Journey to net zero: How transition finance can power Asia’s green transformation

Transition finance, aimed at supporting hard-to-abate and high-emitting sectors in aligning with the Paris Agreement goals, has yet to gain the same traction as other sustainable finance themes such as green finance. 

The latter is often more straightforward, targeting specific environmental and social objectives such as building certified green developments, financing electric vehicles and constructing affordable housing.

In Asean, transition finance deals are still scarce. Often seen as riskier, they involve financing companies to decarbonise “brown” assets – retiring coal plants early or retrofitting assets to be low-carbon.      

Concerns over stranded assets push investors towards green assets with proven business models and simpler credit assessments. Without strong mandates to transition, many borrowers likewise choose financing with fewer conditions and lower administrative burden.

“Yet transition finance is much needed. When executed credibly, it provides the pathway for high-emitting industries to progress towards a low-carbon economy and mitigate real climate and operational risks,” said Shahril Azuar Jimin, group chief sustainability officer at Maybank.

No universally accepted standard

A further obstacle is the absence of a universal definition of transition finance. Financial institutions, advisers and issuers are confronted with a dizzying array of frameworks, taxonomies and handbooks – each with different approaches, shaped by stakeholder priorities and institutional mandates. 

Some stakeholders align with one guideline, while others blend principles from many. Different approaches may lead to diverging and incongruent approaches when borrowers attempt to pursue transition finance.

Some guidelines prescribe a whole-of-economy approach. Others focus on issuer-level actions and disclosures with limited guidance on asset/activity level requirements. Similarly, some guidelines allow flexibility to align temperature outcomes with a well-below 2 deg C pathway, others require strict alignment with a 1.5 deg C pathway, and some permit even greater flexibility by aligning with nationally determined contributions. 

“The global pursuit for net zero via transition finance needs to take into account national and regional priorities and socio-economic differentiation. Implementation should consider on-ground realities,” Shahril said.

“What matters is the intention and integrity of our choices. Guided by values-based banking – doing the right things, the right way – stakeholders need robust governance to deliver tangible, measurable, time-bound emissions reductions to avoid greenwashing and mitigate future regulatory, reputational, and stranded-asset risks.”

Maybank’s Transition Finance Framework

To help clients navigate this complex journey, Maybank launched its Transition Finance Framework – the first of its kind in Asean by a Malaysian bank – at COP28. It adopts a principled yet pragmatic approach, grounded in global best practices and considers Asean’s reliance on hard-to-abate industries.

“The framework sets parameters high enough to demand meaningful action, far from ‘business as usual’, yet pragmatic enough to provide reasonable assurance that the transition financing we mobilise will not result in moral hazard or emission leakages,” said Shahril.

Maybank and two Singapore-headquartered banks have extended $500 million in transition financing to YTL PowerSeraya Pte. Limited for the development of its 600MW Hydrogen-Ready Combined Cycle Gas Turbine at the Pulau Seraya Power Station in Singapore. This transaction marks the first transition finance deal aligned with the Singapore-Asia Taxonomy for Sustainable Finance as well as the Asia-Pacific Loan Market Association’s Green Loan Principles. The three banks also acted as joint Sustainability Structuring Advisers (SSA).

In Malaysia, Maybank is also acting as sole SSA to Malaysia’s national utility company, Tenaga Nasional Berhad, integrated energy solutions provider Wasco Berhad, and independent power producer, Malakoff Corporation Berhad, in helping them develop their own sustainable and transition finance frameworks that are aligned with the guidance provided in the ICMA’s Climate Transition Finance Handbook and the Asean Taxonomy for Sustainable Finance. 

“With such frameworks in place, our clients can confidently mobilise capital for low-carbon transition investments,” said Valerie Ng, head of sustainable finance, Maybank Investment Banking Group. “Their actions set precedents within their sectors and the region.”

Despite challenges, transition finance is advancing. Singapore, Thailand and Indonesia have developed their own science-based national taxonomies rather than rely on global ones that may not fit local context and economic priorities. Singapore’s taxonomy allows new natural gas plants with hydrogen-blending capability as a transition activity, while Thailand’s excludes new gas-based plants.

In Malaysia, the National Energy Transition Roadmap, Malaysia Hydrogen Economy and Technology Roadmap, and New Industrial Master Plan are designed to incentivise investments into energy transition projects and low-carbon technologies. Public-sector tools – such as credit guarantees, concessional finance and transparent bidding – can accelerate private-sector involvement. Tax exemptions for Sustainable and Responsible Investment fund managers have also been extended to 2027 to encourage investment allocation.

There is also a recognition of the link between climate resilience and nature-positive strategies. The International Sustainability Standards Board is exploring future reporting standards for biodiversity, ecosystems and ecosystem services. “The positive feedback loop between climate and biodiversity cannot be discounted,” Shahril said.

When risk and reward are better balanced, capital markets can unlock new ways to support the transition by creating structures that spread risk and lower barriers to investment. Patient capital and multilateral institutions are financing new low-carbon technologies at scale, including carbon capture, Sustainable Aviation Fuels and hydrogen. 

Blended finance and corporate venturing, increasingly popular in Thailand, together with dedicated climate investment allocations by sovereign wealth funds in Singapore, Malaysia and Indonesia, are adding momentum.

Tougher measures still needed

To unlock capital at scale, Ng advocates mandatory disclosure of science-based, entity-level transition plans, embedded in listing rules for public companies. Such transparency helps banks and investors gauge credibility and reduces greenwashing risks.

“Embedding climate transition strategy and governance with clear implementation plans within business models is the way forward to future-proof businesses,” Ng said. “What gets reported, gets measured and done.”

Shahril adds that mechanisms such as carbon pricing, as implemented in Singapore, can be important tools to make high emitters accountable and to incentivise bolder moves. Without carbon markets, many companies may opt for incremental ESG improvements rather than make transformative bets.

Transition finance also requires bringing diverse minds to the table, guided by values and leadership to do the right thing. “We need people who see beyond the classification of transition finance and recognise that it’s about supporting clients in their race to future-proof,” Ng said. 

Maybank’s sustainability teams include individuals with backgrounds in environmental science, engineering, economics, and investment banking, some of them ICMA-certified. Ng added that the discussions between banks and clients have been far richer, more multidisciplinary and passionate.

Solving climate change issues is rooted in how we deploy capital and talent, align diverse interests, and act with integrity and urgency. Principles and pragmatism can work hand in hand, Shahril said.

For Asean, the transition to net zero must be rooted in climate justice – a transition that uplifts people, protects livelihoods, and ensures no community is left behind. For Maybank, Shahril added that it includes turning climate ambition into inclusive growth, in which every step to net zero advances the people of Asean.

Learn more about Maybank’s Transition Finance Framework and sustainable financing solutions.