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Transition finance to support decarbonisation
Climate change is one of the key environmental risks facing the world. It is caused by an accumulation of greenhouse gases (GHG) in the atmosphere due to an increased use of fossil fuels. The international community has widely recognised that limiting the rise of global temperatures to no more than 1.5? would help us avoid the worst climate impacts and maintain a liveable environment1. In the ASEAN region, governments have made commitments to achieve net zero emissions by around mid century.
To spur action from the private sector, transition finance is devised to support companies in the carbon intensive, high emitting and “hard to abate” sectors in their decarbonisation efforts. As a new sustainable finance instrument, transition finance targets a variety of qualifying business activities, while addressing the risk of “carbon lock in” by requiring borrowers to have a climate transition plan when seeking transition finance. A credible climate transition plan sets out a company’s short --, mid and long term business and investment plans to achieve net zero emission, following a country approved, science based or Paris aligned pathway.
Beyond decarbonising a company’s own operations and business offerings, business owners need to consider their wider impact in the value chain and economy. Large corporates should take the lead to support the energy transition of the small and medium enterprises (SMEs) in their value chain. When they phase out carbon intensive businesses, their workforce currently employed in the high emission businesses should also be re trained for the low carbon economy.
All stakeholders including government, companies, consumers and financial institutions need to collaborate closely to achieve the goals of energy transition, while addressing the social economic considerations in order to achieve a just and orderly transition.
To address our climate challenge, UOB has developed a Transition Finance Framework to assist carbon intensive, high emitting and “hard to abate” companies in their energy transition journey. To complement the Transition Finance Framework, UOB has also rolled out a suite of financing solutions that are curated to support “Operational Efficiency”, “Adoption or Supply of Low Carbon Fuels”, “Carbon Capture, Utilisation and Storage” or “Carbon Credits” initiatives along the energy transition journey.
1. United Nations Intergovernmental Panel on Climate Change
