Green finance: surge of climate-transition emerges from Asia’s governments to promote decarbonisation projects

Such guidance is necessary to promote lending for climate-transition plans. But the profusion of guidance from multiple governments is also a possible source of conflicting information.

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“As a banker, I can tell you that you cannot develop the market if there is no guidance about what is green,” said Tanguy Claquin, global head of sustainability at Crédit Agricole CIB. “In Asia, we see a flurry of taxonomies being developed there. There is a need for those taxonomies, but there is [also] a need for convergence.”

About 50 countries around the world have unveiled some form of green and sustainable guidance or have it in development, CBI’s Kidney said.

“The challenge for this year is to make sure we have a global approach,” he said, adding that institutions such as the International Finance Corporation will be conducting studies to compare different countries’ taxonomies to provide clarity for financiers and investors. AI is likely to play a role in such work.

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In China, 10 provinces and municipalities have created transition plans, according to Kidney. Hebei province, as well as the cities of Huzhou, Tianjin and Chongqing, have all published guidelines on local transition-financing activities, according to a report by Sustainable Fitch.

Shanghai’s transition-finance taxonomy covers six sectors: water transport, ferrous metal smelting and processing, petroleum refineries, chemical raw material manufacturing, car manufacturing and aviation.

In December, the Monetary Authority of Singapore launched the Singapore-Asia taxonomy for sustainable finance, which sets out thresholds and criteria for defining green and transition activities that contribute to climate change mitigation across eight sectors.

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Investors need clarity to understand the use and impact of their capital, and the frameworks will help immensely to provide this transparency, said Grover Burthey, head of ESG portfolio management at Pimco, one of the world’s largest asset managers overseeing assets worth US$2 trillion.

Global investors like Pimco believe transition finance presents tremendous opportunities in Asia, which will complement and diversify exposures in Europe and the US, he said.

For example, in February, Japan issued the world’s first sovereign transition bonds of 1.6 trillion yen (US$10.6 billion), with the bulk of the proceeds allocated to supporting Japan’s efforts to limit temperature increase to 1.5 degrees Celsius above pre-industrial levels. These efforts include renewable energy and hydrogen utilisation in steelmaking.

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“The market reception to that says something,” Pimco’s Burthey said. “It says that the market is willing to look at what an individual country needs. It’s going to do that diligence and take the time to understand it.”

“Asia is in a very positive situation compared to other regions in the world because there is no fear,” said Credit Agricole’s Claquin. “In Europe, there is fear of doing sustainable finance because of fear of being accused of greenwashing.”