The Business Times

Why transition financing of coal plants is important, and how to stop its abuse: Ravi Menon

Janice Lim
Published Wed, Nov 9, 2022 · 01:29 PM

FOR investments into the early retirement of coal plants to be credible, accurate measurements of carbon data, carbon abatement reporting and a clear exit plan are needed, said Ravi Menon on Tuesday (Nov 9).

Reiterating his call for more transition finance to turn brown assets green, the managing director of the Monetary Authority of Singapore said that these safeguards are important to prevent transition finance from being abused.

“The non-profit organsations are going to ask them, ‘Why are you still investing in coal?’ But this is important because I’m investing in coal so that I can exit from coal. Because if I pull out now, somebody else is going to finance it for the next 50 years,” said Menon, who was speaking at a Glasgow Financial Alliance for Net Zero (Gfanz) event on the sidelines of the 27th United Nations (UN) Climate Change Conference.

In a world where investments into coal power plants are now frowned upon, transition finance have drawn some sceptics, who question whether such financing instruments truly move heavy emitters beyond their business as usual, or if it is merely a front to delay the transition.

However, Menon noted that the early phase-out of coal power plants is one of the top two decarbonisation strategies that would move the needle in Asia, which is responsible for 50 per cent of global carbon emissions. The other would be ceasing deforestation, as well as reforestation.

Transition finance for coal power plants is about accelerating its shut-down, as opposed to the easier way of getting rid of them from one’s portfolio by divesting, said Gfanz co-chair Mark Carney, who was also a speaker at the event.

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“The question that has to be asked is how quickly are you shutting it down? What are you doing to shut it down? And if the entity itself doesn’t have a solution, doesn’t have the management, doesn’t have the capex plan, isn’t going to have a just transition – then you can walk away,” said Carney, also a United Nations Special Envoy for Climate Action.

Carney did not address recent developments over Gfanz ditching the requirement for its members to sign up for the UN’s Race to Zero campaign. He also declined interviews with reporters when approached after the event.

The corporate climate alliance founded by Carney recently released its recommended framework on net-zero transition planning and a guidance on measuring portfolio adjustment for financial institutions.

Financial institutions have no choice but to engage in transition finance, and also to engage their clients on their transition plans, said Menon, who also chairs the advisory board of the Gfanz Asia-Pacific network.

“Every major global financial institution has a credible, effective transition plan … And they, in turn, will then tell their major clients, ‘What is your transition plan? Because in order for me to reach net-zero, I need to know your transition plan’,” he said.

“You’ve got to hold each other accountable.”

Carney also noted that financing for clean energy is finally equal to fossil fuels, but the amount for clean energy needs to be four times of that for fossil fuels by the end of this decade.

While there is more than enough capital to go around, it is not being directed to emerging economic, which is where it is needed most.

Menon said that political and regulatory risks, as well as foreign exchange risk that reduce returns beyond what is bankable for financial institutions are the main hurdles.



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