The Taiwan Banker

Transition finance has become an indispensable tool to move the high-carbon emission industry toward net zero emissions. However, a lack of international consensus on the definition and standards of transition finance, as well as geopolitics, cast uncertainty over its development. Finance is a critical element in the transition of high-carbon companies. However, with Trump once again announcing his withdrawal from the Paris Climate Agreement, global net-zero carbon emissions targets face uncertainty, which may slow down international green energy investment. Chen Yen-Liang, Vice Chairperson of the Financial Supervisory Commission (FSC), stated at the 2025 ESG Finance Leaders Roundtable Forum that its action plan will not only continue promoting green finance, but also extend the focus to transition finance, aiming to gradually establish a resilient and inclusive financial ecosystem while also ensuring that businesses receive the resources they need. While the expansion of green finance into transition finance has become an international trend, there is still no international consensus on its definition or credit approval standards. According to the 2024 Environmental Finance Bond Market Report, common instruments include green bonds, social bonds, sustainability bonds, ESG bonds, transition bonds, sustainability-linked bonds, and blue bonds. Stoney Hsia, Managing Director of the Corporate Coverage Group and Head of Sustainable Investment Banking at BNP Paribas, said that green bonds have stringent investment requirements. Funds are limited to specific environmental projects or activities, and the projects or activities must be certified and meet “green” qualifications. Issuers should disclose how the funds are used for the projects or activities. Sustainable bonds are composite bonds that support projects and activities that meet the requirements of both green and social bonds. Sustainability-linked bonds are KPI-linked or SDG-linked bonds with specific goals. The funds are not limited to a certain project and can be used as general corporate funds, but they must meet the pre-set KPI or sustainable performance indicators to prevent greenwashing. Transition bonds can be applied to high-carbon emission industries to meet their low-carbon transformation needs. While transition finance holds global promise, market adoption has been hindered by an absence of standardized definitions, as well as persistent greenwashing concerns. Carmen Tsang, Head of Greater China Sustainable Investment Banking for Crédit Agricole CIB, suggested that the product objectives and standards (such as the official classification of the issuing country) should be clearly defined when designing transition finance products. Despite the recent anti-ESG movement in some places, the ESG bond market has been growing steadily, with issuance reaching approximately US $980 billion to US$1.1 trillion in 2024, which is largely made up of green bonds. In contrast, transition bonds make up only 2% of the current issuance of new ESG bonds, which is mainly due to their inconsistent standards. Due to the efforts of various regulators and the market, however, this has changed over the past two years. Moreover, according to statistics from the International Capital Market Association (ICMA), 114 institutions from hard-to-abate sectors such as fossil fuels, chemicals, metals, aviation, cement, steel and shipping have issued US $71 billion in green and sustainable bonds. The fossil fuel industry accounts for 44% of this amount, showing increasing demand for transition finance in high-carbon industries. Anirban Chatterjee, head of sustainable development sales growth and innovation at Bureau Veritas, an international verification agency, said according to the 2024 Environmental Finance Bond Market Report, issuance of sustainable bonds exceeded US$1 trillion in 2024, of which green bonds accounted for 60%. Led by the Japanese government, transition bonds hit a record high of US$20.57 billion in 2024, accounting for about 2%. Simultaneously, as the market's demand for transparency and credibility increases, Bureau Veritas can provide third-party verification and evaluation services to help issuers ensure that their sustainability-linked bonds meet international standards, enhancing investor confidence. Taiwan has completed 69 sustainable bond transactions over the past three years, raising more than NT$8 billion for issuers including Taiwan Cement Holdings, TSMC, Taipower, and Taipei Fubon Commercial Bank. Despite the uncertainty brought by the US withdrawal from the Paris Climate Agreement, the development of global transition finance remains strong. In particular, the European Union, Asian countries like Japan, Singapore, Hong Kong, and Australia, and Taiwan are actively formulating and promoting sustainable finance policies and guidelines to build sound transition finance ecosystems. Interest in transformation finance is growing across the Asia Pacific, supported by increasing regulatory engagement which is driving investment in sustainable finance solutions. Key innovations such as sustainability-linked loans (SLL), purpose-driven fundraising, and corporate transformation assessments are helping accelerate this shift. For example, Crédit Agricole CIB partnered with Taiwan Cement, using an SLL structure to support its low-carbon transition. Innovative financial instruments can empower traditional manufacturers to accelerate their decarbonization. While domestic listed companies can pursue low-carbon transformation with relative ease, over 90% of Taiwan's SMEs struggle with challenges such as funding, technological gaps, and workforce shortages. Cathay United Bank’s Chief Risk Officer and Senior Vice President Sean Chang said that its net zero financial products create a one-stop transformation finance platform. Cathay targets large operators and their supply chains, implementing a ‘big leading small’ approach centered on sustainable processes and circular economy. The bank has expanded SME access to sustainable finance through accounts receivable financing. “The banking industry can work directly with listed companies and indirectly facilitate cooperation with their upstream and downstream SME partners,” Chang said. Hsia noted that the primary challenge for SMEs undergoing low-carbon transformation is to balance sustainability with growth. Given that SMEs often lack funding, sustainability expertise, and talent, the most effective approach to drive change is through supply chain incentives: ‘no ESG, no orders, and no revenue.’ This creates a strong business case for transformation." Transformation takes time. Hsia suggested that banks proactively create transformation plans for their corporate clients through sustainability-linked financing, such as trade financing and machinery and equipment lending, and then set reasonable and executable KPIs for clients, giving them 2 to 3 years to implement transformation. In addition, they can cooperate with the SME Credit Guarantee Fund to launch sustainable carbon reduction solutions and encourage SMEs to participate in transformation. Wei-Wei Tseng, co-chair of the Low Carbon Initiative of the European Chamber of Commerce in Taiwan, said that as a practitioner in the renewable energy industry, she understands that financial institutions play a vital role in financing clean energy and decarbonization. Effective communication and cooperation with their corporate clients will enable them to jointly promote a new era of transformational finance, injecting new impetus into Taiwan’s sustainable development.