does not
represent any change from business as usual.

1.2 What is meant by transition?
The transition finance space remains at a
nascent stage globally and, as a result, there
is no single global definition of ‘transition’ or atransition taxonomy. This section provides somedefinitional underpinnings of ‘transition’ for theremainder of the paper.

Transition to a common goal
Across all definitions of transition, there islittle debate that transition should be towards
a common goal which, in the case of climate
mitigation, is the alignment with the objectivesof the Paris Agreement
For the purposes of this paper, our focus is on
how economic entities, asset portfolios or specificeconomic activities can move from today’shigh greenhouse gas (GHG) emissions to levels
commensurate with meeting the goals of the Paris
Agreement – i.e. a ‘climate mitigation transition’.
We start here with climate as this is the focus of
most transition-labelled transactions to date, andis integral to achieving many of the SDGs. The
transition concept, however, could be applied toother environmental objectives and SDGs.

The distinction is important as such sectors havenot played a significant role in the green financemarket to date, despite them having a vital roleto play in reducing global emissions and ingreening investment portfolios.

Transition can encompass interim activities
The Climate Bonds White Paper, Financing
Credible Transitions, proposes that a transition
label should also be applicable to interim
activities: investments that are making asubstantial contribution to halving global
emissions by 2030 and reaching net zero by 2050,
but do not have a long-term role to play.

Transition is not light green
The transition concept and label is a complete
departure from business as usual. To transitionin line with the Paris Agreement requires acomplete re-orientation of the global economy
and, for the activities of some entities, acomplete transformation. The transition concept
captures this ambitious journey that each activity
and entity needs to make effort for the world to
avoid catastrophic climate change.

The need for a common goal is criticallyimportant: it means that the ‘transition’ label
cannot include activities that are a ‘bit green’
but have very limited impact on reducing global
emissions. Instead, transition must be in support
of a common and ambitious pathway to alignwith the Paris Agreement.

Transition means change over time: it is ajourney, not a destination
Transition does not mean that the activity isgreen right now, it is a journey over time, togreen. However, given the steep decarbonisation
required to meet the goals of the Paris Agreement,
this journey cannot last forever. The timescaleis critical to whether or not the world can staywithin 2 degrees of warming. Any associatedsector or entity-level transition pathways must be
accompanied by science-based and ambitious
time frames to achieve milestones along the way
and the ultimate targets.

Transition covers high GHG-emitting sectors
While the majority of activities and entities willneed to initiate some level of transition to meetthe goals of the Paris Agreement, the ‘transition’concept has been used primarily in reference tohigh GHG-emitting sectors and activities, andhow to aid their sustainable transition. This isin recognition that such sectors have a moredifficult pathway to transition as they havesignificant economic and technological barriers
to overcome.

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Five categories of transition finance are:
NEAR ZERO
Activities alreadyat or near net-zeroemissions that may
require some further
decarbonisation
but not a significant
transition - e.g. wind
power generation.

PATHWAY TO ZERO
Activities needed
beyond 2050 and havea clear 1.5-degree
decarbonisation
pathway – e.g.
shipping

1.3 Essential elements of acredible transition framework
The transition bond market is part of a larger
climate finance market. If credible, it will assure
investors, provide clear guidance for financial
institutions, and offer additional financial
supports for issuers. A single definition of‘transition’ will bring huge opportunities toinvestors, and at the same time provide theentire market with a principled guide to avoid therisk of ‘green washing’.
In the White Paper, Financing Credible
Transitions, we identified that a credible
transition should be:• Ambition – this means in line with 1.5 degrees
and the Paris Agreement.
• Flexible – applicable to whole entities,
everything they do, and a range of associatedfinancial products.

NO PATHWAYTO ZERO
Activities that areneeded beyond 2050
but at present, do nothave a clear 1.5 degree
decarbonisation
pathway to 2050 – e.g.
long-haul passenger
aviation.

INTERIM
Activities currently
needed but should bephased out by 2050
– e.g. production ofenergy from municipal
waste

5 principles for an ambitious transition
1. In line with 1.5
degree trajectory
All goals and pathways needto align with zero carbon
by 2050 and nearly halving
emissions by 2030.

4. Technological viability
trumps economic
competitivenessPathways must include anassessment of current andexpected technologies. Wherea viable technology exists,even if relatively expensive, it
should be used to determine
the decarbonisation pathway
for that economic activity.

2. Established by scienceAll goals and pathways must be
led by scientific experts and beharmonised across countries.
3. Offsets don’t countCredible transition goals andpathways don’t count offsets,
but should count upstream
scope 3 emissions.

5. Action not pledges
A credible transition is backed
by operating metrics rather
than a commitment/pledge
to follow a transition pathway
at some point in the future.
In other words, this is NOT atransition to a transition.

• Inclusive – allow all sectors and activities
to participate as long as they demonstratecompliance with the principles andframework outline.
In order to realise this ambitious goal, theWhite Paper further proposes five principles
for an ambitious transition. It then divides
economic activities into five different categories
depending on how they fit into the transition
finance landscape with either green or transition
finance label applicable to different categories
depending on their pathway to alignment with
the Paris Agreement.

1.4 Green andtransition taxonomies
A green taxonomy is defined as a classification
system which establishes a list of environmentally
sustainable economic activities. It is a tool forassessing the alignment of economic activities
with a goal which, for the purposes of this paper,is climate mitigation. The purpose of a green
finance taxonomy is to provide clarity to themarket and to reduce the potential for greenwash
when defining and labelling green assets.

STRANDED
Activities that cannot
be brought into linewith global warming
targets and have analternative, lowemissions substitute- e.g. electricity
generation from coal.

A transition taxonomy is being discussed andproposed as a tool specifically for high-carbon
emission entities and sectors to help theirtransition. In doing so, a transition taxonomy could
also outline a clear and time-based pathway toachieve the alignment with the Paris Agreement.

We propose that a climatetransition taxonomy is defined as: aclassification system for high-GHG
emissions activities and sectors
to reach alignment with the Paris
Agreement (net-zero) in the timeframe required by climate science.
Given that both green and the proposedtransition taxonomies have a common goal - they
can be seen as subsets of the broader sustainablefinance taxonomy. However, we propose herethat there is a useful distinction to be madebetween the two frameworks. The value of aseparate transition taxonomy is that it can focus
on activities of which the starting points are further
away and the journeys to reach net zero are either
unclear or have significant hurdles to overcome.
The line between activities that belong ina transition taxonomy vs a green one is notdefinitive. As a result, some jurisdictions may
separate transition and green taxonomies
while others may not. The EU, for example,
puts all transition activities within the broader
sustainable taxonomy.
We note that the transition taxonomy is useful inproviding an understanding of entity exposure tosustainable activities and is one type of informationthat companies can use to plan and communicate
their transition. However, the taxonomy alone is
not sufficient for communicating the details of acompany’s overall transition.

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2. International Transition Finance Practiceand Progress
2.1 Progress of research ontransition pathways
On the global scale, a series of studies
exploring possible transition pathwaysfor various industries is underway. Thesestudies demonstrate the characteristics ofdiversification and multiple perspectives.
Some institutions focus on the technologicalpath of the industry per se (see Annex I for
details), some focus on providing advice andguidance to enterprises, and some focus onproviding corresponding guidelines, tools anddisclosure standards as services to investors.
(Please see Annex II for the list of organisations
and institutions providing services to investors.)
Existing research has focused more on thepathway to transition, namely how to transition.
The Climate Bonds Initiative is working withmultiple parties to take the guidance one
step further by providing detailed criteria andstandards for evaluating a credible transition
and, in doing so, providing the market witha framework of transition standards that isinclusive, trusted and also flexible.
In terms of the research on transition pathways,
most of the existing guidelines address a subset of
the total range of economic activities, assets andprojects that need to be decarbonised rapidly andneed further development and refinement.

Transition targets, pathways and metrics
exist for some sectors but not others. Thereis already research covering construction(construction and refurbishment) and landtransport (manufacture and operation of roadvehicles, trains and related infrastructure).
However, there is almost no guidance foraviation, shipping, and other heavy industry.
Clear criteria relating to heavy industry are
only mentioned in four frameworks: the EU
Taxonomy, the China Green Bond Support
Project Catalogue, the Transition Pathways
Initiative (TPI), and the Corporate Knights andClean Capitalism Commission Classification.
Meanwhile, the first two classification schemes
only relate to current performance and do notestablish a transition pathway to achieve longterm goals.
There is a lack of guidance on the timerequired to transition for economic activities
that will be phased out by 2050. Guidanceis needed to develop transition targets andpathways that exploit time-limited mitigation
potential and avoid locking in or prolonging thelife cycle of such economic activities. Similarly,
for entities where the transition requires thebusiness to move away from its current activities,
little work has been done on specifying any timebased trajectory for the transition.

For interim activities, there are also gaps in theguidance about the contribution that an activity
needs to make to be defined as ‘interim’ and thetimeframe that ‘interim’ can be eligible before
needing to be replaced by low-carbon alternatives.
Definitions of transition agree that all transition
is towards a common goal which, in the case ofclimate mitigation, is alignment with the Paris
Agreement and net zero by 2050. However,transition-focused pathway studies andindustry initiatives are not based on the same
objectives, methodologies and principles. For
example, few transition pathways align with 1.5
degree warming targets, some include offsets,some are based on best-in-class benchmarks,
and some are driven by a policy agenda as
much as a climate science agenda. Therefore,
interested parties will need to pay particularattention to the emission reduction targets to beachieved by the different pathways when using
the relevant guidelines. The existing guidanceis not always consistent with the Transition
Principles set out in this report. A full review
of all existing guidance and the assumptions
underpinning them is needed to fully understandtheir alignment with these Principles and witheach other.

Research institutes on transition paths
Mobilising global capital
Providing guidance and advice for investors
GUIDANCE AND ADVICE

ClimateAction 100

ASSESING OR PROVIDING
PLATFORM TO DISCLOSE

WBCSD/We
Mean Business(SOS1.5)

Investor
AgendaNet Zero
AssetManagers
Initiative

TPI

CDP

2DII

SETTING
STANDARDS FOR
TRANSITION

RMI/
MissionPossible

CarbonTracker
IIGCC

DEVELOPING PATHWAYS

Climate
Bonds
Initiative

ACT
Initiative

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SBTi

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Progress in the development of transition pathways in selected industries2
Climate Bonds
Initiative

Science-based
Targets initiative(SBTi)

Transition
Pathway
Initiative (TPI)

Assessing
Low-Carbon
Transition
Initiative (ACT)Rocky Mountain
Institute and theMission Possible
Partnership(RMI/MPP)

EnergyTransition
Commission(ETC)

Iron & Steel
CementBasic Chemicals
O&G E&P
Integrated oils
Agriculture
HydrogenChemicalintermediates
Formulated chem
products
Aluminium
Paper& Pulp
Glass
Auto manufacture
Low carbon
transport
Heavy duty roadtransport
Aviation
MiningApparelFood & Beverage
Aerospace &DefenseElectrical utilities
Shipping
Financial
Institutions
ICT
Forestry
RetailBuildings*Red: planned but not yet started *Yellow: in progress *Green: is complete

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2.2 International Practice andProgress in Transition FinanceEvery part of the global economy to transition to netzero requires strong financial support. According to
the forecast by the International Energy Agency (IEA),
in order to achieve global net zero emission target by
2050, global annual energy investment must growfrom an average of USD2tn per year over the last five
years to reach almost USD5tn per annum by 2030,
and further reaching USD4.5tn in 2050. This will
require total annual capital investment to rise from
2.5% of global GDP in recent years to go to about
4.5% by 2030, and then fall back to 2.5% by 20503.
According to the estimates set by Bloomberg’s New
Energy Finance, by 2050 the world needs USD92tn
of investment to achieve the goals of the Paris
Agreement4. According to the calculations by relevant
Chinese institutes, in order to achieve China’s
carbon neutrality goal, an overall investment ofapproximately RMB136tn (USD20.86tn) is required.5
Since 2020, transition finance has received
widespread attention internationally, with different
market participants proposing their own solutions
from a variety of perspectives, including thedefinition of: transition finance, transition criteria,
frameworks, disclosure requirements, industry
standards, and taxonomies.
At the level of policy makers and regulators, including
the EU, Japan, Canada , China and the Organisation
for Economic Co-operation and Development(OECD), concepts and guidance related to transition
finance have been developed:

Transition finance practices
of market institutions
In addition to the exploration of transition
finance frameworks by sovereign and suprasovereign institutions, at the level of market
participants, industry associations, standardsetters and financial services institutions havealso been active in transition finance practices
and have made various advances.
In September 2020, the Climate Bonds
Initiative (CBI) published the White Paper
Financing Credible Transitions (FCT), which
provides an initial framework and five principles
for identifying credible transition financeactivities. According to the framework proposedin the FCT, a credible transition financial standard
accepted by the market shall not only be able tomeet the ambitious goals of the Paris Agreement,
but also flexible enough to be applicable tovarious types of market tools. In addition, thesestandards need to be sufficiently inclusive
fundamentally, so that all regions, sectors, anddifferent types of stakeholders in the global
economy would be able to obtain financial
support for low-carbon transition activities
through relevant guidelines.

Progress in transition finance at a national and regional levelJapan
In April 2021, the Financial Services Agency,
the Ministry of Economy, Trade and Industry,
and the Ministry of the Environment of Japan,
published Basic Guidelines on Transition
Finance. The guidelines are aimed at promoting
financing for businesses that are either alreadydecarbonised (e.g. renewable energy) or aretransitioning towards decarbonisation - inorder to realise Japan’s goal of a carbon-neutral
society by 2050. The guideline has been draftedin accordance with the Climate Transition
Finance Handbook published by ICMA. The
guidelines incorporate the ICMA Handbook’s
recommendations on disclosures.6
Tokyo plans to set up working groups in the
April 2021-March 2022 fiscal year and put
together a detailed transition roadmap foreach industry that emits heavy greenhousegases (GHG), including steel, chemical,
power, gas and shipping, to decarbonise theiroperations towards 2050.7
OECD
The OECD Development Co-operation
Directorate launched a new line of work called‘transition finance’, first presented at its February
2018 formal meeting. It carried out seven pilot
studies over the course of 2018--19 on countries
facing different transition challenges: Cabo
Verde, Chile, Lebanon, Solomon Islands, Uganda,
Viet Nam and Zambia. The transition financework explores the interactions of different
sources of financing for sustainable development
as countries develop and reach higher levels
of income.8 The OECD’s transition framework
focuses more on the financing challenges facedby countries in transitioning their economies
to meet the Sustainable Development Goals.
CanadaThe Canada Standards Association started
a process to work on a Transition Taxonomy
in 2019, as part of creating a full National
Standard of Canada for Transition Finance.
It was to build on existing taxonomies andguidance, in particular the EU Taxonomy.
Seven priority sectors were: i) oil and gas(upstream, midstream and downstream
utilities), ii) utilities (energy production), iii)
agriculture, iv) forestry, v) transportation(focus on heavy duty vehicles - railways,
aviation, trucking), vi) materials (cement, steel,glass) and vii) mineral mining. The process iscurrently on hold as an initial version of theTaxonomy failed to secure a majority vote fromthe Technical Committee working on it.9
In July 2021 the Canadian Government
announced the creation of a Sustainable FinanceAction Council. The Council has indicatedthat it now intends to take on the role ofdeveloping a transitions taxonomy for Canada

European Union
In July 2020, the EU’s Taxonomy Regulation
was published; it will enter into force on 1
January 2022. The first stage of that taxonomy
addresses climate change adaptationand mitigation. A second delegated act
for objectives around circular economy,
biodiversity protection, pollution prevention
and marine sectors will be published in 2022.
In January 2021, the European Commission
asked the newly established Platform on
Sustainable Finance to provide advice ontransition finance, looking at how the EU
Taxonomy could provide a framework forinclusive transition finance for companies, andother economic actors working to improvetheir environmental impact. In March 2021,
the Sustainable Finance Platform released
its Transition Finance Report, which focuses
on responding to relevant questions abouttransition finance.
The EU taxonomy covers transition activities
which are described as economic activities
that contribute to greenhouse gas emissions
at a level that is consistent with current bestpractice in the sector; that does not preventthe development and deployment of low
carbon alternatives; and that does not result inlocking up carbon-intensive portfolios, given
their economic lifetimes. The transition partwill be assessed every three years and will
become progressively more stringent.
China
In China, a Central Climate Leading Grouphas been established by the Politburo
to coordinate efforts across ministries
and agencies to achieve its recently
announced ‘30--60’ (peak GHG emission by
2030 and carbon neutral by 2060) climate
targets. The Leading Group is formulating atimeline and road map for carbon peak andcarbon neutralisation, which will cover 10
areas, from green finance, manufacturing, andtransport to low-carbon technology.10
The People Bank of China (PBoC) haveadvised media that the Chinese central bankis working on developing the ‘definition,
standards, classifications, assessment,
and management systems of transition
finance’ that is ‘suitable for China’s national
conditions and development stages’.11 The
National Development and Reform
Commission (NDRC) is also currently working
on the preparation of a consequential 2030
carbon emission peaking action plan, setting
decarbonisation targets and pathways foreach sector.

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The Hong Kong Green Finance Association(HKGFA) released the Navigating Climate
Transition Finance in November 2020, which
proposes important principles that market
authorities and market participants should
consider when defining the operationalframework for climate transition financing. The
principles adopt the format and transparency
requirements of existing regulatory standards
or market-accepted frameworks. They also
propose that issuers and borrowers disclose:
med- and long-term plans aligned with theParis Agreement; constraint(s) on engaging in
low-carbon activities with evidence; technologies
and activities for climate transition financing;measures in place to ‘do no significant harm’ andpropose a ‘do least harm’ strategy; a deliberate
phase-out plan for transition technologies andactivities in order to make way for net-zerocompatible technologies and activities.12

contribute positively to the transition to a lowcarbon economy.15

ICMA released the Climate Transition Financing
Handbook in December 2020.13 Unlike the CBI,
which aims to harmonise definitions of transitionand provide clear criteria, the Handbook
does not set out definitions or classification
schemes for climate transition projects.
Instead, it specifies the forms of financing anddisclosure requirements for climate transition
bonds to demonstrate the credibility of thetransition. ICMA clarifies that the forms of funds
raised for transition finance include: (1) debt
financing instruments with a specific use offunds raised, i.e. bonds that comply with theGreen Bond Principles, the Socially Responsible
Bond Principles and the Sustainability Bond
Guidelines; or (2) debt financing instrumentswith funds raised for general corporate purposesthat comply with the Sustainability Linked Bond
Principles. Meanwhile, the four key elements
recommended for disclosure in the Handbook are:Summary of current transition financepractice

1. Issuers’ climate transition strategy andcorporate governance.

• Transition finance supports high GHGemitting or high environmental impact sectors;

2. The importance of considering environmental
elements in the business model.

• Transition finance to date has been focused on
the climate mitigation transition; and3. The climate transition strategy should be informedby scientifically based goals and pathways.

• Transition finance aims to achieve an appropriately
ambitious transition to zero carbon.

4. Transparency of information relating
to implementation.

The term ‘transition’ can be applied towhole entities or their individual activities.
The European Union, Bank of China and China
Construction Bank focus on activity-leveltransition. That is, the transition applicable to a
specific activity (or sub-sector) for it to be green.
Both Development Bank of Singapore (DBS) and
CBI have consider the transition at activity andentity level.

Financial Services Institutions are also
conducting business in the transition finance.
Sustainalytics launched its second-party
advice service for transition bonds in June 2020
which assesses a transition framework in two
ways.14 Firstly,, it assesses the bond issue itself,
focusing on: use of proceeds, fund management,
project selection and fund allocation reporting.
Secondly, it assesses the issuer itself, whether
it has established a strategy to address climatechange and whether the strategy clearly states
how it plans to adapt its business model to

A number of banks , including BNP Paribas, DBS
Bank, HSBC and Crédit Agricole CIB, have issued
their own definitions of transition bonds. Bankof China and China Construction Bank have also
issued a Transition Bond Management Statement
and a Transition Bond Framework respectively.
Among the pioneering banks, DBS Bank published
its Sustainable and Transition Finance Framework
and Taxonomy in June 2020, which is the world’s
first taxonomy covering transition finance.16
The People’s Bank of China is also currently
conducting research on transition finance witha view to working with the industry to develop
a broadly adaptable, targeted and actionabletransition finance programme for China.
Please see Annex III for an overview of transition
finance definitions and key areas.

To date, there is no internationally agreed
conceptual definition of what constitutes
credible transition finance and the criteria
for classifying its operations. Guidance ontransition finance has been or is being developed
by several market participants, including research
institutions, investor organisation, national andregional bodies, and financial institutions. In
terms of the technical specifications and binding
frameworks for transition finance, progress
varies from institution to institution. Further,
the ambition of government departments andinstitutions in relation to the climate transition
goals associated with transition finance varies
considerably from country to country.
Nonetheless, a general consensus can be seen
as follows:

financing with unspecified Use of Proceeds, andmark them as ‘Corporate in Transition’, as long as
this transaction meets the three criteria: Divested,
Diversified and Decarbonised within the past
12 months. When the applied financing subject
meets one of the criteria, it then can be labelled
as corporate in transition.17
Climate Bonds includes both economic entities
and activities in its White Paper, and provides
decision-making processes for the transition ofentities and economic activities respectively.
It plans to release evaluation standards for thetransition of economic entities in 2021, so as toenhance the credibility and operability of entities
under transition.
The fields which financial service institutions
focus on demonstrate a high level ofconsistency. The difference lies in the order andprogress of the relevant standards and researchin the key fields, as well as the differences in thespecific technology choices among them.
The research progress varies concerning thisissue in different industries and by various
institutes. Cement, steel, and energy industries
are generally selected as the priority industries
for development. Among them, DBS Bank
launched the ‘Sustainable and Transition Finance
Framework and Taxonomy in June 2020,18 and at
the same time introduced the economic activity
classification of 16 industries that conform withthe labels set by DBS Bank as sustainable andtransition financial industries. Sustainalytics set
the priority on publishing research on transition
paths for the gas and steel industries. HSBC
took the UK as an example to discuss the key
areas of transition finance, then focused on
the sustainable transition of the chemicals
industries in Oman, Saudi Arabia and the United
Arab Emirates. Acting as the standard-setter,
CBI scheduled to publish standards on cement
and basic chemicals by the end of 2021, andstandards on steel, oil and gas by 2022.

DBS Bank has proposed two verification
methods in order to label the activities: One
is to judge whether economic activities meetthe conditions based on the purpose of theirapplication; the other is to identify company

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2.3 Practices oftransition finance
The primary financial instruments used fortransition are mainly transition bonds andsustainability-linked bonds /loans:
Transition bonds refer tobonds that raise funds tosupport projects related tothe transition of traditional
industries and energy
structures into low carbon or
zero carbon. Within the traditional industries
such as utilities, cement, aluminium, andsteel, projects with transition benefits arelisted under the category of transition bonds
sector. Transition bonds are different fromgreen bonds which are designed only for green
industries such as renewable energy and cleantransportation. They can provide financing forlow-carbon transition projects with significant
environmental benefits in traditional industries,
thereby reducing greenhouse gas emissions
in carbon-intensive industries, which in turnpromote the low-carbon transition of thenational energy structure.19

Sustainability-linked bonds(SLB) and loans (SLL) are
general purpose bonds,
where the cost of financemoves up or down dependingon the achievement of key
performance indicators of the issuing entity.
Compared with green bonds, sustainabilitylinked bonds do not have specific requirements
for the usage of raised funds. Instead, they aim
to incentivise the issuer to meet its sustainability
performance targets with penalties or rewards
on the cost of finance. While these are notspecifically labelled as ‘transition’, they are seenby the market as a transition instrument as they
support an entity’s overall goals/strategy rather
than financing specific assets.

that as the KPIs are set by the issuing entity, they
are not material or sufficiently ambitious to beeasily assessed against broader goals such as theParis Agreement. Nevertheless, if structured well,they can be a valuable addition to the green andtransition finance landscape.
The International Capital Market Association
launched guidance in the form of the SustainabilityLinked Bond Principles in June 2020.

SLB and SLL transactions have proliferated since
2018 with over USD120bn in loan volumes and
USD11bn in bond volumes in 2020 alone. There
have been some concerns around the credibility
and impact of SLLs and SLBs. In particular, for
SLLs, there is very limited transparency leading tosome doubts around the impacts of these deals.
For both types of transactions, there are concerns

Transition Finance Case Study
Issuer: Etihad Airways
Debt financing instrument:sustainability-linked bond
CBI’s classification of thiseconomic activity: No pathway
to zeroEtihad Airways issued a five-year sustainabilitylinked bond for USD600m in October last year.
This was a first in the aviation industry and theworld’s first Islamic bonds (Sukuk) with theconcept of ‘transition finance’. It promotes thedevelopment of sustainable aviation by linking
Islamic bonds with Etihad’ short- and mediumterm emission reduction goals, including
reducing the emission intensity of airline’s
passenger aircraft by 20% by 2025, with a net
50% reduction by 2035, and achieving net-zerocarbon emissions by 2050.20
The aviation industry accounts for 2% of global
carbon emissions and yet, at this moment, it
is unclear how long-haul aviation can reduce

emissions in line with a net zero emission target.
The practice implied by the aviation industry
is inconsistent with the goals set by the Paris
Agreement. Technological options include thedevelopment of new models of aircraft andengines with higher energy-efficiency, andthe use of sustainable aviation fuels (such as
biofuel or composite fuel), as well as optimizing
operational management (such as air traffic
control procedures) and infrastructure (such as
improving airspace utilization and airport layout
to increase throughput).21,22,23
Etihad released its Transition Finance
Framework last year, which elaborated
on the definition and practices of Use ofProceeds Financing and Sustainability-Linked
Financing. KPIs include a 17.8% reduction inemissions intensity in the issuer’s passenger
fleet (gCO2/RTK PAX only) between 2017 and2024. The Sustainability Performance Targets(SPT) for 2024 exceeds the level set by the
Carbon Offsetting and Reduction Scheme forInternational Aviation (CORSIA), which meansthat it will apply the level in 2010 as baseline
and continuously reduce carbon intensity by
2% per year until 2050. Its carbon emission
level will also be lower than that set in theInternational Pledges Scenario by the Transition
Pathway Initiative although this scenario onlyreflects the world’s current emission reduction
commitments, which are insufficient to limit
global warming to 2°C or below.24
Etihad also put forward proposals of eligible
low-carbon transition projects for Limited
Loan-usage Financing (ie transition debt/
financing), ranging from investment in new
aircraft to replace its old aircraft (such as
Boeing 787-9 and Boeing 787-10), to inputting
into research and development of sustainableaviation fuel.
Etihad’s carbon reduction initiatives include
the use of higher energy-efficient aircraft,the use of optimized flight routes, the use ofsustainable fuels and the reduction of singleuse plastics.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative9

3. The prospects for the development of transition
finance in the Guangdong-Hong Kong-Macao
Greater Bay Area

In the context of a global response to climatechange and China’s goal to peak emissions in
2030 and to reach carbon neutrality in 2060, thedevelopment positioning of the GBA determinesthat it is expected to boost high-quality
economic growth, while taking into account theenvironment and sustainable development.
A whole range of actions on carbon transition
will be rolled out to create an advanced energy,transportation and industrial system that iscompatible with its future development goals.
Climate change has already caused serious
loss in the GBA , including warming, rising sea
levels, increased rainfall and flooding, and otherextreme weather events. In 2019 alone, climaterelated disasters caused a total direct economic
loss of about RMB430m (USD65.95m),26 andthe death of 16 people. For the GBA, aviation,
domestic transportation, real estate, agriculture
and finance sectors are particularly vulnerable toclimate and environmental-related risks.
The industrial structure of the GBA presents
the characteristics of decentralisation anddiversification. The tertiary industry in Hong
Kong, Guangzhou, Macau and Shenzhen is themain driving force to promote their economic
development. By contrast, the development of
the secondary industry in other parts of the GBA
makes a greater contribution to the GDP. 27

100%
Primary industry

80%

Secondary industry

Tertiary industry

60%
40%
20%

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The Guangdong-Hong Kong-Macao Greater
Bay Area (the GBA) is comprised of Hong Kong
Special Administrative Region, Macau Special
Administrative Region and Guangzhou, Shenzhen,
Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan,
Jiangmen, and Zhaoqing. With a total area of 56,000
square kilometres and a total population of about
86.17 million at the end of 202025, it is one of theregions with the highest level of openness andthe strongest economic vitality in the country. On
18 February , 2019, the Central Committee of theCommunist Party of China and the State Council
issued the GBA Outline Plan, marking the official
implementation of the national strategy for the
GBA. The GBA Outline Plan proposes to build the
GBA into a vibrant, world-class metropolitan cluster,
supported by an international, technological,
innovation centre with global influence. This will be
an important support for the implementation of the‘Belt and Road’ initiative, a demonstration zone forin-depth cooperation between the Mainland, Hong
Kong and Macao, and an area with a high-quality
lifestyle suitable for living, working and travelling.

Composition of GDP by industry by city in 2019M

3.1 Guangdong-Hong KongMacao Greater Bay Area has theneeds and potential for lowcarbon transition

Source: Wind database, Guangdong Statistical Yearbook 2020

The proportion of primary, secondary andtertiary industries in Guangdong Province stoodat 4.3%, 39.2% and 56.5%, respectively, in 2020.
The added value of advanced manufacturingand high-tech manufacturing accounted for
56.1% and 31.1% of the above-scale industries,
respectively, and the added value of modern
service industry accounted for 64.7% of theservice industry. The pace of industrial transition
and upgrading has accelerated. At present,
Guangdong Province has formed seven trillionlevel industrial clusters, including electronic
information, petrochemicals, smart home
appliances, and advanced materials.28
As one of the most economically developed
regions in China, the huge production andresidential demands have resulted in an

GBA energy consumption by
sector in 2017

Transport
31%

Building
12%

Industry
32%

Power
25%

extremely high demand on energy in the
GBA. In 2017, the comprehensive energy
consumption was about 239 million tons ofstandard coal. Demand for energy was madeup of 32% for industrial use and accounted for
31% in transportation energy. Geographically,
Guangzhou, Dongguan, and Hong Kong were themajor energy consuming cities.29
Carbon emissions from energy production andheavy industries accounted for 39% and 20%of the total emissions in the GBA, while energy
production and heavy industry emissions fromother cities in Guangdong Province accounted
for 50% and 31%. The service industry is
the third largest source of carbon emissions
in the GBA, accounting for 25%, of whichtransportation dominates.30

3.2 The GBA has a solid
foundation for the developmentof transition financeAccording to a range of studies and estimations, thescale of investment required for China to achieve
the carbon emission neutrality ‘30 -·60’ target is in
the hundreds of billions of yuan. According to theestimation of the Environmental Planning Instituteof the Ministry of Ecology and Environment, in orderto achieve emission peak in 2030, China will need
RMB9.3tn (USD1.4tn) during the 14th Five-Year Plan
period, and RMB11.5tn (USD1.76tn) during the 15th
Five-Year Plan period.31 CICC estimates that China’s
total demand on green investment is approximately
RMB139tn (equivalent to USD21.32tn), of which thedemand from 2021--2030 is approximately RMB22tn(USD3.37tn). The average rate of China’s annual
green investment demand is about 2% of GDP.32

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative10

To support the development of green financeapplied at various stages, levels and cities, the
GBA has published a whole range of green financepolicies, including a designed policy framework,
regulatory policies, incentive mechanisms, andrestraint mechanisms. For the list of policies,
please see Annex IX. Local governments,
including Hong Kong, Shenzhen, Guangzhou,
Guangzhou development zone and Huadu districtof Guangzhou city, have also issued specificregulations and incentive measures for green
finance development covering green credit,
green loans, green bonds and green insurance.

GBA installed power generation
capacity in 2017

Internationally-aligned green bonds were on the rise before Covid-19
6

USD Billions

Meanwhile, China has been vigorously
developing green finance. At the end of 2020,
China’s domestic and foreign currency green loanbalance was about RMB12tn (USD1.8tn), withstock size ranking first in the world and green
bond stock of about RMB800bn (USD120bn),
ranking second in the world. Since the Huadu
District of Guangzhou City took the lead inlaunching the pilot zone for green finance reform
and innovation in 2017, the GBA has gained
considerable experience and achievements inpromoting green finance. The GBA Outline Planemphasised the target of constituting a green
financial centre in the bay area, as well as varied
development plans for Hong Kong, Guangzhou,
Macau and Shenzhen. From 2016--2020, thetotal amount of green bonds, in line withinternational standards, that was issued in the
GBA reached USD16.9bn. Prior to the outbreak of
the epidemic, the green bond market in the GBA
grew at a compound annual growth rate of 69%,
which was mainly driven by registered issuers inHong Kong and Guangdong. In 2019, the Bankof China’s Macau Branch issued green bonds
with a total value of USD963m, marking the firstissuance of green bonds in Macau.

5

Macao

4

Hong Kong

3

Guangdong

2
1
0
2016

2017

2019

2020
Source: Climate Bonds Initiative

At the same time, Guangdong is one of theearliest pilot zones for testing the carbon market
at provinces and cities in China. In December
2013, Guangdong officially launched carbon
emission rights trading, bringing about 250
emission control companies, in six majorindustries, including steel, petrochemical,
electric power, cement, aviation, and paper
into the carbon market, covering about 70%of the province’s energy carbon emissions.
Since the operation of the carbon market,
more than 80% of emission control companies
have implemented energy-saving and carbonreduction technological transitions, and theamount of carbon emissions per production unit
in power, cement, steel, paper, and civil aviation,
have decreased respectively by 11.8%, 7.1%,
12.7%, 15.9% and 5.4%.33
The province of Guangdong continues to promote
innovative products of carbon finance. As of 12
September, 2021, 136 trading transactions ofcarbon emission rights have been conducted,
with a total of 10.6650 million tons of carbon

GBA power supply structure in
2017
Oil <1%
Nuclear 9%
Hydropower <1%
Photovoltaic <1%Wind <1%
Biomass <1%

Oil 2%
Nuclear 10%
Hydropower 2%
Photovoltaic 2%
Wind 1%
Biomass 1%

Outsourced
48%
Gas
12%
Gas
30%

2018

Coal
38%

Coal
29%

emission rights that have been traded; 53 carbon
emission allowance custody operations have been
conducted, and a cumulative custody allowanceof 18.71 million tons has been launched.
Moreover, there has been 43 carbon emission
rights repurchase business, with a total of 16.83
million tons of transactions; a total of 16 carbon
emission rights mortgage financing business, witha mortgage of 7.46 million tons of carbon emission
rights; a total of3 China Certified Emission
Reduction (CCER) mortgage financing, and amortgage of 2.8 million tons of CCER, resulted in
the amount of financing adding up to RMB20m.
The unique advantages due to the perfect locationof the bay area, as well as years of green financedevelopment experience, the GBA has turned into
an ideal place to develop transition finance andexplore relevant policies, standards and tools.

3.3 Prospects for the low-carbon
transition path of the GBAThis section discusses the sectors and activities
critical to the low-carbon transition in the GBA,
aiming to achieving goals set by “30·60” andParis Agreement. These high-carbon emission
activities are still largely absent from the green
finance market despite their importance within
the transition.

1. Electricity
Electricity is both indispensablefor production and living
in modern society andfundamental to thedecarbonisation of other sectors (e.g. electrificationof transport). The decarbonisation of electricity
in the GBA is at the core of the entire low-carbon
transition. Coal power currently accounts for morethan 50% of electricity installed capacity in the bay
area. Nearly half of the power supply needs to besupplied from outside of the GBA while Macau’s
power is supplied almost entirely by the Mainland.
Of the coal power units in service in 2017, half ofthem have been in service for more than 20 years,
and the average standard coal consumption for
power generation of thermal power units in thearea is still below national average.34

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative11

Energy transition in the power sector
Gradually phase out coal power
Coal power is the main source of sulphide andfine particulate matter. It also accounts for halfof the CO2 emissions in China.35 At the sametime, the overall power generation efficiency ofcoal-fired power plants in the Greater Bay Area
is low. Local governments have issued relevant
policies to discontinue building new coal-fired
power plants and to speed up the elimination ofcoal-fired power plants in service. The Guangdong
Province’s Implementation Plan for Winning theBlue Sky Defence War (2018--2020) clearly requiresthat the Pearl River Delta region to prohibit theestablishment or expansion of coal-fired andoil-fired thermal power units or the self-suppliedcoal-fired and oil-fired power stations of enterprises.
The Hong Kong Climate Action Blueprint 2030+
issued by the Hong Kong Special Administrative
Regional Government also committed Hong Kongto gradually reducing coal-fired power generationand increasing non-fossil fuel sources. The IEANet Zero report puts forward a pathway to net
zero globally which requires no new unabatedcoal plants, that the least efficient coal plants
are phased out by 2030, and the remaining coalplants still in use are retrofitted by 2040.36
Develop renewable energy according
to local conditions
In the GBA, the land resources are precious
and the development density is high, making
it unsuitable for developing large-scale groundsolar photo-voltaic (PV) power plants; however,promoting rooftop distributed PV has great
potential. According to the prediction madeby the Guangdong-Hong Kong-Macao Greater
Bay Area Energy Transition Mid- and LongTerm Scenario Study, the annual roof area of
new buildings in the Pearl River Delta region
exceeds 21 million square metres. If PV power
generation systems are installed on 10% of
the roofs, the installed capacity of PV power
generation will exceed 200,000 kilowatts. The
municipal governments of Guangzhou Huangpu
district (development zone) and Guangzhou
high-tech zone will begin subsidising distributed
photo-voltaic power generation projects in 2021,
with the aim of promoting the development of
distributed PV power.37
In terms of biomass power generation, the GBA
has a high urbanisation rate, with less agriculturaland forestry waste and limited land use.
Therefore, it is not suitable for the developmentof biomass power plants based on agriculturaland forestry waste. However, due to its large
population, the amount of domestic waste
generated is relatively high. Therefore, energy
from waste is one potential solution.
Guangdong province is rich in wind power
resources, while the offshore wind power in
the Pearl River Delta region is mainly located in
Zhuhai, Jiangmen and Zhaoqing. Onshore wind

power enters the wind farm planning mainly via
Huizhou and Zhaoqing. Although offshore wind
power in the GBA is limited, it remains underactive development. After 2025, the total installedcapacity of offshore wind power in the GBA is
anticipated to reach 1.62 million kilowatts.38
Increase purchasing of green power fromoutside the GBA
The power supply in the GBA needs to comefrom the ‘West-to-East Power Transmission’from outside the province39,as well as from theeastern and western region within Guangdong
province. While purchasing green electricity fromthe outside the GBA can reduce local carbon
emissions, it can also push for energy transitionof power suppliers. China Southern Power Grid
Corporation has committed that the proportionof installed clean energy for the GBA will reach
80% by 203540. The outcome of this transition
will provide strong support for the development
and utilisation of clean energy, and increase thesupply of clean and low-carbon electricity outside
the GBA. The offshore wind power deployed ineastern and western Guangdong will reach a total
installed capacity of 65 million kilowatts in 2035.
It is estimated that 200 billion kilowatt-hours ofelectricity is expected to be generated per month,which can become an important base for green
power supply in the GBA41.

2. Industry
Guangdong Province is an
important manufacturing hub
in China. In 2019, industry
production accounted for 57%
of Guangdong’s total energy
consumption, of which manufacturing accounted
for 48%. In 2019, the energy consumption of

the petrochemical, building materials, steel,information technology, paper production andprinting industries in the GBA added up to 77% of
the total industrial energy consumption.42
According to the analysis of the GuangdongHong Kong-Macao Greater Bay Area Energy
Transition Mid- and Long-Term Scenario Study,
the GBA will transit from the petrochemical,
paper and printing, and building materials
industries, to petrochemical, information
technology, general equipment manufacturing
and specialized equipment manufacturingindustry by 2035. As Huizhou in the GBA will bebuilt into the top petrochemical zone in China,
the energy consumption of the petrochemicalindustry will continue to rise in the foreseeable
future. Meanwhile, other high-energy-consuming
traditional industries such as paper, steel, andbuilding materials will gradually move awayfrom the Pearl River Delta by 2035, resulting in
cutting energy consumption to 50%-60% by
2017. In the future, emerging industries withhigh-added value and low-energy consumption,such as new generation information technology,
biotechnology, and high-end equipment
manufacturing, will become the focus ofindustrial structure optimisation.
Furthermore, the low carbon transition of the
manufacturing industry in the GBA would radiate
to the entire supply chain. Take the automobile
manufacturing industry as an example, in 2020,
the Green Finance Professional Committee of
the Guangdong Association of Finance Studies
issued the Guidelines for Green Supply Chain
Financial Services in the Greater Bay Area
(Automotive Manufacturing). By establishing thecore enterprise white list management system,

Guangdong Province total energy consumption by sector in 2019
Wholesale and retail trade and catering services 5%
Non-production consumption 16%

Production and supplyof electric power, gas
and water 8%
Mining andquarrying 1%

Others 7%

Industry
57%
Manufacturing
48%

Farming, forestry, animal husbandry and fishery 2%
Construction 2%
Transport, storage, postal andtelecommunication services 11%

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative

Guangdong Statistical Yearbook 202012

Guangdong Province manufacturing
total energy consumption in 2019

The transition path of the steel industry includes:• Energy efficiency improvements in blast
Transportation equipment
furnaces (heat recovery systems, waste gas
manufacturing 2%
reuse and injection of natural gas).
Electrical machinery• Increased recycling of materials and innovativeand equipment
product design.
manufacturing 4%
Other industries 4% • Low-carbon solutions for blast furnaces suchas top gas recycling or carbon capture andTextile industry 5%
storage (CCS).
Papermaking
and printing• Low-carbon alternatives such as powering
industry 8%
electric arc furnaces with low-carbon
electricity, or green hydrogen or novel
Information
technologies such as direct electrolysis.
Technology
The energy consumption of the steel industry
Industry 11%
in the GBA is mainly concentrated in the long
Petrochemical process, but the capacity is relatively small. ThereIron and steel
is only one long process enterprise in Zhuhai,industry
non-ferrous
which may withdraw from the GBA industry
25%
industrycluster in the future. The energy consumption
14%level of the short process unit production isstill lagging behind the advanced level, with a
Building Materials
potential to drop 15%-20%.44
Industry 19%
Cement
The global cement market
Biomedical
reached a volume of 4.9
Industry 1%
billion tons in 2020. Demand
Metal products andis driven by populationequipment manufacturing 7%
expansion and a need for
Guangdong Statistical Yearbook 2020
residential space as well as infrastructure
projects, especially in emerging economies.
it will be able to achieve green management of the
The manufacture of cement accounts for 7% ofentire industry and stimulate the green development
global CO2 emissions and 26% of industry CO2of core enterprises, promote the green transition
emissions. Rroughly 50% of CO2 emissions areof major enterprises, and unify green supply chain
process-related with another 34% related to thefinancial standards within the GBA. Through thethermal energy required to produce clinker.
above measures, it aims, eventually, to promote thecoordinated development of financial institutions
The transition paths of the cement industry
and industrial green transition in the GBA.
include:In the GBA, the city of Huizhou will develop into a
petrochemical energy industry base.43 Dongguan’spaper industry, Foshan’s textile industry and ceramics
industry, and Zhaoqing’s cement industry are allindustries with advantages locally. In the future,they will optimise and upgrade their industries andcontinue their development.
Steel
Currently almost two billion
tons of steel is produced
annually. Steel ismanufactured and used allover the world, in everythingfrom infrastructure to vehicles, wind farms andpackaging. It is a low-margin, highly-tradedcommodity in a fragmented and highly competitive
global industry. The sector is the largest global
consumer of coal, which provides almost 75% of its
energy demand and is used to make coke, which is
instrumental in the chemical reactions necessary
to produce steel from iron ore. The manufacture ofsteel (and its primary ingredient, iron) accounts for
8% of global CO2 emissions.

• Energy efficiency improvements.
• Alternative fuels for delivering the heatrequirements needed to run the kilns for drying
limestone (making the clinker).
• Alternatives to clinker to reduce the proportional
content in cement. This reduces emissions, butavailability of substitutes is limited.
• Setting of pathways – likely to be by sizeof installation as emissions differ significantly
by geography.
• Carbon management technologies – muchhope in CCS, but is in early development stages.
In the GBA, the industries of building materials
such as cement, ceramics, and glass are mainly
located in cities such as Foshan and Zhaoqing.
The current average level of energy consumption
per production unit is 10%-15% higher than
the advanced ones, and still has room for
improvement.45

Basic chemicals
Basic chemicals are a small
number of chemicals used as
the feedstock of thousandsof chemical products andmaterials. They include olefinsthat make polymers (forplastics and synthetic fibres) and aromatics thatmake solvents, as well as methanol (an industrial
alcohol), and ammonia (used for fertilisers). This
category has the most significant volume andenergy consumption, representing around 60%
of total direct CO2 emissions from the chemicalindustry. The chemical industry is highly energy
intensive. Most of its processes heavily rely on fossil
fuels. Its global direct GHG emissions are about 5%of total global emissions. This sector is among thelargest energy consumers, accounting for 30% of
industrial energy consumption.
The transition path of the basic chemicalindustry includes:• Effective management on the demand side, suchas using alternatives to urea-based fertiliser.46• Use sustainable raw materials, such as greenhydrogen, biomass fuel.
• Improve energy efficiency.
• Develop technical routes for the production ofchemical products with carbon dioxide as raw
materials, or adopt CCS.
The petrochemical industry in the Greater Bay Area
is concentrated in Huizhou and Guangzhou. Theenergy consumption per production unit of crude oilprocessing and ethylene production still has room forenergy saving.47

3. Transportation
The energy consumption
and carbon emissions of thetransportation sector in the
GBA in 2017 accounted forapproximately 28% and 34%of the total energy consumption and carbon
emissions of the bay area. The anticipated rapid
development of the GBA in the coming future
will further increase the transportation demand
related to production and living. It will also bringabout transportation-related energy consumption
demand as well as greenhouse gas and air pollutant
emissions. Therefore, the low-carbon transition of
the transportation sector is another focus for GBA.

Energy transition in the transportation sector
Electrification of road traffic- electric vehicles or
fuel cell electric vehicles.
Compared with diesel locomotives, electric vehicles
have higher efficiency. The electrification of road (andrail) transportation is the main tool to reduce directemissions from the transportation sector. In the shortterm, emission savings will, of course, be reduced by
the emissions from the high-carbon electricity grid.
However, a rapid shift towards electric vehicles will

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative13

still result in significant emissions savings in boththe short term and long term. In the short term,as EVs have much higher efficiency than internal
combustion engines, they will reduce emissions by
20-33% even with a high carbon grid.48 In the longterm, as the grid becomes decarbonised, this saving
will become even more pronounced. According
to the analysis of the Global Report of the Energy
Transition Commission, the full life cycle cost ofelectric vehicles is expected to be lower than that ofinternal combustion engine vehicles by 2020.
The GBA has adopted strong policy support toactively promote the development of electricvehicles. Shenzhen achieved full transition to electricbuses in 2017, Guangzhou and Zhuhai realised
transition to electric buses at the end of 2018, andother cities in the Pearl River Delta planned to realise
this transition by 2020, within which electric buses
account for over 85%.49 In addition, starting from2018, all new or renewal cruise taxis and online carhailing platforms in the Pearl River Delta region are
called upon to use new energy vehicles.50 Moreover,the GBA is also a core industrial cluster for China’s
new energy vehicle manufacturing, providing a solid
foundation for the promotion of electric vehicles.
The National Development and Reform Commission
approved the Guangdong-Hong Kong-Macao Greater
Bay Area Intercity Railway Construction Plan in July
2020.51 The plan aims to create a ‘Greater Bay Area
on Track’ and set the following development goals:
in the near future to 2025, the mileage of the GBA’s
railway network in operation and under construction
will reach 4,700 kilometres, covering the central
cities, connecting cities in the bay area, as well as
key metropolitan areas such as Guangzhou andShenzhen. In the long term, by 2035, the mileage ofthe Greater Bay Area’s railway network in operation
and under construction will reach 5,700 kilometres,
covering 100% of cities at county level and above. At
present, China’s high-speed rail has already realised
its electrification target. With the expansion of thehigh-speed rail network, the electrification of highspeed railway will also form an important part of theelectrification process of road transportation.
The potential of green hydrogen energy in the fieldof long-distance cargo transportation and intercity
public transportation is huge. In the future, sharp
decline in the cost of electrolysis and fuel-cellequipment will also bring cost advantages to thegreen hydrogen energy industry. Guangdong
Province has adopted a set of policies to promote
the development of fuel-cell vehicles and hydrogen
refuelling infrastructure. It is expected that by 2022,
the province will build 200 new hydrogen refuelling
stations52,53 and purchase new energy vehicles(including electric vehicles and hydrogen fuel-cellvehicles) during 2017--2020, and provide subsidies toentities and individuals who build infrastructure forcharging and replacing electricity and hydrogen.54,55
Fuel substitution for shipping and aviation
For long-distance transportation, the applicationof new fuels will be an important way to reachdecarbonisation. According to the research
conducted by the Energy Transition Commission andthe Rocky Mountain Institute, the decarbonisationof air transportation does not focus on technicalfeasibility, but on the cost-effectiveness of bio-jet fueland synthetic jet fuel, as well as the supply capacity ofsustainable biomass resources. The comprehensive
use of electricity, hydrogen energy, bio-fuels andammonia will help China’s shipping industry achieve
the goal of decarbonisation. Specific fuel selection
and development methods also need to be adapted
to local conditions, and determined according toavailable regional resource endowments.

GBA energy consumption ofdifferent building types in 2017

Hotel
17%

4. Buildings
Globally, the constructionindustry has been the main
source of carbon dioxide
emissions, accounting for about
39% of total carbon emissions.56
In Hong Kong, buildings accounts for 90% of theelectricity consumption and 60% of greenhouse gas
emissions.57 According to the Guangdong-Hong KongMacao Greater Bay Area Energy Transition Mid- andLong-Term Scenario Study, the total area of the GBA
under construction by 2035 is estimated to be about
1.5 times that of 2017, and the per capita residential
construction area will reach 37 square metres. The
growth rate for urban residential area in cities andtowns is about 3.5%, while the average annual growthrate of public building area is about 2.5%.
The energy consumption per unit area of publicbuildings58 in the GBA is about 137 kWh/(m²·year),which is much higher than that of residentialbuildings.59 Among them, the overall energy
consumption level of shopping malls, hospitals andhotels is much higher than other types. With thecontinuing development of the tertiary industry in
the GBA, the energy consumption of public buildings
will increase further in the coming future.60 On theother hand, with the continual influx of migrants, thedemand for urban residential housing keeps rising,which has led to an increase in energy consumptionof urban buildings.

Energy transition in the building sector
Energy efficiency improvement of buildings
The improvement of energy efficiency in buildings
includes the research and application of building
energy-saving technologies, the development andadoption of energy efficiency standards, and theapplication of supporting policies and incentive
mechanisms. Energy-saving technology can improvethe energy efficiency of energy-consuming products
in buildings such as air conditioners, water heaters,
refrigerators, stoves, etc. It also strengthens theresearch and development of high-performancegreen building materials as well as the promotionof technical products related to ultra-low energy
buildings. In terms of energy efficiency standards,
home appliances can be gradually improved. Other
energy efficiency standards for building energy
equipment clarify the energy consumption quota
standards of various buildings, and aims to achieve

School 5%

Town
36%

Rural
7%

Hospital 5%
Shopping
Mall
15%
Office15%

Source: Study on Mid- and Long-Term Scenarios of Energy Transition in the
Guangdong-Hong Kong-Macao Greater Bay Area,
September 2020, Science Pressthe best international energy efficiency level. In termsof supporting policies, incentives can be established,
the building energy efficiency reward system can be
implemented, and the energy efficiency labellingcertification of buildings can be promoted.
Electrification of buildings
While refrigeration, lighting and household
appliances are completely electric, in the future,
heating could also be electrified using heat pumptechnology and other technologies using electricity
rather than gas. Meanwhile, the application ofrenewable energy in buildings, the improvementof intelligent building management, and the rapid
promotion of smart homes can greatly improve theenergy efficiency of buildings.
At the same time, the GBA actively promotes thedevelopment of green buildings through policies.
Guangdong Province issued the Guangdong
Province Green Building Regulations in 2020,
which is the country’s first local regulation on green
buildings. The regulations require new civil buildings
to be constructed in accordance with the green
building standards. After the implementation of
the regulations, all new civil buildings within thescope of Guangdong Province (except for farmers’
self-built houses)should meet the requirements
of at least the basic level of green buildings and,ultimately, achieve the goal of being ‘all green’. The
regulations also require the nine cities within the GBA
to accelerate the development of green buildings,
and build in a certain area in accordance with two
or more levels higher than the lowest-level green
building standards. The Hong Kong Urban Energy
Saving Blueprint 2015--2025+ released by Hong Kongclarifies its goal: new government buildings with afloor area of 5,000 square metres or more, equippedwith central cooling systems and with surface area of
10,000 square metres or more, must at least meet therequirements set by Green Building Environmental
Assessment (BEAM Plus) Gold award rating; and new
public housing must at least meet those set by BEAM
Plus gold rating.61

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative14

At present, Shenzhen has already incorporated
public buildings into the carbon trading system.
The system stipulates that owners of large publicbuildings, and office buildings of state agencies witha construction area of more than 10,000 square
metres, shall be included in carbon emission control
system, and implement carbon emission rights quota
management. In the future, the GBA can further
extend the types of buildings included in the carbon
trading market, and apply market-based means tomanage building energy and carbon emissions.
According to data from the Climate Bonds Initiative, in
2019, about 30% of the funds raised from global green
bonds went to the green building sector, while only
6% of the funds raised in China’s domestic RMB green
bonds went to the green building sector. This indicatesthat green bonds and transition bonds that support
the financing of green buildings (especially low-carbon
public buildings) have very broad room for growth.
But it also puts forward higher requirements for the
harmonisation of standards, the granular of the macrocontrol, and ensure the green performance of design,operation and maintenance stages.

5. Information, Communication
and Technology
Information, communication and technology has
been the top priority of economic developmentof GBA in recent decades, and it is also one of
the most concerned industries under the global
low-carbon transition challenge In the Three-year
Implementation Plan for Promoting New-type
Infrastructure Construction in Guangdong Province(2020--2022), there are 89 5G projects invested
with an investment of approximately RMB97bn(USD14.88bn). At the same time, Guangdong
Province plans to complete the project by 2025 withfull coverage of 5G networks in urban and rural areas,
with a total of 250,000 5G base stations, more than
100 million 5G network users with usage coveragerate of over 80%.62
Unlike the transition of traditional industries, theICT industry is not the main source of emissions
at this stage, nevertheless, its impact will continue
to expand along with the rapid development ofdigital infrastructure. In 2020, the emissions of 5Gbase stations in Guangdong Province ranked first in
the country, reaching 3.22 million tons. The carbon
emissions of data centres in Guangdong provincereached 6.66 million tons.63 It is estimated that by2035, the total electricity consumption of China’s
data centres and 5G will be about 2.5 to 3 times thatof 2020, accounting for 5-7% of the entire electricity
consumption, and adding up to 2-4% of China’s
carbon emissions. With the further development
of data centres and base stations in the upcoming
future, the low-carbon transition of ICT sector will
become yet another focusing point.

Energy transition in the ICT sector
Improve data centre efficiency and reduce PUEPower Usage Effectiveness (PUE) is an index tomeasure the operating efficiency of a data centre.

Building sector transition finance case study
Issuer: New World Development
Debt financing instruments:
sustainability-linked bonds
CBI’s classification of this economic
activity: Pathway to zero
Within the past two years, sustainability-linked
financing has gradually become an emerging
trend in Asia. Many real estate developers andinvestment trusts in Hong Kong have successively
raised funds through related means. In early 2021,
New World Development issued a USD200m tenyear sustainability-linked bond, aiming to support
rental property projects in the GBA on adapting to
100% renewable energy by 2026.67
The Sustainability Performance Targets (SPT)
commonly used by real estate developers
include energy saving, consumption reduction,accrediting green building certification, andinclusion in the sustainable enterprise index.
However, to achieve a low-carbon transition
towards net-zero emissions, the impact andrelevance of some sustainability performancetargets is debatable.
According to the Renewable Energy Blueprint by
the New World Development, the company aims
to comply with the 1.5°C scenario of the Paris
Agreement, and formulates a decarbonisation
strategy in accordance with science-based target
level. Its ambition is to transition the rental
properties in GBA by using 100% renewableenergy by 2026, and transition core real estatebusiness in the Greater China region into 100%
renewable energy usage by 2031, and eventuallyaiming to realise the 2030 commitment to reducecarbon emission intensity by 50%.68
The closer it is to one, the more efficient the data
centre’s utilisation of electrical energy is. First ofall, construction of data centres can be prioritised
in areas with concentrated energy supplies andsuitable climatic conditions. Especially consideringthat wind and solar power will be the main sectors of
power supply in the upcoming future, constructionof infrastructure for digital industry should be given
priority when it comes to the consumption ofrenewable energy in nearby areas. Secondly, theefficiency of the data centres can be improved bymeans of power supply and distribution, and coolingand energy conservation of IT equipment.
Utilisation of renewable energy
Renewable energy can be obtained through selfconstruction and procurement. Enterprises caninvest in the construction of distributed renewableenergy power generation projects , or large-scalecentralised renewable energy projects for the
purpose of providing power to infrastructures for
digital industries. At the same time, they can also

New World Development links the SPT with
its own decarbonisation target, and sets thepercentage of renewable energy of rental
properties in the GBA with a key performanceindicator (KPI). In the fiscal year of 2019/2020,
this ratio was less than 1% and the goal is toincrease this ratio to 100% by 2026, the issuer
needs to be highly ambitious and implement
strong measures in order to achieve this goal.
New World Development plans to implement
its strategies to grow renewable energy, throughthe following three steps: 1)Seeking on-site
renewable energy installations (such as solarPV, solar thermal, wind, etc.) to maximise allits new renewable energy power generation
capabilities in commercial and retail properties,
and retrofitting existing buildings where possible
2) Reach long-term Power Purchase Agreements(PPA) with third-party energy suppliers andpartners in Hong Kong and China; 3) Cooperatewith third-party energy suppliers and partners
in Hong Kong and China, on purchasing
Renewable Energy Certificates (REC) to support
the development of renewable energy.
New World Development also mentioned that inview of the limited capacity of on-site renewableenergy installations in Hong Kong and the GBA asa whole, most of the renewable energy will comefrom PPA and REC, with the focus on ensuringlong-term PPA. At the same time, the issuer
will also require third-party energy suppliers to
track and disclose data to them, based on theirrespective renewable energy regions so as to
avoid double counting.

purchase renewable energy available on the market
with green power certificates. On 7 September
2021, China’s green power trading was launchedsimultaneously on the platforms of two major power
trading centres in Beijing and Guangzhou, involving
more than 20 provinces64, autonomous regions andcities such as Beijing, Guangdong, Jiangsu, Zhejiangand Liaoning, with 1.037 billion kWh of electricity
traded on the same day in the Southern Power Grid
operating region.
At present, many countries have issued setsof relevant policies for green data centres. For
example, the European Union proposes to achieve
climate neutrality in data centres, as well as in
information and communication industries by
2030,65 and Singapore published its Green Data
Centre Technology Roadmap.66 In order to achievecarbon peak and carbon neutrality in the IT industry,a whole set of policy guidelines and roadmaps
will be developed to promote the low-carbon
development of digital infrastructure.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative15

4. Summary and discussion
Addressing climate change is one of the mostpressing global issues of our time. Whilevigorously developing green industries, it is now
of crucial urgency to facilitate the transition ofhigh-carbon industries to low-carbon businessmodels. Transition finance has emerged to fillthis gap. As an important national strategy,
the GBA has a solid foundation and practicalexperience in economic development, industrial
upgrading, and green finance. This provides
strong foundation for the formation of a worldclass green bay area metropolitan cluster.
In order to expedite the implementation oftransition finance in the GBA, we propose theimplementation of the following key measures:

Policy and standard makers:
Demonstrate sufficiently
ambitious, flexible andinclusive transition
guidelines in order toensure a credible transition.
Investors have expressed clearly
their requirements on transition finance, that is,transition activities must demonstrate sufficient‘ambition’ to avoid greenwashing. To be credible,
transition frameworks and standards should
be science-based and supported by specificperformance indicators and tools to track the
progress of transition activities.
In addition, comparing with green finance, theyshould also be applicable for a range of users
including business entities to formulate theirtransition pathways and strategies.
Set ambitious targets for 2030. The windowof opportunity for green transition is narrow,the next decade will be crucial. Although China
has put forward the goal of carbon neutrality by
2060, and the Paris Agreement has set the global
goal of achieving net-zero emissions by 2050, thechanges made in the next decade will determine
whether or not the world can remain within
1.5degrees. It will not be possible to meet global
climate goals if significant emission reductions
are left to after 2035.
Policy support, procurement and incentives- Regulators and policy makers can play aleading role in promoting transition finance.
Through policy guidance, regulation, constraints
and incentives, industries can help to reducebarriers for some activities to transition. In areas
where economic viability is a barrier, large scale
government procurement or incentives for green
technologies (e.g. green cement, low carbon
steel etc.) can help to create economies of scale,bring certainty for forward investment andbring down the cost of green technologies. This
was the experience in the solar industry where

government incentives in Germany and China
helped to create scale in the industry which thendrove down costs.
At the same time, the government can establish
national industry databases, project pipelines
and other tools, so as to enhance the level ofdata disclosure and increase the visibility oftransition projects, and thus attract further
capital investment.
Facilitate collaboration across cities, regions
and stakeholders - the development oftransition finance requires joint efforts bymultiple stakeholders. The unique location of
GBA is an ideal place to implement and roll outtransition guidelines. The bay area hosts ninecities in Guangdong province and two special
administrative regions (Hong Kong and Macau).
Connecting these onshore and offshore capital
markets requires coordination between the threelegal entities. This metropolitan area is facedwith significant challenges, but also has great
opportunities to establish consistent definitions
and standards, thus it has the potential to
become a pioneer in the study of the definitionand standardisation of international transition
finance. As China’s green finance and carbon
market pilot zone, the GBA has accumulated richexperience in implementing green finance, which
will provide a strong foundation and support forthe development of transition finance.
Build the GBA as a transition finance pilot.
As an economically developed region in the
country, the GBA has a relatively mature andadvanced manufacturing industrial cluster,
making it an ideal place to carry out technicalfeasibility studies on the implementation of
low-carbon transition pathways. The GBA would
be able to promote a consensus on the pathways
and concepts for transition, identify high-carbon
emission sectors that should be prioritised fortransition, encourage sector experts to formulate
relevant timelines and pathways, and propel
the involvement of key stakeholders. The area
could also demonstrate examples for China’s
localisation methods and case studies, andprovide a reference for the exploration of thedifference and balance between internationaland domestic low-carbon development paths.

Research institutions:
Granular and scientifictransition pathways areneeded by industries to planand understand how transition
applies to their industry/entity.
The guidance to date is not clear
for many high GHG emitting sectors and does notalways have sufficient granularity for it to be used
to put forward strategies and capex plans that are
in line with the Paris Agreement.

Enterprises and financial
institutions:Enterprises can formulate transition plansaccording to the scientific paths, and financethrough transition finance products. Companies
can use transition standards to formulate anddisclose their low-carbon transition paths. In
addition, they can also jointly promote the green
supply chain.
Transition finance can learn from thecurrent green finance mechanisms andtools, and innovate in the selection of paths andobjectives to ensure credible transition, suchas changing focus from the green benefits ofspecific projects to the path of economic entities’transition. In recent years, China’s green financehas developed rapidly, with many financing
tools such as green credit, green bonds, green
funds, green insurance, green trusts, and green
PPPs. The development of transition financecan learn from these experiences, explore
mechanisms to support transition financing interms of identification standards, disclosure
requirements, and incentive mechanisms,
and support financial institutions in launchingtransition bonds, transition funds, transition
insurance and other financial instrument.69

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative16

Annex I. International transition pathways
research organisations
Name of Institution

Main job content

Industries involved

Assessing Low-Carbon Transition Initiative

Using a future-proof sector-specific approach,assess the readiness of companies for transitionand provide them with trend indicators on theirtransition plans.70

Transition pathways have been developed forthe retail, automotive, construction and realestate sectors; pathways are being studied
and refined for the agri-food, steel, oil and gas,transport and cement sectors; and ACT plans todevelop transition pathways for the aluminium,chemicals, pulp and paper, and glass sectors.

Rocky Mountain Institute and the Mission
Possible Partnership

The plan is to unite seven industry leaders toagree on industry decarbonisation targets anddevelop decarbonisation roadmaps for theseseven industries.71

Seven sectors: aluminium, aviation, cement,chemicals, shipping, steel and trucking

Transition Pathway Initiative

Designed to assess the readiness of transition
to a low carbon economy by businesses thathave a significant impact on climate change.
TPI provides carbon performance benchmarksthat include emission performance pathwaysaligned to three emission reduction scenarios:
1) the Nationally Determined Contributions(NDCs) scenario under the Paris Agreement
commitments; 2) the 2 degree temperaturerise scenario; and 3) the below 2 degree
temperature rise scenario.72

The assessment framework applies to industries
such as electric utilities, oil and gas, aluminium,
cement, mining, paper, steel, airlines,
automotive and shipping.

Science Based Targets Initiative

A science-based framework was designed todevelop and assess net- zero targets for the
corporate sector.

Transition pathways exist for power, financial
institutions, apparel and footwear, OEMs (carmanufacturers) and ICT. Industry approaches
for oil and gas, aluminium, forestry, land andagriculture and chemicals are currently underdevelopment.

SBTi verifies companies’ carbon reduction
strategies to ensure they are in line with thelatest climate science in order to meet the Paris
Agreement targets.73
Energy Transition Commission

Brings together a diverse group of leaders andexperts from the energy sector, including energy
producers, energy users, equipment suppliers,
investors, non-profit organisations and academics
from both developed and developing countries.
The Commission released its flagship report,
Mission Possible: Reaching Net-zero Carbon
Emissions from Harder-to-abate Sectors by
Mid-century in November 2018. The Commission’s
work provides the source material for others todevelop industry decarbonisation trajectories.

Independent reports cover the cement, steel,plastics, shipping, heavy road and aviation
sectors.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative17

Annex II: Organisations that provide transition
services to investors
Name of Organisations

Key tasks related to transition

Global Investor Coalition on
Climate Change

GICC has worked with its regional counterparts (Ceres, IGCC, AIGCC) to develop guidance for brownfield sectors suchas real estate, construction materials, steel, oil & gas, automotive, power companies, mining and others.74 With a focus
on governance and disclosure, the guidelines clarify the level and pace of transition that investors want to understandand showcase current best practices and alternative technologies/approaches as a way to provide insight into future
potential and the pace of change.

Climate Action 100+

The Net-Zero Company Benchmark, launched by Climate Action 100+, using publicly disclosed data, to assess the speed
at which high-emitting companies are transitioning to low-carbon business models and the governance processes they
are adopting to achieve this goal, using 10 key indicators.

World Business Council for
Sustainable Development

WBCSD worked with 30 companies to develop the Circular Transition Indicators (CTI) 2.0 to support companies in using auniversal, consistent tool to measure their circularity.

Investor Agenda

The Investor Climate Action Plans (ICAPs) Anticipation Ladder and Guidance, published by Investor Agenda, provides
clear guidance for investors on the publication and implementation of comprehensive climate action plans, including
steps investors can take to enable institutional investors to accelerate action to address the climate crisis and accelerate
the transition to a net-zero economy.

Institutional Investors
Group on Climate Change

The Net Zero Investment Framework is a blueprint for investors and provides common set of recommended actions, metrics,
methodologies (inc. investment trajectories) which investors can use to maximise their contribution to net zero by 2050.

Net Zero Momentum
Tracker initiative

Co-sponsored by Climate Works Australia and the Monash Institute for Sustainable Development, the report brings
together and assesses climate action commitments made by Australian business, government and other key sectors. In
particular, the report on the resources sector analyses the 22 highest emitting companies in Australia’s resources sector,
assessing whether each company’s climate action commitments are consistent with the global goal of achieving net-zeroemissions by 2050.75 Sector reports released to date cover the real estate, banking, superannuation, local government,
retail, transport and resources sectors.

Paris Agreement Capitaltransition Assessment

A free online tool based on the analysis of the 2°C initiative. The tool covers both equity and bond issuers and is based on an
analysis of companies’ investment and production plans in the area of high-emission activities and low-carbon solutions,both currently and over the next five years. The tool is used to analyse the ‘technology exposure gap’ to show the extent towhich a given portfolio’s investment/production plans are consistent with a given climate scenario. This consistent analysis
in itself meets the investor’s climate change target analysis requirements; it can also be used as a tool for deeper analysis ofinconsistent areas/sectors, or for product design.

Sustainability AccountingStandards Board

The standard’s range of topics covers environment, social capital, human capital, business models and innovation,
leadership and governance, in addition, standards for 77 industries in 11 sectors, including: mining and mineralprocessing, multiple other manufacturing industries, finance, transport, infrastructure and services.76 It has also
published a materiality map to identify the dimensions of sustainability that may affect each of the 11 key sectors. The
mapping lists for each industry issues that may be less important, issues that are critical to 50% of businesses, and issues
that are critical to more than 50% of businesses.

The Corporate Knights
and the Council for Clean
Capitalism

The Clean transition Bond Guide (CTBG), a taxonomy for clean financing in heavy industry, was published in 2018
covering oil and gas, energy utilities, mining, metals and other non-fossil fuel commodities (e.g. cement, chemicals,
steel and metallurgy).77 Carbon-intensive industries are identified as eligible transition categories, and the guidance
distinguishes between eligible transition project categories and eligible clean project categories.
The Clean Transition Bond Guidelines provide specific qualification criteria based on a minimum level of GHG emission
reductions, but it is unclear whether the proposed reductions are consistent with the requirements of the Paris
Agreement targets. In addition, the GHG emissions being accounted for do not include Scope 3 emissions (i.e. emissions
from the use of products), thus omitting the most important component of emissions from this sector.

Organisations assessing or providing information disclosure platforms
Name of Institution

Key tasks related to transition

CDP

They use the material that is disclosed to them to run a well-established rating mechanism (based on TCFD) for companies andcities. It assesses whether plans are ambitious enough.

2 Degrees Investing
Initiative

Measure the alignment of climate portfolios with climate scenarios. Run PACTA tool that measures alignment of financial
portfolios with climate scenarios.

Carbon Tracker

Focus on ensuring companies are using robust and realistic Paris-aligned scenario modelling approaches, demonstrating toinvestors what companies need to do to align with well below 2˚C and what they are currently doing.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative18

Annex III: Overview of transition financedefinitions and key areas
Definition

Key areas

Climate Bonds Initiative

The transition label is used for investments that: are making asubstantial contribution to halving global emissions by 2030 andreaching net zero by 2050, but do not have a long-term role to play; orwill have a long-term role to play, but at present, the pathway to net
zero is not certain.

The initial industries to focus on are cement and basic
chemicals. And steel, aluminium, oil and gas, andaviation are also considered.

Sustainalytics

The decarbonisation of economic activities along with emissionsreduction pathways that are consistent with the economy-level goal of
net-zero carbon by 2050.

Researches on the transition path and potential
investment needs of the natural gas and steel
industries have been released, other industry reports
such as shipping, aviation, cement and aluminium will
be launched soon.

BNP Paribas

Transition finance applies to: 1) a sector that is not currently green;2) it does not turn green immediately; and 3) Industries that can andneed to become greener (or ‘less brown’) faster, at a pace consistent
with recognised sustainability programmes, or at least have a publicly
available roadmap of transition strategies to bring them within an
acceptable timeframe.78

Sectors of interest are: 80

BNP cites the following two factors to demonstrate the impact of theTransition Bond.79

3. Utilities (e.g. electricity, gas, water, cable,
telecommunications)

1. Policy objectives. A demonstrable carbon reduction target will bea key way for companies to demonstrate the attributes of a transitionbond issue to investors during roadshows.

4. Transportation

1. Mining - especially minerals critical to a low- carbon
economy, such as lithium and cobalt
2. Heavy industry (e.g. cement, aluminium, iron, steel,chemicals)

2. Science-based targets (SBTs) and key performance indicators (KPIs).
Through SBTs and KPIs, issuers can demonstrate the achievement ofprecise milestones and targets, thus giving investors a clear picture of
how the company’s ambitions match its ambitions as an investor.
DBS

Companies in polluting sectors (to) adopt incremental solutions tobecome greener. 81
DBS considers an activity ‘transition’, if it can meet the following
conditions: 1) displace more carbon-intensive options, document
and independently verify the extent of greenhouse gas (GHG)
emissions reduction (forecast or realised) compared to industry
norms. or 2) enables the wider application or integration of lesscarbon-intensive options.

The Sustainable and transition Finance Framework
and Taxonomy presents economic activities from 16
industries that are in line with DBS’s sustainable andtransition label.

HSBC

Any form of financial support that helps high-carbon companies start
to implement long-term changes to become greener.82

The focused industries are chemicals, energy systems,
transportation (shipping and aviation), steel, cement,
and construction.

Hong Kong Green Finance
Association

Climate transition finance is about financing technologies andactivities that produce lower carbon outcomes than business-asusual and support transition to a climate resilient economy, but
do not represent the best alternatives in that sector and remain
inadequate in meeting decarbonisation targets.83

The report discussed the transition technology andrelated policies of the steel, cement, and energy
industries in detail.

Three safeguard measures to ensure effective and eventual
contribution to emissions reductions:
1. Outlining a credible plan (by the issuer or borrower) to align with
Paris Agreement goals within a precise timeline
2. Minimising carbon emissions and other negative externalities
during operation of partially satisfactory technologies and activities
3. Setting a deliberate plan to phase out partially satisfactory
technologies and activities to make way for net-zero compatible
technology and activity.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative

19

(Continued)

Bank of China

China Construction Bank

Definition

Key areas

Transition finance which aligns with international guidelines orstandards, namely, in accordance with the respective national andregional pathways of achieving carbon neutrality, ultimately, andtransition finance which covers projects for the reduction of pollution
and emissions from traditional industries through technical retrofitsand equipment upgrades towards low carbon or zero carbon.84

Eligible projects include:

See Bank of China85

Eligible project category:

Production of Electricity from Gas, Cogeneration of
Heat/Cool and Power from Gas, Production of Heat/
Cool from Gas, Manufacture of Cement, Manufactureof Aluminium, Manufacture of Iron and Steel,
Manufacture of Fertilizers and Nitrogen Compounds

Gas power generation, gas cogeneration, gas heatingor cooling, cement production, aluminum production,
steel production, petrochemical production,
fertilizer and nitrogen compound production, paper
production, air transportation

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative20

Annex IV: Selected green finance policies
in the GBA
Policy target region

Regulator

Policy nameDate issued

Description

Guangzhou

PBoC, NDRC, Ministryof Finance, Ministry ofEnvironmental Protection,
the former China Banking
Regulatory Commission,
CSRC, the former China
Insurance Regulatory
Commission

Overall Plan for Building a
Green Finance Reform andInnovation Pilot Zone in
Guangzhou City, Guangdong
Province86

23 June 2017

Clarified the main objectives of the pilot zone,
key reform and innovation tasks, national policy
support, and local government support matters,
and clarified that the pilot zone will be the first to
carry out green finance reform and innovation
pilot projects in Huadu District, Guangzhou

Huadu District

The former Local Taxation
Bureau and National
Taxation Bureau of Huadu
District, Guangzhou City
(State Administration of
Taxation, Guangzhou Huadu
District Taxation Bureau)

Compilation of Tax Preferential
Policies for the Developmentof Green Finance Industry in
Huadu District, Guangzhou City

28 Nov 2017

A total of 106 local tax preferential policies areincluded to help the construction of green financial
reform and innovation pilot zones.

Hong Kong

The Government of
the Hong Kong Special
Administrative Region of thePeople’s Republic of China(the HKSAR Government)

Green Bond Grant Scheme(GBGS87)

15 June 2018

Subsidise eligible green bond issuers in obtaining
certification under the Green Finance Certification
Scheme (GFCS) established by the Hong Kong
Quality Assurance Agency.

Hong Kong

Hong Kong Securities andFutures Commission

Strategic Framework forGreen Finance88

21 Sept 2018

It covers three major areas: enhancing listedcompanies, asset manager and investment
product disclosures and their considerationof ESG factors, especially environmental andclimate risks; facilitating the development ofgreen or ESG-related investment products, andsupporting investor awareness and capacity
building; and promoting Hong Kong as aninternational green finance centre.

Guangdong Province

The former Guangdong
Banking Regulatory Bureau

Implementation Opinions on
Accelerating the Developmentof Green Finance in Guangdong
Banking Industry89

12 Oct 2018

Continue to increase financial support in key areas
such as green manufacturing, energy conservationand environmental protection, pollution
prevention, clean energy, green buildings, green
transportation, green agriculture, resource
recycling, new energy, new materials, innovate
exclusive products for green enterprises andencourage green consumption finance.

Hong Kong

The Government of
the Hong Kong Special
Administrative Region of thePeople’s Republic of China(the HKSAR Government)

Government Green Bond
Programme90

15 Nov 2018

Borrow up to a maximum principal amountoutstanding at any time of HKD100bn (USD12.9bn)
or equivalent under the GGB Programme.

ShenzhenShenzhen Municipal
People’s Government

Guiding Opinions on Building a
Green Financial System91

8 Jan 2019

Support the development of green credit, listing
and refinancing of green enterprises, carry out
pilot projects of green bond business, develop
green asset securitisation, encourage small andmedium- sized enterprises to issue green collective
bonds, explore the establishment of green
industry investment funds, and promote green
insurance market development and equity market
development

GBA

Central Committee of theCommunist Party of China,
State Council

Outline Development Plan for
the Guangdong- Hong KongMacao Greater Bay Area

18 Feb 2019

Put forward the basic principles, strategic
positioning, development goals and spatial layoutof the GBA.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative21

(Continued)
Policy target region

Regulator

Policy nameDate issued

Description

Hong Kong

Hong Kong Monetary
Authority

Strategic framework topromote the development ofgreen finance 92

7 May 2019

Phase I – developing a common framework toassess the ‘Greenness Baseline’ of individual
banks and providing technical support to banks.
Phase II – engaging the industry and other relevant
stakeholders in a consultation on the supervisory
expectations or requirements.
Phase III – implement, monitor and evaluate banks’progress in this regard.

Guangzhou

General Office of Guangzhou
Municipal People’s
Government

Implementation Opinions
on Promoting the Reform,
Innovation and Development ofGreen Finance in Guangzhou93

16 July 2019

Specific plans and measures to promote the reform,
innovation and development of green finance inGuangzhou.

GBA

PBoC, China Banking
and Insurance Regulatory
Commission (CBIRC), CSRC,
and State Administration of
Foreign Exchange (SAFE)

Opinions on Financial Support
for the Guangdong-Hong KongMacao Greater Bay Area 94

14 May 2020

Supplement and expand upon the policies
governing financial services under the GBA Outline
Plan. 26 measures were introduced to further
promote financial opening up and innovation,and deepen financial cooperation between the
Mainland, Hong Kong and Macao.

GBA

Guangdong Financial
Supervisory Authority—in
association with PBoC
Guangzhou Branch, CBIRC
Guangdong Office, CSRC
Guangdong Office, PBoC
Shenzhen Central Subbranch, CBIRC Shenzhen
Office, and CSRC Shenzhen
BranchImplementation Plan for
Providing Effective Financial
Support for the GuangdongHong Kong- Macao Greater
Bay Area

31 July 2020

Contains 80 detailed supplementary measuresthat implement the financial support to the
GBA, and is, therefore, of strategic importance topromoting financial cooperation between the three
regions and the coordinated economic and social
development of the GBA.

Macao

Macao Monetary Authority,
Environmental Protection
Agency and Macao
Association of Banks

Proposal for ‘Jointly Promoting
the Development of Green
Finance in Macao’95

20 Aug 2020

Advocating the integration of green concepts
into the long-term development of society, andenhancing the awareness and participation of all
sectors of green businesses and green finance;encouraging Macao financial institutions to develop
diversified green financial products, standardising
the use by countries in related businesses, andencouraging independent and impartial third-party
certification to enhance product credibility andcompetitiveness in the international market.

ShenzhenStanding Committeeof Shenzhen Municipal
People’s Congress

Shenzhen Special Economic
Zone Green FinanceRegulations96

5 Nov 2020

China’s first law and regulation in the field of green
finance. The regulations will come into effecton 1 March 2021 and will require some financial
institutions to make environmental information
disclosure mandatory from 1 January 2022. The
Regulations provide a guarantee for Shenzhen
to establish a financial ecological environment
and a business environment under the rule oflaw more conducive to the development ofemerging green industries and the greening oftraditional industries. They also provide an early
demonstration for the development of green
finance under the rule of law nationwide.

Hong Kong

The HKSAR Government

Government’s Green Bonds
Programme97

24 Feb 2021

To issue about USD23bn (HKD175.5bn) green
bonds in next five years, gauging the market
situation, aiming to cover a larger variety of
project types and bond features. Working towards
achieving a carbon neutrality target.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative

22

End notes
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2. Note: CBI has developed a Climate Bonds Taxonomy and sector
specific standards, and is currently working on transition standards.
3. IEA, Net Zero by 2050 - A Roadmap for the Global Energy
Sector, May 2021. https://iea.blob.core.windows.net/
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4. Will Mathis, Greening Energy to Fight Climate Threat May Cost
$92 Trillion, 21 July 2021, https://www.bloomberg.com/news/
articles/2021-07-21/greening-energy-to-fight-climate-threat-maycost-92-trillion.
5. China Wealth Management 50 Forum, Xie Zhenhua details thedevelopment of 1+N policy system as a timeline and roadmap toachieve the dual carbon goal, 27 July 2021, http://www.tanjiaoyi.com/
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6. Financial Services Agency; Ministry of Economy, Trade and Industry;
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27. Guangdong Meteorological Bureau, the three meteorologicaldepartments jointly issued the 2019 Guangdong, Hong Kong and
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power from the energy-surplus western region to the densely
populated eastern region.
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the State Council, Economic Information Daily: The Planning of the Greater
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45. The advanced value of cement industry in Guangdong Province,
the advanced value of the national standard of building sanitary
ceramic unit products (GB21252-2013), the advanced value of flatglass standard matching international advanced value, the daily
glass product standard of local standard “daily glass unit energy
consumption limit” (DB1323-2014) matching advanced value.
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59. Include: urban residential buildings, rural residential buildings.
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navigating-climate-transition-finance/.

Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative

23

84. Bank of China Co., Ltd., Bank of China Co., Ltd. Transition BondManagement Statement, March 2021. https://pic.bankofchina.com/
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policy%20release/policies/content/post_258474.html.
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Prepared by Climate Bonds Initiative.
Authors: Laqiqige Zhu, Wenhong Xie, Bridget Boulle
Design: Godfrey Design
The authors thank the generous contribution from Aliya Saiyerjiang andWenling Li for the research of this report.
© Published by Climate Bonds Initiative, October 2021
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
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Transition Finance in China’s Guangdong Hong Kong-Macao Greater Bay Area Climate Bonds Initiative24