More roadmaps, stakeholder support needed for Asia’s transition finance: study
MORE guidelines, financing and support are needed from governments and other stakeholders when it comes to transition finance in Asia, a new study has found.
The Asia Transition Finance Study Group (ATFSG) conducted the study, which highlighted challenges that financial institutions (FIs) face in assessing the suitability of corporate plans and projects for transition finance.
ATFSG is a consortium of global and Asian banks. Development banks, export credit agencies (ECA), public agencies and finance associations also participated in the study.
In its Sep 26 report, ATFSG said financing or stakeholder support for transition finance is crucial when creating reference materials for subsequent projects.
Examples include subsidising the cost of getting assessed by second-party opinion providers to incentivise corporations to create decarbonisation strategies or government-led proof-of-concept projects. Other incentives include warranty periods and derisking for FIs, as well as carbon credits for corporations.
Public financing can also be considered, such as concessional finance, equity injection, ECA finance, financial incentives and broader risk-sharing (blended finance), ATFSG said.
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As there are divergent views among stakeholders on carbon credits, governmental organisations should create practical guidelines on the use of carbon credits in assessing transition finance suitability.
Moreover, government agencies in charge of energy (or others) should create sector and country-level decarbonisation pathways and technology roadmaps which are globally recognised, granular and feasible.
This is because FIs require tools to assess whether corporate strategies and project plans are credible and compliant with the Paris Agreement.
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To develop rightly balanced policies on transition finance, government agencies need to look at the reliability of energy supplies, their affordability and their ability to maintain social stability. This is especially important in Asian countries which are still highly dependent on fossil fuels to meet fast-growing energy demand, ATFSG noted.
The current guidelines for raising transitional funds are also challenging for small and medium-sized enterprises (SMEs), ATFSG said.
“SMEs seldom have the resources to create the necessary decarbonisation strategy or comply with other disclosure requirements, making it hard for FIs to assess their progress toward climate (carbon) neutral/net zero,” according to the report.
Therefore, more tailored approaches are needed to aid SMEs in decarbonisation. This can mean the development of new frameworks by credible international organisations and government support through the creation of decarbonisation roadmaps or guidelines.
Core members of the study group include MUFG Bank, which led the publication of the report, Japan’s Mizuho Financial Group, Sumitomo Mitsui Banking Corporation, Sumitomo Mitsui Trust Bank; Indonesia’s Bank Mandiri and Bank Danamon; the Philippine’s BDO Unibank and Security Bank; Thailand’s Bank of Ayudhya (Krungsri) and Kasikornbank; Vietnam’s VietinBank, Malaysia’s Maybank, and Singapore’s UOB.
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