Transition Finance

Agree upon a definition of transition finance that is flexible enough to account for local transition needs, while stringent enough to result in additional emission reductions.

• Transition finance is emerging as a value proposition concept for supporting the climate transition, especially in the Global South. Although the concept doesn’t have a universal definition, transition finance is important to fund projects, sectors, and industries which are trying to transition but may either not reach net zero emissions by 2050 or will need significant early-stage support for net zero emissions viability.
• Some taxonomies--ASEAN-2, European taxonomy--take transition finance into consideration, but a global definition or consensus is not yet present. Definitions by GFANZ, ADB, CBI, and others do provide guidance, but it is limited to that. While transition finance is being spoken about, the acceptance and mobilization is limited.
• Products like transition bonds are seeing muted issuances compared to other labeled instruments and also the quantum of finance required. Carbon credits from transition activities (example - Coal-to-Clean Credit Initiative/ CCCI) have been launched and are being pursued. The Monetary Authority of Singapore (MAS) has proposed the creation of a new asset class of carbon credits, known as transition credits, which can be generated when coal-fired power plants are retired early and replaced with cleaner energy sources.
  
• IEA, and BNEF are providing definitions of transition finance for the power sector that are used to track investment flows. The definitions embed both clean energy finance, and fossil fuel low carbon technologies. Country specific pathways are considering important, but not always reflected in methodologies.